AIRCRAFT FINANCE SPECIAL REPORT: No recovery expected in second-hand narrowbody market

Source: Flightglobal.com
This story is sourced from Flightglobal.com

Appraisers do not expect to see any relief in the second-hand market for narrowbodies this year as ongoing troubles in the financial markets continue to limit the amount of lending available from European banks.

“The challenging financing environment for new aircraft, and even more challenging environment for used aircraft, is not likely to support a recovery in the second-hand market in 2012,” says ICF SH&E's vice president Ken de Jaeger.

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Collateral Verifications' vice president commercial aviation services Gueric Dechavanne believes as long as the cost to finance used aircraft remains high, “values will be negatively affected”. He believes an increase in production rates by the manufacturers will “not help” matters.

Ascend’s director of valuations Les Weal expects the number of narrowbody aircraft trading in 2012 to improve. However, he does not envision an uptick in values.

Fintech Aviation Services' managing director Oliver Stuart-Menteh says: “Values for modern narrowbody aircraft are typically going to remain at or just below base values. I do not anticipate any particular model to excel; however, the propensity for airlines to upsize means the 737-800 and A320 will continue to be favoured over their smaller brethren.”

The second-hand narrowbody market will remain “as active as last year with hopefully some upturn by year end,” says IBA Group's head of valuations and modelling Stuart Hatcher.

“Third-tier operators and new entrants on the market are buying up some of the better second-hand deals because pricing has reached the ‘well why wouldn’t you’ stage. With part-out companies turning to buying up more sub-10 year-old aircraft that are now perceived as ancient, there are a number of older A320s and later build Classics avoiding the scrap yard while the green time is burnt off. The engine condition will be key, though, as with many CFM engines require increasingly more expensive shop visits to replace high pressure turbine blades. The adjusted values will grab the attention of the breakers.”

Stuart-Menteh expects widebody residuals to soften by as much as 5-8% during the course of the year as demand begins to falter and availability rises. “In light of maturing routes, continuing downward pressure on yields and increased competition, values for widebody aircraft are likely to be far more discriminatory. The 777-300ER will continue to act as a cost effective 747 replacement whilst the A330-300 will continue to permit operators to explore new routes relatively efficiently.”

The market still remains down for those with too many engines, says Hatcher. “Values for the 747 and A340 models are still not doing well despite the fact that they have excellent operational capabilities. The market for the fuel-efficient long-range twins still remains dominant, and if the aircraft has the possibility of life as a freighter, then the better.”