12th May, 2020: IBA, the leading, independent aviation consultant, has identified a number of aircraft types that are at greatest risk of being placed in storage, as the effects of Covid-19 drive aircraft oversupply and falls in fleet sizes, asset values and lease rates.
In a webinar entitled “Narrowbody and widebody aircraft values and lease rates: What are my aviation assets worth?”, IBA under one scenario forecasts an oversupply of up to 2,500 narrow and widebody aircraft in the market, and calculates that global demand, once the current restrictions are lifted, will have declined by 20% by the end of 2021.
Using data from IBA.iQ, the leading platform for aviation intelligence, IBA’s analysts have calculated that approximately 3,400 narrowbody aircraft could be prematurely withdrawn from service over the next 20 months – a net reduction of 7.5% of the total narrowbody fleet. These withdrawals are driven by a blend of factors including airline failures, airline fleet restructurings driven by current market conditions, as well as scheduled lease ends.
The narrowbody types most at risk are A320ceo and Boeing 737NG aircraft over 16 years old. Narrowbody aircraft set for almost universal withdrawal from service include the Boeing 717, 737 Classic and 757, and the MD-80 and MD-90.
IBA also calculates that 1,850 widebody aircraft could be withdrawn from service – a net reduction of almost 30% of the total widebody fleet. The factors determining the most at risk aircraft include cost of operation as well as age. This leads IBA to forecast the possibility of an almost universal withdrawal of the A380 from service over the next two years if demand forecasts bear out, along with older twin and four engine aircraft including the Airbus A300, A310 and A340 and Boeing 747 and 767. IBA also forecasts that A330 and Boeing 777 aircraft over 13 years old could be surplus to requirements.
Phil Seymour, President of IBA, says: “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 In the next 20 months, many older aircraft types could be universally withdrawn from service, along with significant numbers of older variants of current generation aircraft including the Boeing 777, A330 and A380.”
He added: “While we believe there will be a fall in aircraft values and lease rates, each aircraft transaction needs to be carefully considered dependant on its particular circumstances. For example, the use of ISTAT Base Value may be appropriate, especially in cases where an aircraft is continuing on lease or is being stored for future use rather than being sold in a firesale situation.
“We recognise the many challenges with forecasting values in the unique, unprecedented environment caused by Covid-19 and urge anyone with concerns, be that airlines, lessors, banks or auditors, to liaise with us for the most appropriate value definition.”
IBA forecasts that the market values of narrowbody aircraft types aged around three years could fall by between 6% and 12%, whilst the lease rates for those aircraft could drop by between 10% and 15%. The value of older narrowbody types of around aged 18 years could drop by between 16% and 29%, and the lease rates of types aged around 12 years could fall by between 16% and 18%.
The market values of young widebody aircraft aged around three years could drop by between 3% and 7%, and lease rates for aircraft of this type and age could fall by between 8% and 19%. Older widebody types aged around 12 years could drop in value by 11% to 25%, and their lease rates could fall between 13% and 17%.
To view the webinar presentation, click here.
IBA has over 30 years’ experience in delivering independent, expert business analysis on the aviation sector. Established in 1988, it provides a wide range of services including IBA.iQ, the leading platform for aviation intelligence, asset valuations, credit risk, industry and sector research and analysis, asset management and technical inspections.
IBA advises prominent investment funds and banks, aircraft leasing companies, operators, manufacturers and MROs. In January 2020, IBA was named ‘Appraiser of the Year’ by Airline Economics.