IBA Insights

How Would Aircraft Appraisers Value Concorde Today? March 2019

With the recent 50th anniversary of the Concorde’s maiden flight, IBA’s Phil Seymour, CEO, discusses how aircraft appraisers would value Concorde today.

It was 50 years ago on 2nd March 1969 that Concorde first flew. It was seven years later that it entered commercial service, with only British Airways and Air France being the proud operators of the aircraft.

Coincidentally it was only a few weeks earlier that saw the maiden flight of the B747 and a few months later that saw the first man to land/walk on the moon – 1969 was a fascinating year and as a 10 year old kid probably no wonder that aviation was going to be my passion.

Anyway, this isn’t meant to be a history lesson or trip down memory lane, but a thought provoking piece of content on “How would you value Concorde today?” Some basic points to consider:

  • The original idea was that hundreds would be sold, with a unique supersonic Mach 2 speed that saw London/Paris to New York with a flight time of less than half that of competing aircraft. As you will no doubt know, only a handful were made.
  • The aircraft was noisy – sonic boom issues limited service.
  • High fuel consumption – can you believe that during most of the 1960’s oil price was 1.60 USD per barrel – no, I haven’t dropped a decimal place or two, that is, one dollar and sixty cents per barrel. By entry into service in 1976 it was circa 50USD per barrel.
  • The reheat/afterburner system on the engines which introduces fuel into the exhaust system that is re-ignited, is switched on for 83 seconds on take-off and initial climb. During that time the fuel burn is close to 600 US Gallons. Today an A220-300 only consumes just over that on an hour- long flight such as, from Amsterdam to Heathrow!
  • Only 100 passengers per sector, limiting revenue.
  • High maintenance costs – four awesome but expensive shop visit engines plus reheat systems.
  • Only 20 produced but six were not put into service, Air France and BA were the only operators.

 

I won’t give you the answers but the methodology and process to follow should not be alien to an ISTAT Certified Appraiser:

  • Consider the value in use – the earning power was clearly high-end individuals and corporates.
  • Consider the market – operators, reach, competition, HHI market concentration.
  • Impairment – when can the value in use (cash generating unit) be validly used and when does fair value less cost of sale kick in?

 

If you can work out the Concorde valuation conundrum it will help you figure out other topical issues, such as A380 values and other similar accounting and marketing of tough assets.

These types of issues may not be everyday considerations for an appraiser, but they are defi nitely examples of how appraisal methodology is put to the test.

There are other types to consider in the same way. How would you value an Airbus Beluga XL or a Boeing Dreamlifter, used by the OEM to transport massive fuselage/ wings sections from the supplier to the assembly line?

It has to be based on the value in use/utility/cash generation and cost of operations. Also in the case of heavy lifting aircraft such as the Beluga XL, one has to consider the cost of options if the Beluga XL was not available – could ships/rail or other modes of transport be used? What would be the cost of those options and pros and cons of such options?

If you have any further questions, comments or feedback please contact: phil.seymour@iba.aero  

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