June 22, 2012
The decline in the average and median age of commercial jets that are being retired is having an impact on aircraft valuations and financing, as well as spare parts suppliers, aviation industry observers and participants say.
“I would expect to see useful economic life and residual values reduced on certain aircraft types, primarily Boeing and Airbus narrowbodies,” says Owen Geach, commercial director for the International Bureau of Aviation, a global, U.K.-based aviation consultancy and aircraft appraisal company.
It probably will take another year, however, before the main appraisers have a more conclusive idea on where those values will end up, he adds.
That also affects who is willing to finance the acquisition of the younger used jets.
Export credit agencies have an incentive to help with financing if it helps sales of new aircraft made by a home country manufacturer, but no such motivation exists for used aircraft. Sellers of used aircraft may need to step up their efforts even more to find airlines that are cash-rich enough to buy them because fewer banks and leasing companies will be willing to finance or acquire them, Geach says.
Lessors also could be impacted. Geach says lease rates for Airbus A319s have fallen to less than $150,000 per month for some of the older aircraft, with pre-2005 aircraft under the most pricing pressure. Lease rates for A340-300s, he says, have dropped as low as $160,000 per month.
“The great evolution is getting the ownership of aging used jets to somebody else’s balance sheet,” says Fairfax, Va.-based Teal Group aviation analyst Richard Aboulafia, citing a conflict between “uninspiring” airline traffic numbers and high production rates for new aircraft by manufacturers such as Airbus and Boeing.
Conversely, Aboulafia notes, there is a school of thought that warns a reversal of the trend could cause problems for Airbus and Boeing.