What to Look for When Valuing an Engine, March 2018

A multitude of inputs affect an engine’s value over its life-cycle. Gary Leung and Georgy Cameron, aviation analysts at consultancy IBA, boil down to the essentials.

Determining   the  value  of  an engine  at different phases of its life-cycle requires consideration of a variety of factors, particularly engine maintenance value and engine core value. Depending on the phase of the engine’s life, options to the owner include repair or overhaul to put value back into the asset; or, alternatively, green-time sale, tear-down and part-out of used serviceable material in order to extract remaining value from the engine.

Maintenance value accounts for the value of life-limited parts (LLPs) and the value associated with the on-wing time before requiring a performance restoration. Core value, on the other hand, is the value of non-LLPs and the engine data plate. Ensuring back-to-birth traceability is of paramount importance for owners, lessors and lessees. Any gaps or issues in documentation can have a significant impact on the residual value of the engine and, in some instances, can render the engine worthless. Owners and lessors must ensure records are kept otherwise difficulties may arise in future sales or leases. Lessees must retain records otherwise they may be required to pay a premium to replace any parts that are unaccounted for during or at the end of lease.

Other influences on value include macroeconomic factors, such as oil price, reputation for reliability, age, entry-into-service delays, exclusivity, restrictive maintenance programs, and supply and demand.

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