Residual values of the last of the current generation narrowbodies will be affected by the introduction of their re-engined successors, but to a lesser degree than in previous transitions from old to new technology. That is the view of financiers and analysts when asked by Flightglobal about the so-called "last off the line" effect for this year's Airline Business interactive special report on finance.
"The 'last off the line effect' is used to identify aircraft that are built towards the end of a production run, because they tend to depreciate faster in value terms than earlier-built aircraft," said Eddy Pieniazek, who is global head of consultancy at Flightglobal's Ascend division.
"This is something we've learnt to understand by analysing historic data. There is a simple reason for that - because aircraft are being succeeded by newer models, they tend to have shorter useful economic life."
Bert van Leeuwen, global head of aviation research at DVB Bank, told Airline Business interactive that the last examples produced of a certain type are generally "written off" a lot quicker. "We've looked at previous generations where the early planes were depreciated by 4% while later ones by 8% or more," he said.
This factor, combined with the fact that financiers tend to favour younger aircraft offering more modern technology, "gives us quite some concern about residual value performance, especially the last off the line of the current generation of aircraft", added van Leeuwen.
Pieniazek gives the example of the Boeing 737 Classic, deliveries of which ended in 2000 with the 1,988th aircraft when production transitioned fully to the 737NG variants. "The last examples delivered had a very distinct depreciation profile that was different from the early aircraft," he said.
However Boeing Capital's managing director capital markets and leasing Kostya Zolotusky believes that it is wrong to "look in the rear-view mirror", as the market is different today. "The size of the installed fleet of the 737NG is so much bigger than any other aircraft that was replaced," he said.
"Demand relative to the installed base is so enormous that neither Airbus nor Boeing will be able to produce enough A320neos or 737 Maxes to relatively quickly replace the 737NGs or the A320 older versions. So that length of time for replacement means you'll have decades of demand for these aircraft."
Pieniazek concurred that the effect on depreciation of current A320s and 737s might be slightly different, because of the larger production volumes: "On the A320, for the early aircraft of 1988-94 vintage there was a much more gentle depreciation profile and we think that was because there was a much larger volume of aircraft and the transition from the early A320s to the next step was a little more gradual," he said.
"When production moves to the 737 Max and A320neo the step in depreciation from the last of the current generation 737NGs and A320s might be reduced because the current aircraft have already built up a large volume," added Pieniazek.