October’s Aircraft Report: the Boeing 737-800

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

The 737-800 is the best performing aircraft in the 737 Next Generation (NG) family. Its diversified operator base, current order backlog, and ease of marketability should ensure that this aircraft remain desirable in the marketplace for many years to come.

The -800 replaces the 737-400 model, which was developed as a 150-seat replacement for the popular trijet 727 model. Until its launch in September 1994 it was known as the 737-400X Stretch.

It is 9ft. 9in. (3.02m) longer than the -400 and seats between 146 and 162 passengers on typical two class configuration. A single class configuration can seat up to 189 passengers.

Like the -600 and -700, the -800 and -900 feature the Next Generation improvements including more efficient CFM56-7B turbofans, the new wing with greater chord, span and wing area, larger tail surfaces and the 777 style EFIS flightdeck with six flat panel liquid crystal displays.

The prototype aircraft rolled out in June 1997 and first flew a month later. The -800 was launched with an order from Germany's Hapag-Lloyd in September 1995 and was first delivered in April 1998.

Boeing also offers non-commercial passenger versions of the -800 model: the P-8 Poseidon, a maritime patrol aircraft version equipping the US Navy and the India Navy as well as the Boeing Business Jet 2, a VIP and Corporate version with stronger wings and features extra fuel tanks.

CFM International has offered three engines, all certified in December 1996.

The lower rated version, the CFM56-7B/24, has a 24,200 lbs thrust, and represents approximately 24% of the total whole 737 Next Generation Family fleet.

The more powerful CFM56-7B/27 has a 27,300 lbs thrust version, and equips 11% of the total whole 737 Next Generation Family fleet.

The CFM56-7B/26 26,300 lbs thrust version is the most popular engine and represents 41% of the 737 Next Generation Family fleet.

The other engines equipping the 737 NG Family are the -7B22 (19% of the total fleet) and the -7B/20 engine, which represents 5%.

CFM introduced the -7BE variant this year with a 2% improved fuel consumption from aircraft and engine enhancements.

Market

Total 737-800 net orders are estimated at 3,448 with about 1,294 737-800s and 2,154 for the winglets version. Backlog stands at 1,533 aircraft.

Boeing had delivered approximately 2,340 aircraft as at 26 October 2011, according to Flightglobal's Ascend database. This year alone, deliveries have reached 234 aircraft and Ascend forecasts another 67 aircraft to be delivered through the end of this year.

Europe represents 33.5% of total deliveries, followed by Asia with a 27.7% market share and North America with 23.5%. Australasia represents 4.7% of the market, Latin America and Caribbean 4.6% and Africa 4.4%. Operators in the Middle East represent the remaining 1.6%.

Top 10 737-800 operators include Xiamen Airlines (52 aircraft), Alaska Airlines (57 aircraft), Air Berlin (57 aircraft), Hainan Airlines (67 aircraft), GOL Linhas Aereas (67 aircraft), Air China (74 aircraft).

Ryanair is the largest 737-800 operator with 313 aircraft in service. American Airlines operates 164 units, Delta has 132 aircraft, while Continental has a 130-aircraft fleet.

Ascend predicts are 317 deliveries next year and 275 in 2013, based on today's commercial figures.

IBA Group's senior analyst Alice Gondry says Boeing recent decision to increase production at its Renton plant to a record 35 aircraft per month would take five years to clear at the current production rate of 31.5 aircraft per month.

Europe represents 25% of future deliveries, followed by North America with a 22.5% market share and Asia with 21%. Australasia represents 4.8%, Latin America and Caribbean 9% while Middle East carriers represent 4.3% of the backlog. Another 2.8% is held by African carriers. According to Ascend about 10.6% of the backlog is unconfirmed.

On 30 August Boeing launched the 737 Max with commitments for 496 aircraft from five airlines. Marketing chief Randy Tinseth expects the 737 Max family to rack up "hundreds" more orders in the coming months as the manufacturer works to firm the configuration of the re-engined narrowbody.

First delivery of the 737 Max is scheduled for 2017 and according to Avitas' director - asset valuation Martin O'Hanrahan, the re-engined programme should not affect the -800 market for the foreseeable future. "Of more immediate concern, however, is the A320neo from Airbus which has already enjoyed unprecedented sales success and the first delivery should occur two years ahead of the first 737 Max," says O'Hanrahan.

Collateral Verifications' vice president Commercial Aviation Services Gueric Dechavanne says the introduction of the Boeing 737 Max will most likely have an impact on the long-term residual values but in his view, this will not be realized until the latter part of this decade at the earliest, if not the first part of the next decade. "There are still too many unknowns to fully understand how the next generation single-aisle products will impact the current generations of aircraft," he comments.

According to Gondry there is some concern in the industry that the entry into service of the 737 Max will have an effect on 737NG values, in the same way that the 737NG affected residual values of the 737 Classic.

"The issue of commonality between the NG and Classic was key to the degradation of Classic values. Boeing has yet to announce the exact level of design commonality between the NG and Max, but 'minimal change' is their statement of intent. A high level of commonality between the two models will help to protect 737NG values," she says.

Gondry expects to encounter an increase in value volatility after the entry into service of the 737 Max, as the fleet builds up critical mass. "Boeing suggests numbers equivalent to 50% of the current 737NG fleet but we feel that is a little optimistic as we would be relying upon stable fuel pricing and a buoyant market during the latter half of this decade. In reality, pressure will increase gradually from the oldest to newest at a point determined by demand and fuel. If fuel remains at a lower more stable price, then we should see some value stability for the current technology well past 737 Max initial deliveries, if it is the opposite then values will already be feeling the strain," she explains.

The market for the 737-800 model remains strong with demand comfortably outstripping supply.

Lessors' direct orders represent a 315-aircraft backlog or 21% of the future 737-800 deliveries, compared with approximately 20% for the A320 model.

According to Ascend, Air Lease has the largest backlog with 74 aircraft. GECAS has 61 aircraft on order, ILFC has 40 aircraft, RBS Aviation Capital has 38 aircraft on order, AWAS and CIT Aerospace each have 26 aircraft, BBAM has 17, Avolon has 12, AerCap has 10 while Aviation Capital Group has nine units.

"Lessors lucky enough to have 737-800 positions are likely almost sold out into 2014," says a leasing source.

AWAS recently acquired two 737-800s on lease to Garuda as well as one aircraft of the type on lease to TUI from different lessors.

Jackson Square Aviation has acquired some aircraft initially for Air Berlin and put them on lease to Transaero and Norwegian.

Air Lease has been the most active player in the second-hand market as it continues to build the depth and global diversity of its 737-800 customer base. It recently acquired a 737-800 on lease to GOL Linhas Aereas from Lease Corporate International. Earlier this summer, the lessor purchased a total of nine aircraft from GECAS, RBS Aviation Capital, Aviation Capital Group and BBAM.

The Air Berlin and Ryanair fleets continue to find new homes in Europe mainly with Pegasus Airlines, Izmir Airlines and Sun Express. The Russian market has also absorbed some capacity with Nordstar and Transaero Airlines. UT Air has been adding ex-Ryanair 2002-vintage models in the second half of this year, while Orenair, which has leased ex-Ryanair aircraft in the past, has taken three ex-Air Europa 1999-vintage aircraft as well as an ex-Pegasus Airlines aircraft.

In Asia Okay Airways has signed leases on three ex-Ryanair aircraft, while Nok Air is adding ex-Air Europa and ex-Ryanair aircraft from lessors. Recently Air Pacific agreed to lease an ex-Air Berlin aircraft from RBS Aviation Capital while two ex-Air Berlin 737-800s are heading down to Aerolineas Argentinas.

Lease rates and Values

The 737-800 model has maintained a reasonable level in lease rates and values, due to its strong market and low availability. There are 15 737-800s currently in storage, all manufactured between 1998 and 2007.

"The market is still strong for 737-800s compared to the A320. There's so many A320s unplaced and with A320 carriers going out of business the situation is only going to get worst, and we'll be seeing fire sales," one leasing sources tells Flightglobal.

Newer aircraft are in the high $300,000 a month and if interest rates nudge up a little, will cross over in to the $400,000, according to a leasing source.

"You may see lease rentals in the low three hundreds at the moment too. Those would be leases written a while ago before the interest rates declined (against expectation) and as the lease rental is usually linked to interest rate at delivery and rates would have been $360,000 to $390,000, the interest rate decline may force $30,000-$40,000 off the headline number," the source explains.

A 2005-vintage aircraft can easily be laced at $275,000 and above, while the older vintages 2001 and older are starting to show signs of reduced demand, according to another source. "There is not an oversupply of these vintages, just a preference from the airlines to focus on younger aircraft," the source comments.

A 1998-vintage can lease for $250,000 a month, while a 2000-vintage is more into the $290,000 according to a source. A 10-year old would lease in the $305,000 range.

Appraisers were asked to provide an opinion on a CFM56-7B26 powered aircraft with a 174,200lbs. maximum take off weight.

For a 1998-vintage, monthly lease rates are around $240,000 according to IBA Group. Collateral Verifications says lease rates are in the $250,000 region while Avitas provides a $210,000 to $230,000 range.

A 10-year aircraft has lease rates are around $275,000 for IBA Group, $270,000 for Collateral Verifications. Avitas says lease rates are between $240,000 and $260,000 per month.

Avitas estimates the lease rates for a 2004-vintage aircraft in the $270,000 to $290,000 range while IBA Group and Collateral Verifications are at $315,000 and $305,000, respectively.

For a 2007-vintage, lease rates are around $335,000 for both Collateral Verifications and IBA Group. Avitas says lease rates are between $305,000 and $335,000 a month.

A 2010 delivery attracts lease rates between $335,000 and $355,000 a month for Avitas, $360,000 a month for IBA Group and $365,000 for Collateral Verifications.

IBA Group is the highest appraiser on 737-800 second-hand values.

Current market values (CMVs) for a 1998-vintage aircraft are in the low $20 million with IBA Group at $22.1 million, Avitas at $20.6 million while Collateral Verifications is at $21.6 million.

A 10-year old aircraft would have a CMV of $26.3 million for IBA Group, $25.2 million for AVITAS and $24.4 million for Collateral Verifications.

A seven-year old aircraft has a CMV of $30.9 million for IBA Group, $30.5 million for Avitas and $27.8 million for Collateral Verifications.

A 2007-vintage aircraft was appraised at $32.6 million by Collateral Verifications. Avitas and IBA Group value the aircraft at $36.4 million and $35.1 million, respectively.

A 2010-vintage aircraft is valued at $44.3 million for AVITAS, $41.8 million for IBA Group while Collateral Verifications is 14% lower at $38 million.

"The current trends for the aircraft have shown some improvements in value of about 5% and lease rates showing similar increases to over $360,000 per month for operating leases of new aircraft. These trends, not dissimilar to the last downturn, are expected to continue throughout 2011 and 2012 as the market continues to strengthen," comments Dechavanne.