Last of the line narrowbodies to depreciate more rapidly

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Appraisers expect the depreciation of a last of the line current generation narrowbody aircraft to be quicker than a 2010-built aircraft.

IBA Group's managing director Phil Seymour told delegates at the Ascend Finance Forum in London that he does not have an issue with reducing depreciation and expect a steeper depreciation for a 2015-vintage narrowbody aircraft than a 2010 unit.

Ascend's manager of valuation services Olga Razzhivina agrees but also questions how quickly the last of the line aircraft will be depreciated and how many years of productions will be affected.

"History tells us that it has been more rapid," she says, referring to the McDonnell Douglas MD-80s versus the Boeing 737s, "although in a different economic environment," she adds.

But Razzhivina expects the same trend to continue.

Asked which of the 2008-vintage 737-800, A320, A330-300 and Embraer 190 she would prefer to have in her portfolio, Razzhivina picked the A330-200 model. "The narrowbodies, being five years old, are too close to the Neo/Max and I am concerned about the competition. The Embraer 190 is quite a crowded market too."

The less desirable asset to have in a portfolio is the Boeing 747-400, according to Seymour and Razzhivina. Both agreed that a 2002-vintage aircraft of the type would be difficult to place in the current environment. The 747-400 was being pitched against another unpopular aircraft, the A340-600, but Razzhivina says there has been some interesting placements recently for the -600 model.

Seymour observes that an 11-year old widebody model would have a far bigger impact on an owner balance sheet compared with a Bombardier CRJ or an Embraer 145 model.

In terms of next generation widebody models, Seymour expects the Airbus A350-1000 aircraft to be the most popular aircraft in 2023. "From a financiers' point of view we know more about this model than the 787-10 or the 777X models," he comments. The A380, the other current widebody aircraft pitched in this sector, is a "fantastic aircraft" in terms of passenger appeal, says Seymour. However the operating costs of the A380 are a less attractive proposition, he adds.

Razzhivina anticipates the 777X to be the most popular widebody in 10 years' time. "It looks like a very interesting aircraft and I expect a lot of interest in the future," she says.