Re-engined A320s and 737s to have little initial impact on values: lessors

Singapore
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It will take years before the Airbus A320neo and the Boeing 737 Max have an impact on the residual values of their existing variants, lessors said at the ISTAT Asia conference in Singapore on Tuesday, 8 May 2012.

"Even assuming very vigorous production rates of these two models, it's going to take many years to make a meaningful impact on total population of single-aisle aircraft. I think until they hit about 30% of the population of existing types, I don't see a real impact," said Steven Udvar-Hazy, chairman and chief executive of Air Lease Corporation.

He added that the strong sales campaign by Boeing and Airbus of these aircraft means that there are also few early delivery slots left.

Jeff Knittel, president of Transportation Finance at CIT, added that there will be operators wanting only to grow their existing fleet instead of "completely refleeting" and still stick to the older variants.

Economic environment and factors such as fuel costs are also important in determining the impact on the values of the older aircraft, said Robert Martin, managing director and chief executive of BOC Aviation.

"If fuel cost comes down, the classic aircraft, compared to the new aircraft, will look a lot better," said Martin, adding that he foresees residual values to be hit only at the end of the decade.

"If you're in an environment where there's a lot of demand for aircraft in general, it's amazing how well even the older or classic types of aircraft do. Obviously, if the economy slows and there's too much supply, it will put pressure on both types and probably the one feeling more pressure will be the older types," agreed Knittel.

Udvar-Hazy added that with 400 airlines operating the two aircraft types, it is also unlikely that the majority will "instantaneously transform themselves into a Max or neo operator".

"This transition process will take at least 20 years and the impact will be very gradual and modest," he added.

Airbus has brought forward the entry-into-service date for its A320neo to October 2015 and is aiming at a full ramp-up by 2018. The Max, meanwhile, is set to enter the scene in 2017.

Airbus has had 1,289 firm orders for the A320neo while Boeing has orders for 451 units of the 737 Max.