The Boeing 777-300ER, which has just passed 10 years of service, is the most successful model in the 777 product range.
The 777 family sits between 301 and 380 passengers and comprises six models: the standard 777-200, the extra range 777-200ER, the larger 777-300, two new longer-range models, the 777-300ER and 777-200LR and the 777 freighter.
Boeing launched its next-generation 777 twinjet, initially called 777-200X/300X in February 2000 to complete the 777 family and compete with Airbus' A340-500/600 high gross weight models.
The 777-300ER, was launched with an order for 10 firm aircraft from Air France. The French carrier took delivery of the first unit, which was leased from ILFC, in April 2004.
The aircraft features 6.5-foot raked and extended wingtips to reduce take off field length, increase climb performance and reduce fuel burn. Because of its longer length, the aircraft uses a new semi-levered gear, which allows it to take off from fields with limited runway length.
The General Electric's GE90-115 is the type’s exclusive powerplant certified at 115,300lb. The maximum range with 365 passengers is 7,930 nautical miles, and it is made possible due to a higher maximum take-off weight (MTOW) along with the increased fuel capacity.
The 777-300ER is offered with MTOWs ranging from 725,000lb to 779,00lb with the most prevalent weight being 775,000lb, certified on 243 aircraft, followed by the 750,000lb variant certified on 127 aircraft to date.
The -300ER, which combined the -300's added capacity with the -200ER's range, rapidly became a popular model, gaining orders as airlines replaced four-engine models with twinjets.
As of 19 June 2014, there were 486 commercial aircraft in operation with another 206 units on backlog, according to Flightglobal's Ascend Fleets database.
An estimated 160 aircraft were under operating leases, equivalent to a third of the 777-300ER fleet in service.
Ascend’s aviation analyst Marlon Mejia says availability is extremely limited, with very low downtime between leases.
“20 transactions have been recorded since the beginning of 2014, of which eleven were sale and leasebacks on delivery, three were leasebacks, five were purchases with lease attached, and one was in a securitisation. Over 30% of the fleet is on operating lease which indicates very good short-term liquidity for a widebody of its size. This is aided by the single engine choice which facilitates seamless transfer between operators,” he says.
Emirates Airline is the largest operator with a 96-aircraft fleet. The Middle East carrier’s decision to recently axe its 70 Airbus A350order leaves its widebody fleet centred on the A380 and the 777 products. Emirates, which became a launch customer for the 777X at the Dubai air show last year, with a commitment for up to 200, also indicated that the A350-1000s could operate alongside the 777X.
IBA Group expects many 777-300ER returning off lease from Emirates by 2022 and this will offer many challenges to those lessors faced with a hefty reconfiguration cost and softening lease rentals. “There are however a significant number of 747-400s, 777-200ERs and A340-600s to replace between now and then so ageing 777-300ERs should have a home somewhere,” says IBA’s senior analyst Jonathan Mcdonald.
Launch customer Air France operates a 38-aircraft fleet while Cathay has 39 aircraft followed by Singapore Airlines with 22 units.
Europe represents 79 aircraft in service with four operators Air France, British Airways, KLM and Turkish Airlines.
At 19 June, backlog from European carrier accounted for 22% of the total backlog.
The Africa and the Middle East region account for 165 units, effectively doubling its fleet over the past three years. In addition to Egyptair, Emirates, Etihad and Qatar Airways, Air Austral, Saudia, Ethiopian Airlines, TAAG Angola Airlines have introduced the type to their fleet over the past few years. Backlog is estimated at 73 aircraft, or 36% of total backlog.
Asia-Pacific represents 202 aircraft in service with Air China Air India, Air New Zealand, All Nippon Airways, Biman Bangladesh Airlines, Cathay Pacific Airways, Eva Air, Garuda Indonesia Airways, Japan Airlines, Jet Airways, Korean Air, Philippine Airlines, Pakistan International Airlines, Singapore Airlines, Thai Airways International and Virgin Australia International. Backlog is estimated at 78 aircraft, or 38% of total backlog.
Air Canada and American Airlines are the only North American operators while TAM Linhas Aereas has a 10-aircraft fleet.Backlog is estimated at eight units.
The 777-300ER was a rival to the A340-600 in the long range passenger markets when first launched. These types were designed to provide growth from the A340-300 and 777-200ER markets, replace the 747-200B and complement or be an alternative to the 747-400 on routes such as Europe to Asia, US West Coast; Japan to North America.
Mcdonald says the combination of “9/11” events and global economic contraction of 2008 onwards left the 777-300ER in almost unchallenged position as Airbus could not garner more A340-600 sales. “For many, 777-300ER is now seen as benchmark long-haul twin engine aircraft in the sub A380/747-8I segments. This is a good position to be in though future entrants such as A350-1000 and of course Boeing’s own 777-9X are bound to eventually usurp the buoyant position currently occupied by 777-300ER,” he says.
The continued demand for this aircraft should ensure the continued stability of the future values for the type, according to Collateral Verification’s Gueric Dechavanne. “My only concern may be the Airbus A350-1000 and now the 777X. With the improved economics both models will slow potential 777 orders but I do not see any immediate impact on residual values for quite some time. Once the replacement for the 777, the 777X, starts to deliver in larger numbers, this may then impact the future of this aircraft but it is much too early to tell as to if and when this will take place”.
ICF International’s principal Stuart Rubin says the 777-300ER will experience “fraternal competition” from the 777-8X and 777-9X models. “These aircraft, planned for entry into service in 2020, will bracket the 777-300ER in terms of payload and range.
“Along with the A350-1000, these aircraft will compete with the 777-300ER but not for several years, which means the 777-300ER will be alone in its market segment over the near term. Incremental product improvement programmes and the recent advent of 330min ETOPS limits further enhance the operational flexibility and capability of the 777-300ER.”
The second market has been limited so far and the only movements in the 777-300ER market have been around the Indian carriers fleets.
Over the past year Jet Airways has placed a total of five 2007-vintage aircraft under sublease contracts with Etihad Airways and Turkish Airlines.
Garuda has also subleased a 2009-vintage aircraft from Air Austral since April 2013.
The purchase and leaseback market has been centred on new deliveries mainly, with the exception of the Aircastle transaction with the LATAM Airlines Group in February this year.
The US-based lessor signed a sale and leaseback for eight 777-300ER units operated by TAM in a $900 million deal.
The first group of four aircraft, which were manufactured in 2012, have an average lease term of 60 months.
The second group of aircraft, which were manufactured in 2008, is expected to be purchased by Aircastle once the existing financings are repaid and will be leased back to LATAM with lease terms expiring in 2017 and 2018.
Aircastle says the aircraft will come off lease at a time when few comparable new generation aircraft will be available.
The US lessor also acquired a 2007-vintage 777-300ER from Air Canada under a purchase and leaseback agreement last year in August.
Last year Intrepid Aviation purchased a 777-300ER aircraft on lease to Thai Airways International from BOC Aviation. The 2012-vintage aircraft is under a 12-year operating lease with the Thai carrier.
The 777-300ER market is probably the most liquid asset in the widebody market and drives a variety of financings.
China’s Bank of Communications Financial Leasing (BoCom Leasing) has closed the purchase and leaseback of two new 777-300ER aircraft with Air China since the beginning of the year.
The Chinese carrier also tapped the capital markets earlier this year for the refinance of one unit. The $124 million US Export-Import (Ex-Im) bond carries a coupon of 2.8% followed two offerings in January worth $262 million: one issuance amounted$130 million at 2.83% yield. The second 12-year issuance priced at 2.897%, again equivalent to mid-swaps plus 66 bps.
In 2013 ICBC Financial Leasing and Garuda Indonesia signed a sale and leaseback transaction for five new 777-300ERs.
Crédit Agricole-CIB underwrote a 12-year finance lease facility covering a new 777-300ER for Emirates Airline earlier this month. The transaction follows the finance lease of another 777-300ER in April with the Dubai-based carrier.
Thai Airways financed a new 777-300ER with a 12-year loan arranged by Crédit Agricole-CIB, the Bank of Tokyo-Mitsubishi UFJ and Kasikornbank Public Company in January. The carrier recently opted for US Export-Import guaranteed financings over commercial debt proposals on three more aircraft of the type delivering through January 2015.
Cathay Pacific funded a new Boeing 777-300ER delivery in January this year through a finance lease facility co-arranged by Standard Chartered and the Commonwealth Bank of Australia (CBA).
Ample bank market capacity has allowed Turkish Airlines to push back a planned capital markets debt issue until at least 2015, as it meets its aircraft financing needs in the bank market. The possible $450 million to $500 million secured enhanced equipment trust certificates (EETC) deal is understood to include only 777-300ER aircraft.
Air Canada first tapped the capital markets with a $714.3 million EETC private placement in April 2013. Proceeds went towards the delivery of five new 777-300ERs.
Last year British Airways financed two new deliveries through its $928.6 million Pass Through Certificates, Series 2013-1 issuance.
Novus Aviation Capital, which has invested in the 777-300ER type along with A330s and A380s over the past few years, recently sold a 2012-vintage aircraft on lease to Emirates to Commerz Real AG.
CMVs and LRs
“The 777-300ER values last decreased at the start of 2014, in line with the usual annual adjustment for depreciation but the variant has largely enjoyed strong and stable market values and lease rates across all vintages. The 777-300ER has benefited from a virtual lack of competition in the segment since the A340-600 was discontinued. Only two orders have been placed in 2014, but the type has a healthy backlog, a still growing customer base, and it continues to be a good replacement for ageing 747-400 fleets and also an up-gauging option from smaller twins,” says Mejia. Ascend estimates some slots may be available in 2016, with wider availability from 2017 onwards.
Collateral Verifications says values have dropped by less than 5% over the past year while lease rentals have remained stable. “It shows the desirability of the asset in the current environment,” says Dechavanne.
“This level of discounting reflects a normal level of depreciation. With the industry recovery potentially under way, this will bring further stability to the type with a potential increase in value over the next 12 to 18 months, if not earlier.”
“Even in the economic downturn of 2008-09, values and lease rates proved remarkably resilient with any easing more the result of reduced interest rates rather than from easing market demand,” says Rubin.
Mejia says values are expected to remain steady in the short to medium-term and there has been no immediate negative impact by the announcement of the future 777X, scheduled to enter service in 2019. However as the order backlog starts to reduce, we would not be surprised if Boeing starts to lower new pricing for last-off-the-line units in the 2016-2020 timeframe, and this will have a trickle-down effect on older aircraft values, eventually. The 777X is unlikely to reach critical mass to impact the 777-300ER until the mid-2020s, however the A350-1000 is likely to be entering service earlier and will start to put some pressure on 777-300ER values, especially as the oldest operators such as Air France and Singapore Airlines start retiring aircraft from their fleets. Some of these aircraft will enter the age for major airframe checks, and depending on utilization, also major engine overhauls. These events will be critical in value retention for elder models,” he says.
Appraisers were asked to look at the baseline 777-300ER model with 759,600lb MTOW.
MBA says current market values (CMV) equate the base values (BV) for a 2004-vintage model. According to the appraiser, the aircraft has a $88.7 million CMV. ICF International says the 10-year old aircraft is valued at $87.2 million. Ascend says the CMV is $80.8 million while Collateral Verifications has $73.6 million and IBA Group has a $74 million CMV.
A 2006-built aircraft has a $98.8 million CMV for ICF International and $99.9 million for MBA. Collateral Verifications has a $88.6 million valuation while Ascend and IBA Group are the lowest of the three appraisers with $86.9 million and $87 million quotes.
A 2008-vintage is valued by Ascend at $96.6 million and $102.9 million by IBA. Collateral Verifications has a $105.1 million CMV. ICF International and MBA have a $112.3 million and $112.8 million valuation, respectively.
Collateral Verifications says the CMV of a three-year old 777-300ER is $119.3 million while IBA has a $120 million quote. ICF International and MBA have $127.7 million and $125.5 million valuation, respectively, while Ascend is the lowest of the four appraisers with $111.2 million.
Collateral Verifications estimates the monthly lease rates for 2010-vintage at $1.15 million, or 0.96% of the current value of the aircraft. MBA says monthly lease rates range from $1 million to $1.1 million, while IBAhas a $1 million to $1.2 million a month.
ICF International’s range is in the $1.05-1.15 million while Ascend has a $1.02 million indicative lease rate for the model.
A 10-year old aircraft would lease for $840,000 a month for Ascend, $850,000 for Collateral Verifications, while MBA lease rates are in the $800-900,000 a month bracket. ICF International’s lease rates are between $750,000 and $850,000 a month while IBA’s monthly lease rentals are $745-845,000.
A six-years old aircraft would have monthly lease rates in the $940,000 region for Ascend and $1.05 million for Collateral Verifications. ICF International and MBA’s lease rates are between $950,000 and $1.05 million. IBA’s monthly lease rentals are between $930,000 and $1 million.