September’s aircraft report: the Boeing 747-400

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

The Boeing 747-400 passenger aircraft is almost reaching its 22nd anniversary.

Boeing launched the 747-400 in October 1985 and received US certification (with the PW4000 engine) in January 1989.

The 747-400 was manufactured in the standard passenger version with three optional gross weight variants for airlines with different requirements. The passenger model has a range of 7,230 nautical miles (nm) for a CF6-powered version, 7,165 nm for the PW4056 variant and 7,100 nm with the RB211-524 version at highest optional take-off weight.

The engine leader for the 747-400 passenger and cargo models is the General Electric the CF6-80C2B1F variant with 299 aircraft (or 43.6% of the market share). Another 33 aircraft are powered by other CF6-80 variants.

The Pratt & Whitney PW4056 engines totals 216 aircraft and represents 31.5% of the market share. Another 16 aircraft are powered by PW4062 variants.

Rolls Royce's RB211-524 series engine accounts for the remaining 122 aircraft or 17.8% of the 747-400 market share.

Market

Currently, there are 686 passenger and cargo models in service with 79 operators, according to Flightglobal's ACAS database. The passenger fleet accounts for 394 aircraft with 53 operators.

Asia Pacific Rim remains the market leader with an estimated 186 passenger aircraft or 47.2% of the fleet. However the Asian fleets are reducing in number and after some Singapore Airlines aircraft going to Transaero earlier this year, the JAL entire fleet is been phased out.

The European fleets keep increasing and now account for 127 aircraft.

The Middle East and Africa fleet accounts 23 aircraft.

The North America fleet has shrunk to 54 aircraft and currently represents 13.7% of the total passenger fleet. There are four 747-400s in South America with Aerosur and Aerolineas Argentinas.

The Boeing 747-400 passenger model has seen few new applications over the past few years with notably Oasis Hong Kong Airlines, which operated a four-aircraft fleet for long-haul low-fare services. However the carrier ceased operations in 2008.

Lion Airlines agreed to acquire two ex-Oasis Hong Kong Airlines to set up an operation between from Jakarta to Jeddah in Saudi Arabia.

"Demand for passenger application is not there," comments a trading source adding that with the exception of Japan Airlines, not a lot of passenger aircraft have been offered. "Airlines have been disciplined in this downturn," he adds.

The 747-400 has however been a cheap option to add or re-add capacity and according to the source, there is a 'three to five-year window down to teardown numbers.'

Russian carrier Transaero announced plans in April to acquire 14 long-haul aircraft, comprising nine Boeing 747-400s and five Boeing 777s. Transaero's nine 747-400s were previously operated by Japan Airlines. While the 777s will be used on flights to the far eastern regional of Russia and on international routes, the 747s will be used to replace older 747-200s and 747-300s for international services.

Orient Thai Airlines has acquired a 1992-vintage ex-Singapore Airlines from Wells Fargo Bank Northwest while Pullmantur Air recently leased a 1996-vintage ex-Singapore Airlines aircraft.

According to the source, the 747-400 passenger market is divided in three tranches: 2001-vintage and younger aircraft, 1996-vintage and younger and 1992-vintage and younger. "The 10-year import rule effectively tranches the value," he comments adding that Russia can relax the rule to 15 years.

Despite this, activity on the 747-400 market has been more concentrated on acquisitions for freighter conversions as cargo traffic improves and part out for run-out models.

The 747-400 cargo conversion market has dramatically softened over the past few years and new orders have been difficult to secure because of slumping demand in the air cargo industry. The 747-200F operators will probably migrate to the -400 freighters as aircraft comes up to a heavy check but the process is still slow.

The last two years have seen many carriers announcing 747 phase outs or temporarily parking, either on the passenger of freighter side. Cathay Pacific Airways acted first by announcing plans to park two Boeing 747-400BCF freighters for a year with effect from January 2009. A downturn in the global economy also led Nippon Cargo Airlines (NCA) to lease out two 747-400 freighters, while China Airlines grounded two 747-400 freighters and Eva Air Cargo parked a 1993-vintage 747-400BDSF aircraft for 12 months.

But since the beginning of the year activity has stepped up. El Al Cargo has acquired a 1994-vintage Boeing 747-400F from Singapore Airlines Cargo. Kalitta Air has acquired a 1990-vintage Boeing 747-400 from Jalux while Boeing Aircraft Holdings has purchased a 1989-vintage Boeing 747-400 from Korean Air for cargo conversion.

National Air Cargo Group has expanded its fleet with the addition of two Boeing 747-400BCF aircraft from Avion Trading. The 1991-vintage Boeing 747-400BCF aircraft with CF6-80C2B1F engines were operated by Air France as a Combi aircraft until 2007 before being converted into -BCF models.

Deucalion Aviation Funds recently completed the purchase of two 1995/96-vintage aircraft from Wilmington Trust. Upon Special Freighter conversion at the IAI Bedek facility, both will be placed on lease with World Airways.

Current passenger offerings include six United Airlines' 747-400 aircraft that were manufactured between 1992 and 1997, four Qantas 1990/92-vintage aircraft, three Air India 1993-vintage aircraft as well as three ex-JAL aircraft recently purchased by AerSale.

More 747-400s have been parked for part out and more could follow. Universal Asset Management parted out a JAL domestic aircraft (MSN 26349) in the summer. Three ex-Air France 1991-vintage are being parted out at the Kemble airport and the airframe have been sold to Volvo Aero Services and GA Telesis.

The JAL impact

Since 9/11, the focus had been on two carriers: United Airlines and Singapore Airlines. The Japan Airlines bankruptcy is not favouring the already 'depressed' 747-400 market. Over the past 12 months, the parked population has more than doubled to 61 aircraft, although some are in transition either to a conversion or to another operator.

Japan Airlines approached the market in March with a request for proposal that included eight Domestic passenger aircraft that were manufactured in 1991 and 1993, as well as International aircraft built between 1990 and 2001.

CAO understands that AerSale purchased two of the eight Domestic aircraft, while Deucalion acquired the remaining six.

Transaero acquired nine International aircraft, which were built between 1998 and 2001, while AerSale also acquired 17 International aircraft, manufactured between 1990 and 1992.

"No question that the JAL sales are distressed sale," says a trading source adding that although some questions remain on the JAL 747-400 freighters, the passenger fleet has now cleared.

CAO has heard that the JAL 747-400BCF aircraft are still bidding with pricing now rumoured to be north of $30 million. The two factory build aircraft are been sold to a lessor with pricing rumoured in the mid-$60 million plus deferred engine maintenance liability, CAO understands.

A source tells CAO that the JAL International aircraft had a price list between $14 million and $31 million. The Domestic aircraft traded at a lower range.

Values and LRs

About a year ago, a trading source told CAO that the real value for older 747-400 models will probably be between $18 million and $28 million but "one might have to take $8 million to $10 million off with fresh from D check and four fully restored engines in order to find a buyer," he added.

A 1990 to 1993-vintage is now expected to trade in the $18 million to $22 million, according to another trading source.

Collateral Verifications' VP Commercial Aviation Services Gueric Dechavanne says that in the last 12 months, values have dropped by about 30% with lease rentals dropping by about 20-25%. "With the industry recovery under way, we feel that this may bring some stability to the type but due to the high aircraft availability, this may not happen until well into 2011," he comments.

"Not unlike many other aircraft, the lack of capital has also made it tough to finance these older aircraft which in turn has reduced the values that interested parties are willing or able to pay for these aircraft. CV sees this trend continuing in the near term which will not be of any help to the stability of the current values and lease rates. As the cargo market continues to strengthen, CV does see more of these aircraft being converted to freighter which will in turn continue to reduce the current supply of available aircraft providing some stability and perhaps a slight rebound in values and lease rates for the newer vintages of the type."

 

Morten Beyer & Agnew (MBA) says that market values have declined by 5-6% over the last six months. "Even though many of the 747-400s disposed by JAL were placed quickly with other operators, there is still excess capacity available in the international market and values will continue to weaken. Higher operating costs than the twin-engine 777 have also made it less appealing in the market."

IBA's senior analyst Alice Gondry says "Over 10% of the 747-400 fleet is in storage as large 747 operators such as JAL and Singapore Airlines continue to pursue exit strategies and/or store aircraft. The 777-300ER and A380 are beginning to replace ageing 747-400s. 2010 has seen a significant number of secondary market trades for this aircraft. Values should stabilise as the market recovers and the lack of spare 350+ seat aircraft should stimulate short-term demand for the -400."