So long as there are no transactions, its a little hard to gauge what the valuation is.
Obviously, airlines for financial reasons place a book value on their assets, but short of actual market transactions it gets a little murky to determine the true value.

Leeham noting drops on lease and values:

https://leehamnews.com/2020/05/25/ponti ... s-plummet/


Monthly Rates plunged as much at 26%. Aircraft values dropped as much as 15% (22% for an ATR-72).


777F lease rate dropped 2%, value dropped 11% (my opinion, needed now, but future need reduced).
A359 lease rate dropped 17%, value dropped 5% (my opinion, low near term pax demand, aircraft in demand in long run).
A320CEO lease down 19%, value down 14%
738, both down 15%.


There is a table with more.
My quick summary, all aircraft resale value dropped. I'd like to see the A321NEO and A220 values. IMHO the lowest drops in value.

Until there are A380 transactions, we can only speculate on value.

I'm curious on 77W and 789 values.

Judging from the A320CEO and 738 lease rate and value drops, all narrowbody Aircraft took an appropriate 15% hit. I expect the A320NEO to do better, older aircraft to see values plummet to scrap (733/4/5, mid age A320CEO). I expect 757 values to also drop.

What I didn't see were A319CEO values. They were going near scrap and I expect their values fell too (depressing parts pricing).

Lightsaber

Leeham has an interesting table on aircraft values and lease rates:
https://leehamnews.com/2020/06/10/hotr- ... more-33677

We are paralleling post 2001 for aircraft values/lease rates, however, I think the magnitude and duration will be longer.

As will post 9/11, prior generation aircraft take a greater value hit, although aircraft at scrap value just drop by how much scrap value is dropping.

Numbers similar to prior data. As leases are returned, I expect to see more decline for 15 to 30 months.

Lightsaber

lightsaber wrote:

Leeham has an interesting table on aircraft values and lease rates:
https://leehamnews.com/2020/06/10/hotr- ... more-33677

We are paralleling post 2001 for aircraft values/lease rates, however, I think the magnitude and duration will be longer.

As will post 9/11, prior generation aircraft take a greater value hit, although aircraft at scrap value just drop by how much scrap value is dropping.

Numbers similar to prior data. As leases are returned, I expect to see more decline for 15 to 30 months.

Lightsaber

Difference this time is these are almost entirely 'theoretical' values. There are virtually no transactions taking place, and what few are, have OEM and lessor (even lease rollovers), 'below the line' support flattering recorded values.

If you are desperate, and have to dispose of a 10+ year old aircraft, be grateful someone will take the monthly storage, insurance and MX charges off your hands. Even the parts market for this group of aircraft has flat-lined.

Owners show as short-term storage, to avoid write-downs, in turn triggering covenant breaches and credit cancellation, with the tacit approval of financiers.

Even freight isn't the Cinderella believed. Many airlines have oppressive long-term belly contracts, now accommodated in other ways, at significant loss, although sometimes partly or fully offset by high spot prices, and Government contracts for PPE and the like.

It's a shaky old World out here.

lightsaber wrote:

Leeham has an interesting table on aircraft values and lease rates:
https://leehamnews.com/2020/06/10/hotr- ... more-33677

We are paralleling post 2001 for aircraft values/lease rates, however, I think the magnitude and duration will be longer.

As will post 9/11, prior generation aircraft take a greater value hit, although aircraft at scrap value just drop by how much scrap value is dropping.

Numbers similar to prior data. As leases are returned, I expect to see more decline for 15 to 30 months.

Lightsaber

What exactly do CMV and MLR stand for? Am I correct in assuming MLR stands for Monthly Lease Rate..?

smartplane wrote:

Difference this time is these are almost entirely 'theoretical' values. There are virtually no transactions taking place, and what few are, have OEM and lessor (even lease rollovers), 'below the line' support flattering recorded values.

If you are desperate, and have to dispose of a 10+ year old aircraft, be grateful someone will take the monthly storage, insurance and MX charges off your hands. Even the parts market for this group of aircraft has flat-lined.

Owners show as short-term storage, to avoid write-downs, in turn triggering covenant breaches and credit cancellation, with the tacit approval of financiers.

Even freight isn't the Cinderella believed. Many airlines have oppressive long-term belly contracts, now accommodated in other ways, at significant loss, although sometimes partly or fully offset by high spot prices, and Government contracts for PPE and the like.

It's a shaky old World out here.

That is a lot to think about... Good points.

smartplane wrote:

[
Difference this time is these are almost entirely 'theoretical' values. There are virtually no transactions taking place, and what few are, have OEM and lessor (even lease rollovers), 'below the line' support flattering recorded values.

Yes, it's difficult to approximate values in thin markets, whether it's planes, classic cars, or undeveloped land in rural areas. Are you saying that you have better data than Ishka, the firm cited by Leeham?

MIflyer12 wrote:

smartplane wrote:

[
Difference this time is these are almost entirely 'theoretical' values. There are virtually no transactions taking place, and what few are, have OEM and lessor (even lease rollovers), 'below the line' support flattering recorded values.

Yes, it's difficult to approximate values in thin markets, whether it's planes, classic cars, or undeveloped land in rural areas. Are you saying that you have better data than Ishka, the firm cited by Leeham?

There is a difference between thinking a number is likely wrong and having a better number to put in its place go look at the debates about historical battles everyone agrees the numbers the ancients provided are wrong but no one has any better numbers, I suspect we are in a similar market for aircraft.

MIflyer12 wrote:

smartplane wrote:

[
Difference this time is these are almost entirely 'theoretical' values. There are virtually no transactions taking place, and what few are, have OEM and lessor (even lease rollovers), 'below the line' support flattering recorded values.

Yes, it's difficult to approximate values in thin markets, whether it's planes, classic cars, or undeveloped land in rural areas. Are you saying that you have better data than Ishka, the firm cited by Leeham?

This is building on your comment, not rebutting:
Let us put it another way, typically value depreciation must accelerate to stimulate the market after such a market shock. In a year, with any reasonable recovery, the MAX and NEO production will flood the market.

Unfortunately, thin markets indicate sellers have not adjusted prices down enough for buyers.How would cars be handled if 30% of the used cars hit the market? Used prices will plummet forcing new prices to drop to stimulate sales or manufacturers shut down.

People are unemployed. Small business, other than liquor stores, had income trashed. Food inflation will reduce budgets.

So I fully expect widebody prices to drop further. Neither Boeing nor Airbus have reduced production enough. So we know those numbers do not reflect reality as sellers have not yet adjusted pricing to clear the market.

If supply exceeds demand, price must fall to the market clearing price, made worse by slack used demand and accelerated production.

https://en.m.wikipedia.org/wiki/Market_clearing

I personally believed we were already in a widebody glut pre Covid19. I was also discussing over-supply of narrowbody aircraft. I estimate there is suddenly about 7,000 more aircraft than needed a year from now. If will be a painful road to clear the surplus.

I predict that A319s six months from now only go for scrap. I predict decade old 738s are only 20% above scrap. A320CEOs won't be as hard hit as the NGs, but as enough airlines opperate both, pricing will drop to somewhat competitive.

Lightsaber

lightsaber wrote:

MIflyer12 wrote:

smartplane wrote:

[
Difference this time is these are almost entirely 'theoretical' values. There are virtually no transactions taking place, and what few are, have OEM and lessor (even lease rollovers), 'below the line' support flattering recorded values.

Yes, it's difficult to approximate values in thin markets, whether it's planes, classic cars, or undeveloped land in rural areas. Are you saying that you have better data than Ishka, the firm cited by Leeham?

This is building on your comment, not rebutting:
Let us put it another way, typically value depreciation must accelerate to stimulate the market after such a market shock. In a year, with any reasonable recovery, the MAX and NEO production will flood the market.

Unfortunately, thin markets indicate sellers have not adjusted prices down enough for buyers.How would cars be handled if 30% of the used cars hit the market? Used prices will plummet forcing new prices to drop to stimulate sales or manufacturers shut down.

People are unemployed. Small business, other than liquor stores, had income trashed. Food inflation will reduce budgets.

So I fully expect widebody prices to drop further. Neither Boeing nor Airbus have reduced production enough. So we know those numbers do not reflect reality as sellers have not yet adjusted pricing to clear the market.

If supply exceeds demand, price must fall to the market clearing price, made worse by slack used demand and accelerated production.

https://en.m.wikipedia.org/wiki/Market_clearing

I personally believed we were already in a widebody glut pre Covid19. I was also discussing over-supply of narrowbody aircraft. I estimate there is suddenly about 7,000 more aircraft than needed a year from now. If will be a painful road to clear the surplus.

I predict that A319s six months from now only go for scrap. I predict decade old 738s are only 20% above scrap. A320CEOs won't be as hard hit as the NGs, but as enough airlines opperate both, pricing will drop to somewhat competitive.

Lightsaber

Not only that but we're going to see a lot of what was previously planned to be growth aircraft becoming replacement aircraft for airlines not able to get out of purchase contracts which will push a large supply of fairly new CEO's and NG's onto the market, lessors especially are going to be in a world of pain as basically all the leverage is now with the airlines because they simply cannot place any aircraft they repose for anything close to comparable money, We have already seen sun country tell their lessors their not paying for aircraft and that the lessor is welcome to come to pick them up if they want and they have had no jets reposed because even after missing several months of revenue there is simply no better customer. All these lessors who were doing buying and leasing backs aircraft for airlines with questionable finances before this are going to be in a world of hurt. The aircraft I am most interested in pricing on right now are a330 CEO's which were already cheap before this and about to get a hole lot cheaper in my opinion which could potentially make them an interesting acquisition for someone like delta running beach markets, like the famous 16X daily ATL MCO delta operates on very large aircraft currently. That is a very price-sensitive market so I would have to imagine cutting it back to 12X daily is not going to cause a hug loss of volume

dstblj52 wrote:

lightsaber wrote:

MIflyer12 wrote:

Yes, it's difficult to approximate values in thin markets, whether it's planes, classic cars, or undeveloped land in rural areas. Are you saying that you have better data than Ishka, the firm cited by Leeham?

This is building on your comment, not rebutting:
Let us put it another way, typically value depreciation must accelerate to stimulate the market after such a market shock. In a year, with any reasonable recovery, the MAX and NEO production will flood the market.

Unfortunately, thin markets indicate sellers have not adjusted prices down enough for buyers.How would cars be handled if 30% of the used cars hit the market? Used prices will plummet forcing new prices to drop to stimulate sales or manufacturers shut down.

People are unemployed. Small business, other than liquor stores, had income trashed. Food inflation will reduce budgets.

So I fully expect widebody prices to drop further. Neither Boeing nor Airbus have reduced production enough. So we know those numbers do not reflect reality as sellers have not yet adjusted pricing to clear the market.

If supply exceeds demand, price must fall to the market clearing price, made worse by slack used demand and accelerated production.

https://en.m.wikipedia.org/wiki/Market_clearing

I personally believed we were already in a widebody glut pre Covid19. I was also discussing over-supply of narrowbody aircraft. I estimate there is suddenly about 7,000 more aircraft than needed a year from now. If will be a painful road to clear the surplus.

I predict that A319s six months from now only go for scrap. I predict decade old 738s are only 20% above scrap. A320CEOs won't be as hard hit as the NGs, but as enough airlines opperate both, pricing will drop to somewhat competitive.

Lightsaber

Not only that but we're going to see a lot of what was previously planned to be growth aircraft becoming replacement aircraft for airlines not able to get out of purchase contracts which will push a large supply of fairly new CEO's and NG's onto the market, lessors especially are going to be in a world of pain as basically all the leverage is now with the airlines because they simply cannot place any aircraft they repose for anything close to comparable money, We have already seen sun country tell their lessors their not paying for aircraft and that the lessor is welcome to come to pick them up if they want and they have had no jets reposed because even after missing several months of revenue there is simply no better customer. All these lessors who were doing buying and leasing backs aircraft for airlines with questionable finances before this are going to be in a world of hurt. The aircraft I am most interested in pricing on right now are a330 CEO's which were already cheap before this and about to get a hole lot cheaper in my opinion which could potentially make them an interesting acquisition for someone like delta running beach markets, like the famous 16X daily ATL MCO delta operates on very large aircraft currently. That is a very price-sensitive market so I would have to imagine cutting it back to 12X daily is not going to cause a hug loss of volume

I agree that leasing companies will be in trouble. Since I last posted, Indigo GoAir, Latam subsidiaries, Level (EU, not longhaul), Easyjet


A link for example of Easyjet reducing its fleet (mostly on staff reduction,):
https://www.msn.com/en-us/money/compani ... r-BB14Hmw7

I recall reading about numerous 737NG short term leases for the MAX. Once all those MAX can be delivered, the NGs can only hope to be converted to cargo. Now SpiceJet was an extreme example, but as they implied 30 :

SpiceJet has inducted about 30 Boeing 737 NG planes that were withdrawn from grounded Jet Airways’ fleet by lessors. The carrier has added the planes on short-term leases, with a maximum lease tenure of 24 months.

That was a July 2019 link. I assume some aircraft were delivered earlier. That implies sometime soon, those 737NG start returning to leasors in bulk.

https://www.livemint.com/companies/news ... 02592.html

I already listed A320 operators.

When Delta is ready to expand, I expect them to buy up used A320CEO or 738s cheap, not A330s. But first we need a volume of transactions to clear the market (reduce prices). That will not happen soon. Perhaps not until into 2021 a few quarters. I know prices of a decade old aircraft dropped about 15%.

When opportunistic buyers like Delta and Allegiant start buying used (or new) aircraft in bulk, I will believe we are near a bottom.

I think the oversupplied widebody market will take years to sort out.

Lightsaber

Always enjoy your insight on these topics

quote="lightsaber"]

dstblj52 wrote:

lightsaber wrote:

This is building on your comment, not rebutting:
Let us put it another way, typically value depreciation must accelerate to stimulate the market after such a market shock. In a year, with any reasonable recovery, the MAX and NEO production will flood the market.

Unfortunately, thin markets indicate sellers have not adjusted prices down enough for buyers.How would cars be handled if 30% of the used cars hit the market? Used prices will plummet forcing new prices to drop to stimulate sales or manufacturers shut down.

People are unemployed. Small business, other than liquor stores, had income trashed. Food inflation will reduce budgets.

So I fully expect widebody prices to drop further. Neither Boeing nor Airbus have reduced production enough. So we know those numbers do not reflect reality as sellers have not yet adjusted pricing to clear the market.

If supply exceeds demand, price must fall to the market clearing price, made worse by slack used demand and accelerated production.

https://en.m.wikipedia.org/wiki/Market_clearing

I personally believed we were already in a widebody glut pre Covid19. I was also discussing over-supply of narrowbody aircraft. I estimate there is suddenly about 7,000 more aircraft than needed a year from now. If will be a painful road to clear the surplus.

I predict that A319s six months from now only go for scrap. I predict decade old 738s are only 20% above scrap. A320CEOs won't be as hard hit as the NGs, but as enough airlines opperate both, pricing will drop to somewhat competitive.

Lightsaber

Not only that but we're going to see a lot of what was previously planned to be growth aircraft becoming replacement aircraft for airlines not able to get out of purchase contracts which will push a large supply of fairly new CEO's and NG's onto the market, lessors especially are going to be in a world of pain as basically all the leverage is now with the airlines because they simply cannot place any aircraft they repose for anything close to comparable money, We have already seen sun country tell their lessors their not paying for aircraft and that the lessor is welcome to come to pick them up if they want and they have had no jets reposed because even after missing several months of revenue there is simply no better customer. All these lessors who were doing buying and leasing backs aircraft for airlines with questionable finances before this are going to be in a world of hurt. The aircraft I am most interested in pricing on right now are a330 CEO's which were already cheap before this and about to get a hole lot cheaper in my opinion which could potentially make them an interesting acquisition for someone like delta running beach markets, like the famous 16X daily ATL MCO delta operates on very large aircraft currently. That is a very price-sensitive market so I would have to imagine cutting it back to 12X daily is not going to cause a hug loss of volume

I agree that leasing companies will be in trouble. Since I last posted, Indigo GoAir, Latam subsidiaries, Level (EU, not longhaul), Easyjet


A link for example of Easyjet reducing its fleet (mostly on staff reduction,):
https://www.msn.com/en-us/money/compani ... r-BB14Hmw7

I recall reading about numerous 737NG short term leases for the MAX. Once all those MAX can be delivered, the NGs can only hope to be converted to cargo. Now SpiceJet was an extreme example, but as they implied 30 :

SpiceJet has inducted about 30 Boeing 737 NG planes that were withdrawn from grounded Jet Airways’ fleet by lessors. The carrier has added the planes on short-term leases, with a maximum lease tenure of 24 months.

That was a July 2019 link. I assume some aircraft were delivered earlier. That implies sometime soon, those 737NG start returning to leasors in bulk.

https://www.livemint.com/companies/news ... 02592.html

I already listed A320 operators.

When Delta is ready to expand, I expect them to buy up used A320CEO or 738s cheap, not A330s. But first we need a volume of transactions to clear the market (reduce prices). That will not happen soon. Perhaps not until into 2021 a few quarters. I know prices of a decade old aircraft dropped about 15%.

When opportunistic buyers like Delta and Allegiant start buying used (or new) aircraft in bulk, I will believe we are near a bottom.

I think the oversupplied widebody market will take years to sort out.

Lightsaber[/quote]

TropicalSky wrote:

Always enjoy your insight on these topics

quote="lightsaber"]

dstblj52 wrote:

lightsaber wrote:

This is building on your comment, not rebutting:
Let us put it another way, typically value depreciation must accelerate to stimulate the market after such a market shock. In a year, with any reasonable recovery, the MAX and NEO production will flood the market.

Unfortunately, thin markets indicate sellers have not adjusted prices down enough for buyers.How would cars be handled if 30% of the used cars hit the market? Used prices will plummet forcing new prices to drop to stimulate sales or manufacturers shut down.

People are unemployed. Small business, other than liquor stores, had income trashed. Food inflation will reduce budgets.

So I fully expect widebody prices to drop further. Neither Boeing nor Airbus have reduced production enough. So we know those numbers do not reflect reality as sellers have not yet adjusted pricing to clear the market.

If supply exceeds demand, price must fall to the market clearing price, made worse by slack used demand and accelerated production.

https://en.m.wikipedia.org/wiki/Market_clearing

I personally believed we were already in a widebody glut pre Covid19. I was also discussing over-supply of narrowbody aircraft. I estimate there is suddenly about 7,000 more aircraft than needed a year from now. If will be a painful road to clear the surplus.

I predict that A319s six months from now only go for scrap. I predict decade old 738s are only 20% above scrap. A320CEOs won't be as hard hit as the NGs, but as enough airlines opperate both, pricing will drop to somewhat competitive.

Lightsaber

Not only that but we're going to see a lot of what was previously planned to be growth aircraft becoming replacement aircraft for airlines not able to get out of purchase contracts which will push a large supply of fairly new CEO's and NG's onto the market, lessors especially are going to be in a world of pain as basically all the leverage is now with the airlines because they simply cannot place any aircraft they repose for anything close to comparable money, We have already seen sun country tell their lessors their not paying for aircraft and that the lessor is welcome to come to pick them up if they want and they have had no jets reposed because even after missing several months of revenue there is simply no better customer. All these lessors who were doing buying and leasing backs aircraft for airlines with questionable finances before this are going to be in a world of hurt. The aircraft I am most interested in pricing on right now are a330 CEO's which were already cheap before this and about to get a hole lot cheaper in my opinion which could potentially make them an interesting acquisition for someone like delta running beach markets, like the famous 16X daily ATL MCO delta operates on very large aircraft currently. That is a very price-sensitive market so I would have to imagine cutting it back to 12X daily is not going to cause a hug loss of volume

I agree that leasing companies will be in trouble. Since I last posted, Indigo GoAir, Latam subsidiaries, Level (EU, not longhaul), Easyjet


A link for example of Easyjet reducing its fleet (mostly on staff reduction,):
https://www.msn.com/en-us/money/compani ... r-BB14Hmw7

I recall reading about numerous 737NG short term leases for the MAX. Once all those MAX can be delivered, the NGs can only hope to be converted to cargo. Now SpiceJet was an extreme example, but as they implied 30 :

SpiceJet has inducted about 30 Boeing 737 NG planes that were withdrawn from grounded Jet Airways’ fleet by lessors. The carrier has added the planes on short-term leases, with a maximum lease tenure of 24 months.

That was a July 2019 link. I assume some aircraft were delivered earlier. That implies sometime soon, those 737NG start returning to leasors in bulk.

https://www.livemint.com/companies/news ... 02592.html

I already listed A320 operators.

When Delta is ready to expand, I expect them to buy up used A320CEO or 738s cheap, not A330s. But first we need a volume of transactions to clear the market (reduce prices). That will not happen soon. Perhaps not until into 2021 a few quarters. I know prices of a decade old aircraft dropped about 15%.

When opportunistic buyers like Delta and Allegiant start buying used (or new) aircraft in bulk, I will believe we are near a bottom.

I think the oversupplied widebody market will take years to sort out.

Lightsaber

[/quote]
Thank you. I'm getting rather scared for the airlines. Leasing companies are going to take a significant hit. That means less new aircraft buying. Which means far less development, which means fewer interesting opportunities for me.

Lightsaber

lightsaber wrote:

TropicalSky wrote:

Always enjoy your insight on these topics

quote="lightsaber"]

dstblj52 wrote:

Not only that but we're going to see a lot of what was previously planned to be growth aircraft becoming replacement aircraft for airlines not able to get out of purchase contracts which will push a large supply of fairly new CEO's and NG's onto the market, lessors especially are going to be in a world of pain as basically all the leverage is now with the airlines because they simply cannot place any aircraft they repose for anything close to comparable money, We have already seen sun country tell their lessors their not paying for aircraft and that the lessor is welcome to come to pick them up if they want and they have had no jets reposed because even after missing several months of revenue there is simply no better customer. All these lessors who were doing buying and leasing backs aircraft for airlines with questionable finances before this are going to be in a world of hurt. The aircraft I am most interested in pricing on right now are a330 CEO's which were already cheap before this and about to get a hole lot cheaper in my opinion which could potentially make them an interesting acquisition for someone like delta running beach markets, like the famous 16X daily ATL MCO delta operates on very large aircraft currently. That is a very price-sensitive market so I would have to imagine cutting it back to 12X daily is not going to cause a hug loss of volume

I agree that leasing companies will be in trouble. Since I last posted, Indigo GoAir, Latam subsidiaries, Level (EU, not longhaul), Easyjet


A link for example of Easyjet reducing its fleet (mostly on staff reduction,):
https://www.msn.com/en-us/money/compani ... r-BB14Hmw7

I recall reading about numerous 737NG short term leases for the MAX. Once all those MAX can be delivered, the NGs can only hope to be converted to cargo. Now SpiceJet was an extreme example, but as they implied 30 :

SpiceJet has inducted about 30 Boeing 737 NG planes that were withdrawn from grounded Jet Airways’ fleet by lessors. The carrier has added the planes on short-term leases, with a maximum lease tenure of 24 months.

That was a July 2019 link. I assume some aircraft were delivered earlier. That implies sometime soon, those 737NG start returning to leasors in bulk.

https://www.livemint.com/companies/news ... 02592.html

I already listed A320 operators.

When Delta is ready to expand, I expect them to buy up used A320CEO or 738s cheap, not A330s. But first we need a volume of transactions to clear the market (reduce prices). That will not happen soon. Perhaps not until into 2021 a few quarters. I know prices of a decade old aircraft dropped about 15%.

When opportunistic buyers like Delta and Allegiant start buying used (or new) aircraft in bulk, I will believe we are near a bottom.

I think the oversupplied widebody market will take years to sort out.

Lightsaber

Thank you. I'm getting rather scared for the airlines. Leasing companies are going to take a significant hit. That means less new aircraft buying. Which means far less development, which means fewer interesting opportunities for me.

Lightsaber[/quote]
What goes up most go down and unfortunately we have had massive growth in a lot of the world's aviation market not all of which was based on profitable fares and load factors so we will have to see how much of a tearing down will happen before the world starts building up again.

I think that lessors are ticking time bombs.
They are like mortgage bonds during the 2008 housing crisis, full of leasing contracts that are defaulting starting with the riskiest ones.
In addition, their business is not sufficiently diversified. If all airlines go down the drain, there is very little they can do and their own debt becomes too large a liability to stay afloat
Imo we will see lessors fail, especially the ones that did not quite look at the financial health of the airlines they were leasing the aircraft to.

Banks are starting to see a huge string of bankruptcies in commercial real estate from hotels to shopping malls.
Combine that with default in aircraft backed loans and you have a banking crisis that will make the 2008 crisis look like a walk in the park.
Every aircraft would be thr equivalrnt of hundreds of foreclosed homes, with no one to liquidate them to, as opposed to foreclosed homes where you can find a taker at the right price to recover at least a good chunk of the outstanding loans.

The OEM's are the equivalent of construction companies. They should keep churning out aircraft because eventually we are going to need them. There's no point in reducing production, even if they will be white tails for a while.


This is what awaits this industry:
https://m.youtube.com/watch?v=xbiDrzTd8fE

Waterbomber2 wrote:

I think that lessors are ticking time bombs.
They are like mortgage bonds during the 2008 housing crisis, full of leasing contracts that are defaulting starting with the riskiest ones.
In addition, their business is not sufficiently diversified. If all airlines go down the drain, there is very little they can do and their own debt becomes too large a liability to stay afloat
Imo we will see lessors fail, especially the ones that did not quite look at the financial health of the airlines they were leasing the aircraft to.

Banks are starting to see a huge string of bankruptcies in commercial real estate from hotels to shopping malls.
Combine that with default in aircraft backed loans and you have a banking crisis that will make the 2008 crisis look like a walk in the park.
Every aircraft would be thr equivalrnt of hundreds of foreclosed homes, with no one to liquidate them to, as opposed to foreclosed homes where you can find a taker at the right price to recover at least a good chunk of the outstanding loans.

The OEM's are the equivalent of construction companies. They should keep churning out aircraft because eventually we are going to need them. There's no point in reducing production, even if they will be white tails for a while.


This is what awaits this industry:
https://m.youtube.com/watch?v=xbiDrzTd8fE

Low interest rates put the global economy on precarious footing.

Unfortunately, I think the leasing companies are in trouble as you note. I'm not sure what demand will be or more precisely how the recovery curve will be.

My opinion is production is too high still, when the deluge of MAXes are reintroduced, the market will have an abrupt reset. So this we must agree to disagree. There is a large surplus of capacity.

Some reduction will happen by retiring less desirable types: MD-80/90, some 757, older 737/A320, and many widebodies. We'll have a lovely time debating and some will make economic sense of why one airline kept some, but for another airline to return or scrap. Airlines are clever at saving cash.

We have an interesting situation. The purchase demand is so low, current pricing is below what sellers need to sell. So few transactions occur. But a market clearing price will be found.

We'll see how fast the recovery is. But many will store aircraft for years, just as NW did, later reactivated by DL. There will be a need for low fixed cost lift for high demand times... sometime in the future. At some point, aircraft will transfer for many millions less than they will in the future. So I see:
Several thousand aircraft will be stored.
Several thousand aircraft will be parted out.

Until oil gets really pricey again, we'll have quite the overhang of surplus aircraft. At least that is my opinion.

Lightsaber

I know it's debated on another thread, but I can see this all heading into a government backed 'cash for clunkers'/'scrapage' scheme of sorts as its going to be the only way to clear the stored/underutilised aircraft while still keeping a flow of aircraft going out the doors of the manufacturers and keeping their lights on. No doubt A & B are doing their best to slow down production rates to what they can viably get by with but as you say, in the present market is not going to be enough.

I think this will be bigger then just the lessors themselves, a lot of these guys are ultimately backed by banks anyway, so we are talking a write down in assets and bad debts. Planes are expensive items, the hit to bank balance sheets, along with other bad debts they will incur in this situation will be huge, and then that starts turning on credit everywhere in the economies, like 2008. (Assuming this drags on and doesn't recover quickly)

Airbus have been lobbying European governments for a scrapage scheme of sorts and I can see it taking hold. It can obviously be marketed by governments as a green measure, helping reduce the number of heavy polluting aircraft for newer more efficient units, while also keeping the manufacturing industry going. In a sense government money will then be propping up the new 'market price' on the secondary market and also in turn helping lessors/banks. Obviously such a move gets political, I can see Europe doing something for Airbus, and while I never see the US letting Boeing die, guess an equivalent move would be slightly clouded by the current political climate.

Heard on another thread (the "Play" one) that some lessors now are offering deals per flight hours.

What are the general terms of such deals ?
Even if the lessee pay per hour, is there a minimum required hours per month ?

Does such deals are just temporary or can they be long like 6-10 years dotation contact?

Many thanks for your feedbacks

One thing for sure some airlines will be able to pick up more planes for cash and place them in storage...G4, SY..

With the health and financial aspects of this with big unknowns, I think one of the hallmarks of this might be how regionalised the return of travel maybe. Its clear that some regions of the world have had quicker responses and controls than others. Some parts of the world lack the resources to tackle the problem that others have. This will act as a reservoir of reinfection for some time. As a consequence parts of the world will be excluded from travel. This unevenness of return might have some strange side effects hard to see at the beginning (for example if an area of the globe which for whatever reason disproportionately had one manufacturers aircraft than the other was not able to use their aircraft all flooded on to the market as they got returned, or a certain size of aircraft was no longer needed)

I expect that the leasor themselves are probably leveraged on these assets and failure to pay on leases by airllines might be one of many dominoes to fall eventually effecting "healthy" airlines ability to finance purchases and leases. The whole sell and lease back thing was a potential financial mine if things went bad. Airlines that predominately lease look to have more concerns than those that own. Financing capital expenditure is often done because it is more tax efficient, but when things go bad you lose a lot of control you might have otherwise had.

Watching all this fall out will likely be through observation of the used and leasing rates we can see.

Exeiowa wrote:

With the health and financial aspects of this with big unknowns, I think one of the hallmarks of this might be how regionalised the return of travel maybe. Its clear that some regions of the world have had quicker responses and controls than others. Some parts of the world lack the resources to tackle the problem that others have. This will act as a reservoir of reinfection for some time. As a consequence parts of the world will be excluded from travel. This unevenness of return might have some strange side effects hard to see at the beginning (for example if an area of the globe which for whatever reason disproportionately had one manufacturers aircraft than the other was not able to use their aircraft all flooded on to the market as they got returned, or a certain size of aircraft was no longer needed)

I expect that the leasor themselves are probably leveraged on these assets and failure to pay on leases by airllines might be one of many dominoes to fall eventually effecting "healthy" airlines ability to finance purchases and leases. The whole sell and lease back thing was a potential financial mine if things went bad. Airlines that predominately lease look to have more concerns than those that own. Financing capital expenditure is often done because it is more tax efficient, but when things go bad you lose a lot of control you might have otherwise had.

Watching all this fall out will likely be through observation of the used and leasing rates we can see.

I agree with the regional recovery. This will hurt widebodies as, by design, they fly between regions.

I think there will bad regional disparities. There are also different regional acceptance of risk.

Lightsaber

Has someone some data to the Q400? I have recently already counted a number of 110 Q400, who are already on the market (as airlines have collapsed) or will retire till mid of 2021.

Even on this site there were people uneasy with the backlog of orders, and the number of planes out there, and that unease is more than a couple years old. Stewart Brand was noted for scenario planning, and there has been a shortage of that in the industry so far as I have read. Aviation in general did not have a plan for what to do if everything goes sour. Delta and Southwest may have such plans? There is evidence they might have - actions speak.

[*]

T4thH wrote:

Has someone some data to the Q400? I have recently already counted a number of 110 Q400, who are already on the market (as airlines have collapsed) or will retire till mid of 2021.

According to IBA
Lease rate DHC 8 - 400 : 60 000 USD / month / 10 YO frame
Lease rate DHC 8 - 400 : 100 000 USD / Month / 3 YO frame

Perversely the MAX grounding is probably providing some sort of floor under the 737NG.

ANY NEWS... with respect to Full freighter values ???

eurotrader85 wrote:

I know it's debated on another thread, but I can see this all heading into a government backed 'cash for clunkers'/'scrapage' scheme of sorts as its going to be the only way to clear the stored/underutilised aircraft while still keeping a flow of aircraft going out the doors of the manufacturers and keeping their lights on. No doubt A & B are doing their best to slow down production rates to what they can viably get by with but as you say, in the present market is not going to be enough.
...
Airbus have been lobbying European governments for a scrapage scheme of sorts and I can see it taking hold. It can obviously be marketed by governments as a green measure, helping reduce the number of heavy polluting aircraft for newer more efficient units, while also keeping the manufacturing industry going. In a sense government money will then be propping up the new 'market price' on the secondary market and also in turn helping lessors/banks. Obviously such a move gets political, I can see Europe doing something for Airbus, and while I never see the US letting Boeing die, guess an equivalent move would be slightly clouded by the current political climate.

Here's a serious reason that won't work.

When the US had a cash-for-clunkers program, they could assume a large part of the replacement production was going to happen in the US. Even Toyota makes cars in the U.S. Most people need a car, and will need to replace the car. The "yield" (i.e. dollars_spent / new_domestic_production) would be high. However, airliners are as international a market as exists. If Europe were to scrap old airliners, the European market would get by with fewer planes, move used but newer planes to Europe from the rest of the world, and allocate about half any new production to Boeing. In other words, if you want to subsidize Airbus, a cash-for-clunkers programs would be a terribly inefficient way to do so, and I assume Airbus lobbyists know this.

lightsaber wrote:

Unfortunately, I think the leasing companies are in trouble as you note. I'm not sure what demand will be or more precisely how the recovery curve will be.

Their troubles may depend on how much they can earn with the sale-and-leaseback market. BOC Aviation seems to be able to get some deals from airlines like Wizz Air (6 A321NEOs for 2020-2021 delivery) and Southwest (10 MAX8). I reckon the other lease companies will do these kind of deals as well.

LJ wrote:

lightsaber wrote:

Unfortunately, I think the leasing companies are in trouble as you note. I'm not sure what demand will be or more precisely how the recovery curve will be.

Their troubles may depend on how much they can earn with the sale-and-leaseback market. BOC Aviation seems to be able to get some deals from airlines like Wizz Air (6 A321NEOs for 2020-2021 delivery) and Southwest (10 MAX8). I reckon the other lease companies will do these kind of deals as well.

The real problem for the leasing companies is aircraft returning to the lessor due to expiration of the contract and no renewal. This will lead to a glut of aircraft available on the market which will drive prices down which will make new purchases unnecessary. The values of aircraft might actually fall below their construction price for a while and whats even worse, lower production will drive costs up what makes new aircraft even more expensive and the difference between value and purchases price will become even more extreme.

WB aircraft will suffer by far the most, the bigger the worse. A380s already have scrap value for leasing companies, 777X most probably has scrap value for a leasing company straight out of the factory as a sale-lease-back except you sign a 30 year lease. A35K will also be really low in value I guess, and 787s and 330neos will take a massive hit in value from the fact that there are so many 787s and 330ceos out there that will become available.

I can't find the story, but Sun Country CEO said that prices of 12 yr old 737-800 are down in value vs pre virus prices. SY is kicking the ties and plan on growing to 50- 60 jets, but no time frame.

LJ wrote:

lightsaber wrote:

Unfortunately, I think the leasing companies are in trouble as you note. I'm not sure what demand will be or more precisely how the recovery curve will be.

Their troubles may depend on how much they can earn with the sale-and-leaseback market. BOC Aviation seems to be able to get some deals from airlines like Wizz Air (6 A321NEOs for 2020-2021 delivery) and Southwest (10 MAX8). I reckon the other lease companies will do these kind of deals as well.

This is a fair comment and a good point.

I expect with money being printed, returns will lose money, but sale/leaseback will be the profit center.

Avoid short terms.

Lightsaber

sunking737 wrote:

I can't find the story, but Sun Country CEO said that prices of 12 yr old 737-800 are down in value vs pre virus prices. SY is kicking the ties and plan on growing to 50- 60 jets, but no time frame.

Sun country is in real danger of going under and a huge part of their problem are their overly expensive long term leases on aircraft

So Delta did a large sale leaseback. This should give us an assumption on value (once public), for ten A220-100:
https://apnews.com/90bd06e447d4d1a336749d31a47f2f7f

Lightsaber

Leeham has another article on the drop in sales and lease rates. But they have a different age of aircraft, so it is very tough to compare. This time (older) 15 year old aircraft (I posted a link before on 10 year old aircraft). This is also first run 777-300ER and the first 18 months of production never hold value as well as later examples (thanks to PiPs).

https://leehamnews.com/2020/06/30/hotr-values-plunge/

Here is a month older look at 5-year old aircraft:
https://leehamnews.com/2020/05/25/ponti ... s-plummet/

One expects older aircraft to become less desirable in a downturn and to drop in value more.

We also do not yet have a market clearing prices (supply and demand in rough balance).

Lightsaber

I don't think we will have a market clearing price but rather a market clearing time, because owning an airplane induces cost (storage, maintenance, financing charge). The phrase the market can stay irrational longer than you can stay solvent, seems an appropriate one for an entity looking to take advantage of the situation. Any airline being supported by an elected government is unlikely to be looked on favorably if they used their resources for this, non-elected government backed airlines are mostly supported through the sale of a commodity that has had significant price impacts. Lessors are probably running up to leverage limits. It would be interesting to see if which airlines have been dipping into the 2nd hand market and what they did with the extra frames.

Exeiowa wrote:

I don't think we will have a market clearing price but rather a market clearing time, because owning an airplane induces cost (storage, maintenance, financing charge). The phrase the market can stay irrational longer than you can stay solvent, seems an appropriate one for an entity looking to take advantage of the situation. Any airline being supported by an elected government is unlikely to be looked on favorably if they used their resources for this, non-elected government backed airlines are mostly supported through the sale of a commodity that has had significant price impacts. Lessors are probably running up to leverage limits. It would be interesting to see if which airlines have been dipping into the 2nd hand market and what they did with the extra frames.

I agree this will take time. But we will see a domino effect. I expect Boeing to discount the MAX for a few orders. That will put pressure on Airbus selling NEOs.

The fact Airbus is producing A320NEO at a still high rate will depress CEO pricing. Indigo, GoAir, Easyjet, SpiceJet, Avianca, GOL, LATAM, and AeroMexico can all be expected to return aircraft to leasors. That will depress the narrowbody market.

The widebody market is in a world of hurt. My prior link noted the drastic drop in 777-300ER resale values. Those $31 million 777-300ERs will be very attractive as freight conversion stock, thus depressing the A333 values. Then again, a $20 million A332 is cheap freighter stock too. The A321 at $15 million is a brutally cheap value for a 15 year old aircraft.

Any buyer wanting a large number would be wise to "walk down" the market buying in small batches until a better offer is made.

Indigo alone is returning 120 A320CEO over 2 years instead of extending some leases for growth.

The market will be walked down. It already has been a brutal amount. I see used A320CEO prices dropping at least another 20% over the next 18 months. In addition, I am discussing an X year old aircraft. In 18 months it will be X+1.5 years old, reducing the value further.

Going from memory, after 9/11, during the recovery, a 5 year old aircraft increased in value starting in 2005. But that didn't mean that a 1999 aircraft was worth more, it was a 5 year old 2000 build was worth more in 2005 than a 1999 build was worth in 2004.

I think enough airlines will go bankrupt to force a rational market. But a question of when? In my opinion, a thousand+ aircraft must first be scrapped. This will trash the sales price of scrap aircraft and engines.

Denial
Anger
Bargaining
Depression
Acceptance

Whomever sells first will sell for the higher price. That is reaching Acceptance first.

For example, I expect G4 (Allegiant) to purchase early. But they won't have to buy. They will ask for bids to buy aircraft. Naturally, they will receive many selling offers. It wouldn't surprise me if the first few were incredibly cheap A319s bought for engine green time. Eventually, they will be offered newer (186 seat compatible) A320s cheap enough.

The same will happen with 737NGs, accelerated when the MAX returns to service. I expect Ryanair to convert over to the MAX200 fairly quickly. Ryanair and SpiceJet alone will flood the 737NG market.

But this takes time. In particular, getting a few hundred MAXes flying again won't happen instantly.

Lightsaber

There is a prediction of 4,000 aircraft scrapped over 3 years, slowed by part demand (why buy an aircraft and pay labor to disassemble if the parts will not sell?):

https://aviationweek.com/mro/wave-used- ... -2-3-years

Ok, that means Aircraft could be as young as 12 to 14 years old (HMV, once called a D-check probably avoided). I think we might see a mix survive depending on desirability for freight conversion, hope market might recover, and need to cut costs (insurance, storage, maintenance to keep flight worthy).

MRO hit. There are 5,465 older than 15 years today. I would predict green life used excluding shrinks that tend to suffer a poor fate at economic inflections.

Errr... points to falling scrap values (lack of aircraft utilization reduces spares demand, so costs must be reduced). Which means less of a catch for middle aged frames.

Lightsaber

Sun Country has been taking advantage of the low price on frames. IIRC they now own 14 of the 30 in their -800 fleet. They still lease the only -700 VIP plane, plus the 10 Amazon planes

I know we normally do not track business jet values, but it looks like they have dropped 10% to 15%.

https://www.ainonline.com/aviation-news ... -covid-era

Jet card travel is very high, but it looks like many cannot afford the whole aircraft. I speculate it is tougher to get financing right now.

Lightsaber

This may be a time to start a new airline, then...?

For those interested, I will post an update most likely early next week. I have transaction data through May so we should see some shifts in valuations.

LAXintl,
I am very interested. I look forward to your new thread.

If I may suggest listing which aircraft have had insufficient transactions to estimate, that would be of interest too.

Lightsaber

LAXintl wrote:

For those interested, I will post an update most likely early next week. I have transaction data through May so we should see some shifts in valuations.

Yes please!

LAXintl wrote:

For those interested, I will post an update most likely early next week. I have transaction data through May so we should see some shifts in valuations.

One of my fav threads here

I am looking forward to your update.

See if you can find the new price ranges on the following:

Saab 2000
DHC-8-100
Embraer E190 E1

The trend us not friendly. Qantas, Avianca, and Royal Air Muroc have 8 788s going on the market:
https://leehamnews.com/2020/07/10/hotr/

Not in the headline, but alluded to in that link, the little bit if the A388 resale market (scrap) might be collapsing. There needs to be part demand to pay for airframe scrapping.

I'm a huge believer in supply and demand. In particular with aircraft that have a high monthly cost to hold onto and not sell.

I'm very curious to see how the values of all the airframes play out. As all aircraft compete against other aircraft, there will be none that go unscathed.

I very much respect LAXintl's data. The sad thing is that that data will be six weeks behind at publish, which normally is a nice current snapshot. In this market, we know prices will have dropped further.

It is also a market on old sale/leaseback terms. I can only speculate how much worse it us, but I would have to assume that leasing companies are making airlines take on more risk (higher down payments).

There us an expression on financial coverage. When the tide goes out, everyone sees who was skinny dipping. Those airlines won't be able to buy, further hurting the supply demand curve by removing that "bubble" of demand.

Lightsaber

At a recent UPS pilot meeting it was mentioned the company would open to exploring used frames if market pricing made such acquisitions attractive.
Might be quite a buyers market if second-hand frame prices collapse.

New thread:
viewtopic.php?t=1449067