HOTR: Somewhat stabilizing twin-aisle lease rates

By the Leeham News Staff

Sept. 22, 2020, © Leeham News: Ishka, the UK-based appraisal and consultancy firm, Thursday published its update of values and rents for 5-year old, twin-aisle aircraft. After a significant reduction since the beginning of the year, lease rates seem to be stabilizing.

Twin-aisle Current Market Values and Lease Rates

Ishka estimates that the current market value of 5-year old aircraft dipped slightly in August compared with July.

The above charts indicate three price groups in the Market Value and Leasing markets:

  • A350-900 and 787-9, $100m CMV and $650k MLR;
  • 787-8 and 777-300ER, $70-75m CMV and $550k MLR;
  • A330-200 and A330-300, below $45-55m CMV and below $300k MLR .

One should though note that there aren’t many ongoing transactions in the market.

More production rate cuts?

OEMs already announced significant production rate cuts in the aftermath of the COVID-19 pandemic. The A320 production line currently runs at 40 per month, while Boeing is allegedly producing 737s at a rate of seven per month. The 787 is down to six per month, the A350 five, and the A330 and 777 are at two each.

In a research report covering Spirit Aerosystems, Cowen Inc. outlines the risk of further 787 and 737 MAX rate cuts in future years. For the 737 MAX, it would mean a longer period at a very low production rate to prioritize the delivery of already-built airframes. With lingering long-haul travel restrictions, airlines will not want to take delivery of newer long-haul aircraft such as the 787. The exception would be for cases where they already made sizable pre-delivery payments.

With lower production rates for longer, suppliers such as Spirit Aerosystems will take commensurably more time to generate positive cash flows.

737 MAX Safety

LNA’s paywall analysis about why the Boeing 737 MAX will be safe when recertified is now open to all readers.

 

27 Comments on “HOTR: Somewhat stabilizing twin-aisle lease rates

  1. Bad indicator from the UK. Following a bit of a chat from government scientists toilet paper is once again hard to source.

    • The differences within Europe are interesting, aren’t they?

      In the Netherlands, the government is doing nothing (of any substance) extra, despite record numbers of new positive tests per day. The reason: hospitalizations, IC-admissions and deaths are (remaining) relatively insignificant compared to the figures in March/April. Without having formally announced it, it would seem that the government has decided to emulate the approach in Sweden. Walking around Amsterdam last weekend in the sunny weather, the outdoor cafés were full, and you’d never know there was a pandemic.

      There are lots of people here willing to get on a plane: it’s just that they currently can’t fly anywhere without quarantining at the destination.

      • Sweden is in many places sparsly populated and many families have country houses they visit slowing the spread of Covid-19. The procedures for elderly homes has been revised in addition the hospital procedures seems to have been massivly improved. It seems Sweden and UK initially thought it was spread in air and instoppable before they understood it spread thru infected droplets and changed procedures, but that happened only after +3000 deaths in Sweden.
        So copy Sweden in densly populated areas can be very dangerous as the infection can hit badly and deadly for many elderly (but it helps the defined benefit pension system in many EU countries…)

  2. August values were shown by LNA one month ago already, so this is nothing new. Though first time 787-9 and A330-200 are shown. Makes me wonder why September values are hidden, because of 787 QC issues? 🙂
    A350-900 is cheap compared to 787-9 because A350-900 cabin is 8% bigger. A350-900 is much closer in size to 787-10 than to 787-9.
    It shows how much more 777-300ER is losing value, maybe because of the mistake.
    Mistakes:
    A350-900: Values for January were first $117.4m, then changed to $114m and now back to $117.4m. Before values for July were $104m, now $107m for July. So before in July the A350-900 was less worth than 787-9 LOL
    A330-300: Before values for July were $54m, now $57m for July.
    787-8: Values for January were first $95m, then changed to $92m and now back to $95m. Before values for July were $76m, now $78m for July.
    777-300ER: Now values are lowered for July. Before values for January were $95m, now $105m for January. $10m difference is much, this should not happen and be possible, seems values are cooked from time to time 🙂 Reminds me of Bernstein talking in favour about Boeing stocks before they sold all.

    • 1st Service for the A339 is listed for 26 November 2018. That model is too young to determine used values. I’m not aware of any arms length secondary sales.

      It is currently difficult to determine value on the A359 and 789. For a market of only 47 aircraft, the A339 values will be a guess, in my opinion.

      • Probably using the same ‘curve’ that applies to the A330 planes in service in large numbers…the A339 is only an engine change which allows more range or higher payloads etc, but something that would have a higher capital cost.
        You see this all the time with car brands , estimated depreciation after 3 or 5 yrs… they are based on same brand , similar models as the new car has only been on market for 3 months !
        Its far better to understand what these sorts of specialist numbers mean and the limited market they are aimed at. Theres similar values and such for the private business jet market .
        The real story is the financial engineering of ownership is as important these days as the technical details of payloads and takeoff distances and passenger seat km etc.

    • Pointless noise …as this virus needs multiple tests over 14 days ( and sometimes longer)
      We had a person in my country who traveled from high risk country with a negative test, plus negative tests at D3 and D14 in quarantine but was checked for different reasons around D20 and was positive. And it could have been exponential growth from then on unless detected.
      Pre flight screening only reduces the numbers picked up by D3 tests in quarantine.

        • I think Sweden is an example of the extent and complexity of social contributions, on how the virus propagates through societies.

          You can have a voluntary program like Sweden that is embraced by the public and well-implemented, even though it’s purpose is only to moderate the virus, not eliminate it, and that can have good results.

          Then you can have mandatory programs like in the US, that are not liked or accepted by the public, so not well implemented and end up having similar or worse results to the voluntary program.

          Then you can have mandatory programs like New Zealand that are embraced by the public, well implemented and successful, even though their goal is to eliminate the virus.

          So obviously a lot of variation and many factors involved, but one that seems universal is public acceptance of the strategy, whatever it is. That may outweigh the attributes of the strategy itself.

      • I don’t know of any country that’s using a domestic testing strategy employing “multiple tests over 14 days”.
        So, from that point of view, the IATA proposal is of no lower quality than what nations themselves are doing.

  3. From a lessor’s perspective, some of the key cash flows that affect a lease transaction include the purchase price, rent (lease rate), maintenance reserves, and residual value and transaction costs. All of these factors will impact the lessor’s return calculations.

    Would anyone have a spreadsheet that details these factors in an example of a lease transaction say for a Boeing 787-8?

    This info is needed for a school project and I would be very appreciative for the help and information you can provide me.

    Thanks

  4. Wow, the A330 is so much cheaper, can this be true?

    Compare A333 and B789, the A333 is half price, in a lease or to buy.

    I don’t belive these numbers, as rumors said a B789 can be bought from 115-125 mio. $ – will it really only have lost 15-25 mio. in the first 5 years of it’s service?
    Written off is usually 20 years, so a depreciated B789 should value around 90 mio. if it’s a linear fix rate write of or even less if it’s written with a percentage of 15% it’s way less.

    • A333 would make sense with low fuel prices but who would sell an A333 for $55m. Airlines would sell older planes.
      I also wonder why A330ceo is still built and airlines don’t change to A330neo even with a higher price.

      • If you have 8 A330CEO’s and add a ninth, better make it the same machine, avoiding of off-standard costs and complications in operations and maintenance.

        • And A330ceo has GE, PW and RR engines.
          I think 5 year olds could only be bought from bankrupt airlines. 10 year olds might have a bigger market.
          Maybe Delta would buy used A330ceo, they have 31 A333.

  5. Boeing is developing updated software for 787s to correct an erroneous localiser mode behaviour during ILS approaches.
    Several incidents have occurred. Air Canada, Virgin Atlantic, Ethiopian Airlines, and Etihad Airways have all experienced 787 misbehaviour during ILS approaches. “Airplanes continued through the localiser at a heading not aligned with the runway centreline,”
    The flight-director system provided guidance to descend on the glideslope, which meant the aircraft continue to deviate from the centreline and descend on the wrong heading.
    Flightglobal

    • Is this to address the multiple ILS failures that were publicized in March/April this year, or are there new problems?
      I can’t access the FG article.

      • Same issue, there can be ILS false capture when the intercept angle is significant, as well as in the presence of reflections or interference. In that case the navigation displays remain correct, but the flight director guidance is incorrect.

        The incidents have occurred at Hong Kong, but after Boeing identified the cause, it could in theory happen at any airport. So the notice issued previously for Hong Kong has been extended to all airlines.

        Pilots are asked to confirm flight director guidance on their navigation displays for ILS capture events, in order to detect false capture, until the software fix is rolled out. That has been the recommended procedure but is being reinforced in view of this problem.

        • Would an independant software audit have dicovered it. I’m sure it would have, otherwise why are independant audits mandatory.
          But FAA is still in the woods searching truffle instead of asking for audits for everything software.

          • If it’s an operational issue (as it appears to be), an audit would not have found it. This may be similar to the Starliner communication issue. The signal lock parameters were set too broadly, so the lock occurred too early. They implemented a bandpass filter in software to fix it.

  6. The lease rates are leveling for few months now.
    I wonder how much the value decrease even when not flying. Less flight hours must be accounted for somehow.
    Every new month we are leaving the example (5 years old) form the former month because the former month example is now 5 years and 1 month old. So with less flight hours even in Covid times the values should increase by time.
    Wouldn’t it be much better to have a chart with “flight hours” instead of “age”. The life is limited by flight hours or cylcles too, not by age.

  7. Delta will be dumping more aircraft 717, MD-8, MD-90 and CRJ-200 all gone by mid decade, probably earlier I’ve lost count but I think that may make the A-220 the last remaining “small” Aircraft at Delta. Means they will have the newest and most comfortable narrow body fleet in the US.

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