How low can they go? Aircraft values continue to drop – but who sells in this market?

Citation

(2009), "How low can they go? Aircraft values continue to drop – but who sells in this market?", Aircraft Engineering and Aerospace Technology, Vol. 81 No. 4. https://doi.org/10.1108/aeat.2009.12781dac.001

How low can they go? Aircraft values continue to drop – but who sells in this market?

Article Type: Conference report From: Aircraft Engineering and Aerospace Technology: An International Journal, Volume 81, Issue 4

Phil Seymour, Managing Director of Independent Aviation Consultancy International Bar Association (IBA), reported on a cautious mood at the recent 26th ISTAT Annual Conference in Scottsdale, Arizona. A key finding from the event is that the market prices of almost all the aircraft assessed have reached, or dropped below, their base values – causing concern in many sectors of the industry.

Phil took part in the Appraisers’ Panel on the first day of the event, which valued 11 different aircraft types. The panel gave their expert opinions on base and market values for each aircraft, as well as lease rates in most cases. Of the 11 aircraft valued, only the Boeing 767-300ER, 1992 vintage, bucked this trend with Seymour attributing a market value of $23.1 million, a $2 million premium over the aircraft’s base value. All four appraisers on the panel agreed that the market values for all of the other ten aircraft were either at, or below, the base value. The aircraft valued were the Airbus A320-200, A321-200, A330-200 and A380-800, as well as the MD-83 and the Boeing 737-800, 737-900ER, 767-300ER, 747-400, 757-200 and 787-8.

Phil Seymour comments “This is the first time that we have seen aircraft values so low for many years and it is understandable that this trend is worrying the industry. Lessors, in particular, are concerned that appraisers may be thinking of decreasing the base values of some aircraft because the market values have come down so much, but I think this is unlikely. In fact, I believe that the current uncertainty in the industry will mean that in – production aircraft will continue to be used for longer periods, in some cases seeing aircraft lifetimes extended by three or four years – which will actually increase the future base values of these models”.

Phil continues “A major factor is that there are simply fewer transactions – those businesses which are used to the cyclical nature of the aviation sector know that most sales in today’s market have an element of distress about them. The wise guys know its time to hold current generation aircraft but owners of older types may decide its time to cut and run”.

Despite 2008 being a difficult time for many in the aviation industry, this year’s ISTAT Annual Conference saw nearly 1,000 attendees in Arizona for the three day event. This figure is a small increase over the 2008 numbers which shows that after a year of radical change in the sector, all parties were keen to hear what “the great and the good” from the industry predicted for the year ahead.

Phil reported that there was little good news to be heard at the conference. Instead the general consensus was that now is a time for “getting your house in order and keeping hold of what you’ve got, rather than chasing new opportunities”. Certainly this was the mood among the manufacturers, lessors and airlines. Phil adds “For the financiers it’s a slightly different situation. On the one hand, there is the concern of potential lack of liquidity, whilst on the other they are looking at more favourable returns on the investments they do move forward with. Conversely, some suppliers to the industry, such as consultancy companies like IBA, are doing well at the moment gaining a lot of new business in areas such as contingency planning, repossession planning, surveillance and monitoring of airlines, and liquidation of surplus airlines’ stock”.

Phil continues “I also noted a worrying, although probably quite honest and realistic, underlying message of ‘protectionism’ and ‘looking after our own’ from some parties. Whilst I can understand this concept and the thinking behind it, I hope we haven’t quite reached this stage yet. Overall, the event gave a well rounded view of an industry working hard to adjust to the constantly changing marketplace, but also made it very clear that we’re not past the difficult times yet”.