Appraisers addressed the thorny subject of Boeing 777 values during a panel discussion at the ISTAT Americas conference in Phoenix on 29 February – and offered a generally more optimistic take than Delta Air Lines' chief executive did in market-shaking comments last year.
However, there were provisos relating to engine choice and reconfiguration costs.
Introducing a discussion on 777-200ER and A330-300 values, panel chair Douglas Runte – head of aircraft debt research at Deutsche Bank – referred to the Boeing jet as "the aircraft type that, when discussed by an airline CEO, can knock $2-3bn off your equity cap, at least for a short period of time". In December 2015, Boeing's share price fell after Delta chief Richard Anderson said the US carrier had signed a letter of intent to acquire a 777-200 for $7.7 million. Anderson had in October put the value of a nine- or 10-year-old 777 at about $10 million and falling.
Anderson's remarks "didn’t cause the softness in the 777 or A330 market, but he certainly drew a lot of attention to it", says Avitas senior vice-president of asset valuation Douglas Kelly. "And really, it’s a tale of two different engine types. Both these airplanes are Trent-powered, but the Trent 800 is a very different market from the Trent 700. The Trent 700 is the preferred engine type on that aircraft; the Trent 800 on the 777 is not the preferred, it's the least preferred, and it's having real difficulty finding a market."
Avitas gives a value for a 10-year-old Trent-powered 777-200ER at around $37 million and applies a $7 million premium to aircraft equipped with General Electric GE90 or Pratt & Whitney PW4000 engines.
Kelly adds: "It's not a $10 million airplane if you value the airplane as half-time, half-life, but there’s certainly been some sales around that for a run-out airplane. And the problem with a run-out airplane with Trent 800 engines is that there's no market for those engines." The manufacturer Rolls-Royce "controls the market" for the engines, he argues, noting the high proportion of them covered by TotalCare support agreements.
Olga Razzhivina, co-founder of appraiser Oriel, sees the 777-200ER's size as more of an issue than its engines. "I don't necessarily agree that it is a Trent-centric problem going forward," she says. "I think a lot of the new-generation engines are predominantly on some kind of flight-hour agreement, and I think it's just that by virtue of being first to the market with a TotalCare-type programme, Rolls-Royce is the first OEM to come up against the maturing fleet of engines and how do you handle it. As we move forward, other OEMs will be ending up in the same boat and will be asked the same kinds of question from the market."
She adds: "A lot of the problem is platform-related. It's a very large aircraft to move into secondary markets and a lot of airlines who are nowadays the users of secondary aircraft would rather take an A330 for the same amount of money than a 777 because they simply cannot operate properly with a large machine. It's 30% heavier, therefore more expensive to operate."
In the view of IBA Group chief executive Phil Seymour, "the unfortunate circumstances of the 777" are a major cause of value differences. "We've had some distressed sales – Transaero getting into trouble, Kenya Airways looking to move capacity out," says Seymour. "On top of those unscheduled arisings, we had quite a few 777s coming out of Singapore and Emirates... Looking forward, we still see a high number of lease renewals coming up over the next four to five years. I think on average there's around about 40 or 50 potential aeroplanes coming off lease per year, and there's more 777s than A330s in that category."
Aviation Specialists Group president Fred Klein shares his two reactions to Anderson's October comment on 777 values. "Number one, if it's really [$]10 million, it's a junker. Number two, he wants to buy some." ICF International principal Stuart Rubin agrees: "Clearly it was a junker and clearly there was an agenda behind the comments."
But for Razzhivina, what Anderson said was "directionally correct". She adds: "The number was a bit ostentatious, but we welcome aggressive comments like that. It makes for a very interesting discussion."
Rob Morris, head of consultancy with Flightglobal advisory service Ascend, responded to a request for comment. He says in reference to the sale of the specific aircraft to Delta that "we understand the seller retained significant additional value from maintenance reserves".
This, he explains, illustrates the point that "the price paid for the aircraft and the value, expressed as half-life current market value, are two different things".
Morris concludes: "Each specific aircraft trade needs to be fully understood so that we can normalise to comparable values. Anderson's comments do indeed make for interesting reading but, as with all things in life, where there exists an agenda it is possible to spin to that agenda."
Source: Cirium Dashboard