April 2020 Insight - Plunging Aircraft Values

The global coronavirus crisis has decimated traffic and impacted airline traffic worldwide. Aircraft have been grounded worldwide, but some aircraft types will be more negatively impacted than others. Several older and less efficient aircraft will find values essentially at scrap rates, with the value of hours remaining on engines being the primary determinants of value. Newer types that are still in production will likely see value drops from 20-35% in the near term, and potentially over the intermediate-term depending on how long it takes the industry to recover.Our projections of four years for traffic to recover, while optimistic, may present a best-case scenario for the industry and result in lower values, lower lease rates, and turmoil in the aircraft market.By examining the efficiency, capacity, range, and cost of several aircraft types, we can determine the relative impact of the crisis on value. We have categorized aircraft into three categories - green, yellow, and red. The aircraft in our green category are currently in production, have the most efficient designs in their class, and flexible characteristics including range. The aircraft in our yellow category may be in production, or recently produced, but will lose more value than the aircraft in the green category. The aircraft in red are older models that will likely end up grounded and potentially not return to service. The value loss for these aircraft will be substantial.In the narrow-body fleet, we project that older models like the MD-80 and MD-90 series will lose between 40-60% of their already low values - basically the value left in engines. We see similar drops for the older A318s and 737-600s. Older models like the 717, A319, and 737-700 should also have substantial, but smaller, declines in value. Modern models, like A220, A320neo, A321neo, and 737MAX will have lower value drops, albeit the MAX, being out of production and a special circumstance for demand, may not perform as well as its contemporaries.In the wide-body fleet, aircraft currently in production or approaching production are sound economically and are all essentially modern aircraft. But the substantial drop in international travel will impact even these excellent wide-body models to a higher degree than their narrow-body counterparts. Older wide-body types, including 747s, A340s, and virtually all non-Emirates A380s will be making one-way trips into storage, never to return to service.Our projected drops in aircraft value by type are shown in the table below. Of course, value for any particular aircraft will depend on its condition and position in the maintenance cycle. For many older aircraft, the value will be primarily in the condition of its engines and how much life remains on each. For these older models, however, each grounding represents a reduction in demand and an increase in supply for engines. with ever-downward spiraling values. The MD-80 and MD-90 series of aircraft will likely not return to service. With a prolonged drop in values, lease rates will be impacted, and lessors may need to make concessions with airlines as they make decisions on the aircraft they will keep in their fleet or potentially return for re-possession. With little chance of re-leasing, airlines will be in the driver’s seat in rate re-negotiations with lessors, as no lessor will want to retire an asset that might otherwise provide income, even if at a lower level.We expect a prolonged delay in traffic returning to 2019 levels - at least 3-4 years overall and possibly longer in some market. That will create dislocations in the demand for aircraft and will impact which aircraft thrive and their values long beyond the end of the crisis.

US Flight Planner - US DoT On-Time Data	Airbus vs Boeing - Official OEM Data
US Airline Schedule Performance - US DoT Data	Daily OEM Production & Deliveries -

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