Using the valuation tool InsightIQ, it considers the lease rate comparison of several A320 vintages and their respective engines.
London/Dublin/Tokyo - October 3rd 2019: IBA, the independent aviation advisory, valuation and consulting firm has identified a growing trend in mature aircraft management where the leasing of core engine assets is managed separately to the aircraft as a whole. This is becoming increasingly evident based upon the strengths of the CFM-56-5/7B and V2500-A5 engines within the A320 and 737NG fleets.
"Engines are well known to be the principal driver of maintenance costs for aircraft and towards end-of-life they are fundamental to the assets' value. However the market is increasingly looking to lease an aircraft's two engines separately to the airframe," comments Terry Dawson, Managing Director - Digital at IBA and leader of the Firm's data intelligence services and business strategy for the IBA.iQ platform. "Whilst in relative terms this is still fairly unusual and aircraft demand requirements in the narrowbody sector remain robust, the asset values of A320ceo and 737NG aircraft have both benefitted from the strength of the CFM56-5B, CFM56-7B and V2500-A5 markets."
The following chart outlines the achievable lease rate in the market of several A320 vintages alongside their comparable engine the CFM56-5B4/P.
IBA observes that there are further reports of this ‘asset splitting' spreading to A330 aircraft with demand for good condition engines driving a premium.
"The trend applies more so to maturing airframes around 18-19 years, but nonetheless it is becoming an increasingly common occurrence based upon the demand the engine market has been experiencing. We are hearing that more aircraft lessors are looking at this option for revenue generation" continues Dawson.
IBA believes this could be an opportunity for aircraft lessors to look more broadly at the engine market as a source of revenue. Increased engine availability might put engine lessors under pressure as potentially there could be more competition in the traditional spare engine lessor space."
Having an accurate picture of historical, current and future values is essential for those buying, selling, financing, investing in or operating aircraft engines. The iQ Engines module within IBA.iQ combines IBA's core expertise in aircraft and engine appraisals with market and data intelligence to analyse factors that can impact the value of aircraft engines.
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Two fundamental situations have prompted IBA Group and Split Rock Aviation to reflect on some key ‘industry standard' provisions within aviation lease agreements and re-evaluate their applicability and relevance: the 737 Max's grounding and the continued growth of leased aircraft in the industry. With the proportion of commercial aircraft leased now at 44% compared with 56% owned according to IBA's intelligence platform IBA.iQ, and witnessing the aviation industry's handling of the 737 Max's grounding, we have produced the first in a series of articles considering today's operating lease agreement. This segment will assess several industry standard lease agreement positions and test their logic in the current market.
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