Stuart Hatcher, IBA's COO, says the impact of Covid-19 on airline and lessor finances will lead to a decline in aircraft values of over 10% for newer aircraft types and up to 30% for older aircraft in the short term.
Looking at evidence produced by significant historical events such as 9/11, the first Gulf war, the Asia Crisis and the Sars outbreak in the early 2000s, we see periods during these crises when both market values and lease rates of aircraft drop off.
Lease rates suffered negative effects of 20-30% for liquid narrowbody aircraft post 9/11 until mid SARS:
Following these events, we encountered a period of positive recovery up to 30% in market lease rates from 2005 to 2007.
Similarly, using IBA.iQ Values, market values are expected to decrease during crises. The market values of in-production type aircraft such as the B737-800 and A320ceo dropped by more than 10% during the 9/11 and SARS incidents. Between 2005 and 2007 the rate of recovery was comparable at around 10%.
Older aircraft such as the B757 suffered a reduction in value in excess of 30%.
It is very much a question of investors holding their nerve. A long-term outlook is needed as the market has shown remarkable resilience in the past and reduced values will recover over time.
For further guidance on valuations, contact Mike Yeomans
For advice on credit risk, we offer a range of risk services including credit monitoring, an operator score index and operator risk assessments. If you would like more information on how we can possibly help your business in this area, please fill out the form below.
AuthorSee full profile
Navigating Covid-19: In this short and punchy 60 minute session, Phil Seymour was joined by Stuart Hatcher, COO MD Aviation and Mike Yeomans, Head of Valuations, to discuss key market indicators. Using Fleet and Values data from IBA's leading data intelligence platform IBA.iQ, the panel review OEM activity, Green shoots in the market and Leasing activity. To benefit and support our clients and to help enable them to further understand how aviation stakeholders are responding, managing and succeeding in these unprecedented times, IBA are running a new series of fortnightly webinars focused on the aviation market. The slide deck is available to download here. If you have further questions please contact: Phil Seymour or Mike Yeomans
As many of you will know, the effects of Covid-19 are going to change the size and makeup of airline fleets, and do so quickly. In the next 20 months, it's possible that many older aircraft types could be universally withdrawn from service, along with significant numbers of older variants of current generation aircraft including the Boeing 777, A330 and A380. IBA, the leading aviation consultancy, estimate there will be an aircraft oversupply of up to 2,500 narrow and widebody aircraft in the market, with global demand, once the current restrictions are lifted, possibly declining by 20% by the end of 2021.
The Covid-19 outbreak has imposed some of the most severe financial difficulties seen in over a decade on the aviation industry. The unprecedented travel restrictions imposed by governments globally to manage and alleviate the spread of the Covid-19 virus have resulted in airlines facing economic hardships, with many requiring government bail outs.