AFRA Aircraft Valuation Panel - ASA · A320-neo / 737-Max mostly going to growth, not replacement yet Engine shops are backlogged, spare engines are scarce Dwindling supply of 737-400

AFRA Aircraft Valuation Panel

Moderator: Ken Kocialski, CAVU Aerospace, Inc.

Panelists: Mike Lapson, Flight Ascend Consultancy

Brian Postel, Unical Aviation Inc

Moderator: Ken Kocialski, Partner, CAVU Aerospace, Inc.

Panelist: Mike Lapson, Senior Analyst and ISTAT Certified Appraiser, Flight Ascend Consultancy

flightglobal.com/consultancy

June 2018

Michael Lapson

Senior Valuations Analyst

ISTAT Certified Appraiser

1

Mid-life Aircraft

Value Trends

flightglobal.com/consultancy 2

Economic trends influencing values

Mid-life “flyer” aircraft values

Engines market

Part-out values


Source: ICAO, IATA, World Bank

8-year run of strong GDP and traffic growth

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%1

97

2

197

3

197

4

197

5

197

6

197

7

197

8

197

9

198

0

198

1

198

2

198

3

198

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198

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198

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198

7

198

8

198

9

199

0

199

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199

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199

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199

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199

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199

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199

9

200

0

200

1

200

2

200

3

200

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200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

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201

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201

5

201

6

201

7

Tra

ffic

Gro

wth

GD

P G

row

th

World GDP growth (LHS) Traffic growth (RHS)


Source: IATA

Global passenger traffic growth stronger than capacity growth

-15%

-10%

-5%

0%

5%

10%

15%

20%Jul-0

8

Oct-

08

Jan-0

9

Apr-

09

Jul-0

9

Oct-

09

Jan-1

0

Apr-

10

Jul-1

0

Oct-

10

Jan-1

1

Apr-

11

Jul-1

1

Oct-

11

Jan-1

2

Apr-

12

Jul-1

2

Oct-

12

Jan-1

3

Apr-

13

Jul-1

3

Oct-

13

Jan-1

4

Apr-

14

Jul-1

4

Oct-

14

Jan-1

5

Apr-

15

Jul-1

5

Oct-

15

Jan-1

6

Apr-

16

Jul-1

6

Oct-

16

Jan-1

7

Apr-

17

Jul-1

7

Oct-

17

Jan-1

8

Apr-

18

Ye

ar-

on

-Ye

ar

Ch

an

ge

Traffic (RPK) Capacity (ASK)

IATA predicting 7.0% traffic

growth for 2018

2017 Traffic = 8.1%,

Capacity = 6.7%


Source: US EIA / IATA

Oil price trend potentially concerning

0

50

100

150

200

250

300

350

0

20

40

60

80

100

120

140

Je

t F

uel

Ce

nts

pe

r U

S G

all

on

Cru

de

Oil

$ p

er

Ba

rre

l

Oil Price Jet Fuel

IATA’s 2018 base case fuel

scenario was $73.8 per barrel

Jet Fuel but revised to $84.0

in June 2018 forecast

Crude oil price now

exceeds $75 per barrel

for first time since 2014

Jet Fuel currently $2.10

per USG (May 29th) –

30% up YTD over 2017


Source: IATA

Freight market recovered strongly in 2017

-30%

-20%

-10%

0%

10%

20%

30%

40%

Ju

l-0

8

Oct-

08

Ja

n-0

9

Apr-

09

Ju

l-0

9

Oct-

09

Ja

n-1

0

Apr-

10

Ju

l-1

0

Oct-

10

Ja

n-1

1

Apr-

11

Ju

l-1

1

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-1

2

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-1

3

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-1

4

Oct-

14

Ja

n-1

5

Apr-

15

Ju

l-1

5

Oct-

15

Ja

n-1

6

Apr-

16

Ju

l-1

6

Oct-

16

Ja

n-1

7

Apr-

17

Ju

l-1

7

Oct-

17

Ja

n-1

8

Apr-

18

Ye

ar-

on

-Ye

ar

Ch

an

ge

Traffic (FTK) Capacity (AFTK)

2017 traffic = 9.0%,

capacity = 3.0%


Source: Flight Fleets Analyzer – Western jets only

Stored aircraft numbers falling for 3rd year running – as a

percentage at 16 year low

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

250

500

750

1000

1250

1500

1750

2000

2250

2500

% o

f F

lee

t in

Se

rvic

e

Co

mm

erc

ial J

et

Air

cra

ft i

n S

tora

ge

RJ SA TA RJ % stored SA % stored TA % stored Total% stored


Source: Airfax, 6-month rolling average of aircraft available for lease or sale (excludes wet-lease / ACMI)

Used jet availability stable and at lowest level since 2010

0

100

200

300

400

500

600

700

800

900

0

50

100

150

200

250

300

350

400

450

Ja

n-1

0

Apr-

10

Ju

l-1

0

Oct-

10

Ja

n-1

1

Apr-

11

Ju

l-1

1

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-1

2

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-1

3

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-1

4

Oct-

14

Ja

n-1

5

Apr-

15

Ju

l-1

5

Oct-

15

Ja

n-1

6

Apr-

16

Ju

l-1

6

Oct-

16

Ja

n-1

7

Apr-

17

Ju

l-1

7

Oct-

17

Ja

n-1

8

Apr-

18

To

tal C

om

me

rcia

l J

et

Mo

nth

ly A

va

ila

bil

ity

Tw

in-A

isle

/ S

ing

le-A

isle

/ R

eg

ion

al J

et

Mo

nth

ly

Ava

ila

bilit

y

Twin-Aisle (LHS) Single-Aisle (LHS) Regional Jets (LHS) All Jets (RHS)


Source: Flight Fleets Analyzer

Retirement volumes peaked 2012-2015

0

100

200

300

400

500

600

700

800

Air

cra

ft R

eti

red

<15 Years Old at Retirement >15 Years Old at Retirement


The Market Value represents the value of a transaction would

have in today’s market

10

Market Value Definition

Source: …

Spot trading price

In today’s market conditions

Current market’s state of supply and demand

No lease attached

Single aircraft sale

Open sale

Reasonable marketing time of up to 12 months

Willing buyer and willing seller


Ascend’s Current Market Value is based on a normalization and

triangulation of data points

11

Establishing the Market Value - Normalization

Source: Flight Ascend Consultancy

-4

-3

-2

-1

0

1

2

3

4

-5 -4 -3 -2 -1 0 1 2 3 4 5

Ma

inte

na

nc

e C

on

dit

ion

($

Mn

)

Other Factors ($ Mn) Captured data points

Normalized

data points

are compared

to arrive at

our Market

Value


Twin aisle “flyer” market is oversupplied

Demand:

Increasing fuel prices favor new replacements (787, A350)

E-commerce driving 767-300ERSF conversions

Supply

Overproduction – 787, A350 ramp-up

Last-off-the-line pricing on 777-300ER and A330ceo

Glut of 777-200ERs, many getting placed, at what price?

Opportunities

Short term: 777-200ERs can replace grounded 787s (Trent 1000)

A330 freighter conversion at lease end


Source: Flight Ascend Values

Mid-Life twin aisle values depressed by obsolescence and “last

off the line” pricing

10

15

20

25

30

35

40

201

4 Q

1

201

4 Q

3

201

5 Q

1

201

5 Q

3

201

6 Q

1

201

6 Q

3

201

7 Q

1

201

7 Q

3

201

8 Q

1

Age 15 HL MV (m USD)

A330-200 A330-300 B767-300ER

B777-200ER B777-300

150

200

250

300

350

400

450

500

550

201

4 Q

1

201

4 Q

3

201

5 Q

1

201

5 Q

3

201

6 Q

1

201

6 Q

3

201

7 Q

1

201

7 Q

3

201

8 Q

1

Age 15 Market Lease Rate (k USD)

A330-200 A330-300 B767-300ER

B777-200ER B777-300


Single aisle “flyer” market is strong, pricing remains stable

Demand:

Market growth: airlines favoring larger variants

E-commerce driving 737-400SF, 757-200SF conversions

“Bow wave” of engine overhaul demand for next few years

Supply

A320-neo / 737-Max mostly going to growth, not replacement yet

Engine shops are backlogged, spare engines are scarce

Dwindling supply of 737-400 conversion candidates

Opportunities

Short term: lease ceos/NGs to cover GTF/LEAP production delays

737-700 / A319 part-out for engines

737-800 / A320 / A321 freighter conversion at lease end



Mid-Life single-aisle values are stable

6

8

10

12

14

16

18

20

201

4 Q

1

201

4 Q

3

201

5 Q

1

201

5 Q

3

201

6 Q

1

201

6 Q

3

201

7 Q

1

201

7 Q

3

201

8 Q

1

Age 15 HL MV (m USD)

A319-100 A320-200 A321-200

B737-700 B737-800 B757-200

100

125

150

175

200

225

250

201

4 Q

1

201

4 Q

3

201

5 Q

1

201

5 Q

3

201

6 Q

1

201

6 Q

3

201

7 Q

1

201

7 Q

3

201

8 Q

1

Age 15 Market Lease Rate (k USD)

A319-100 A320-200 A321-200

B737-700 B737-800 B757-200



Single aisle service life shortening

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

SA

Air

cra

ft R

eti

red

Mean +/- 1SD of past 20 yrs End 2017 fleet

Single-aisle passenger jet survivor curve

2017 Flight Fleet Forecast

uses 50% survivor

assumption of 22 years


What Makes a Part-Out Value?

17

Core Engine Value

Engine Refurb

Usable Cycles in LLPs

Landing Gear

Avionics

APU

Thrust Reversers

Other re-usable parts

Engine

Airframe & Components


(Sold as spares)

(Delivered to part-out shop

without engines)


Engine Value Cycle

Engine value forecasts are based on phases of production cycle

Eng

ine

Valu

e (

Half-L

ife

)

Time

Phase 1:

Production

Phase 2:

Mature

Phase 3:

Retirement


Single aisle engine fleets

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CFM56-3 CFM56-5A CFM56-5B CFM56-7 V2500-A5 PW2000 RB211-535

Nu

mb

er

of

ins

tall

ed

en

gin

es

Current in service Current stored Retired

<5% of CFM56-5B, -7, V2500-A5 retired to-date




Single aisle engine values

0

1

2

3

4

5

62

01

3

201

4

201

5

201

6

201

7

201

8

Spare Engine HL MV (m USD)

CFM56-3C1 CFM56-5B4/P CFM56-7B26

PW2000-2040 RB211-535E4B V2500-2527-A5

0

10

20

30

40

50

60

70

80

201

3

201

4

201

5

201

6

201

7

201

8

Market Lease Rate (k USD)

CFM56-3C1 CFM56-5B4/P CFM56-7B26

PW2040 RB211-535E4B V2527-A5


Twin aisle engine fleets

Still a lot of opportunity even for those in ‘sunset’ phase


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

PW4000 (94in)

CF6-80C PW4000(100 in)

CF6-80E Trent 700 PW4000(112 in)

Trent 800 GE90 (123in)

GE90 (128in)

Nu

mb

er

of

ins

tall

ed

en

gin

es

Current in service Current stored Retired



Twin aisle engine values

0

2

4

6

8

10

12

14

162

01

3

201

4

201

5

201

6

201

7

201

8

Spare Engine HL MV (m USD)

CF6-80C2B6F CF6-80E1A4B GE90-90B

PW4062 PW4090 PW4168A

Trent-772B-60 Trent-892

0

20

40

60

80

100

120

140

160

180

201

3

201

4

201

5

201

6

201

7

201

8

Market Lease Rate (k USD)

CF6-80C2B6F CF6-80E1A4B GE90-90B

PW4000-4062 PW4000-4090 PW4000-4168A

Trent-772B-60 Trent-892


Airframe Part-out Forecast

Diminishing returns on each additional airframe retired

Source: Flight Ascend Part Out Tool “Airframe Part-Out Value” includes LG + APU

# o

f A

ircra

ft R

etire

d (

cum

ula

tive)

Air

fra

me P

art

-Out V

alu

e

Time

Retirements (cumulative) Airframe Part-out Value


Flight Ascend Part-Out Value Tool

24

15 aircraft families

34 unique aircraft types and variants

Hundreds of engine variant combinations to go with the above

Updated twice per year

Delivered in excel format

Breakdown of airframe value, engine value and engine volatility

User-adjustable engine condition: Run-Out, ¼ Life, Half Life, ¾ Life and Full

Life



Flight Ascend Part-Out Value Forecast Tool

2003-YOB Boeing 737-800 (CFM56-7B26, 155,500lb MTOW), 2%-infl

Source: Flight Ascend Part Out Tool, Flight Ascend Values, FlightGlobal Fleets Forecast (2016)“Total Part-Out Value Forecast” includes airframe (incl LG + APU) and engine shipset

0

500

1000

1500

2000

2500

3000

3500

4000

0

2

4

6

8

10

12

14

16

18

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

# o

f A

ircra

ft R

etire

d (

cum

ula

tive)

$U

SD

-Mn

Year

Forecast Retirements (cumulative) "Flyer" Value (Half-Life) Total Part-Out (Half-Life) Engine Shipset (Half-Life)


Flight Ascend Part-Out Value Forecast Tool

2003-YOB Boeing 737-700 (CFM56-7B22, 133,000 lb MTOW), 2%-infl

Source: Flight Ascend Part Out Tool, Flight Ascend Values, FlightGlobal Fleets Forecast (2016)“Total Part-Out Value Forecast” includes airframe (incl LG + APU) and engine shipset

0

500

1000

1500

2000

2500

3000

3500

4000

0

2

4

6

8

10

12

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

# o

f A

ircra

ft R

etire

d (

cum

ula

tive)

$U

SD

-Mn

Year

Forecast Retirements (cumulative) "Flyer" Value (Half-Life) Total Part-Out (Half-Life) Engine Shipset (Half-Life)


FlightGlobal: Pioneering aviation insight and analytics

business

27

RELX Group:

London, Amsterdam and New York

Stock Exchange listed

28,500 employees

Market Capital $36.87bn

FlightGlobal:

370+ staff

11 offices across the world

Part of a leading data

solutions group


Independent Global team – fully objective

We do not invest in aircraft and we are not brokers – we have NO conflicts of

interest

We are based in London, New York and Hong Kong and travel the world bringing

regional and global opinion into our research

Instant access to vast data for research

The only appraiser with a globally recognized Fleets database used by our clients

The only appraiser with schedule information

Unparalleled historical values data

Historical Market values from 1965

Access to industry tier 1 participants

Clients are airlines, all the top lessors, the major banks involved in aviation finance,

MROs, OEMs, regulatory bodies

Presence at all major aviation events (Paris Airshow, ISTAT Asia / US / Europe…)

28


Flight Ascend’s unique value proposition as an appraiser


Why Flight Ascend Consultancy?

29

Ascend and its predecessors have been delivering aviation data and

appraisals for close to 50-years

Thought leadership, market intelligence, analytical products, regular values

updates, bespoke advisory projects

Ascend appraisals used globally to value in excess of 200,000 aviation

assets annually

Unrivalled aircraft histories and values databases underpin values analysis

Market values based upon best data capture of any appraiser globally

Appraiser of the Year six of the past seven years


Michael Lapson

Senior Valuations Analyst

ISTAT Certified Appraiser

+1 (646) 746-6844

[email protected]

Panelist: Brian Postel - Vice President of Aircraft Acquisitions, Unical Aviation Inc.

1,300,000+in stock unique part numbers

20+languagesspoken

700+employees*

24/7AOG helpdesk

3,500+globalcustomers

Q&A: Additional Questions?

Contact AFRA as your resource for information on: Aircraft Dismantling & Recycling

Industry Best Management Practices Audit and Accreditation Services Industry Contacts/Networking

Aircraft Fleet Recycling Association (AFRA)[email protected]

+1 202 591 2478

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https://www.linkedin.com/company/aircraft-fleet-recycling-association?trk=company_logo

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Documents

AFRA Aircraft Valuation Panel - ASA · A320-neo / 737-Max mostly going to growth, not replacement yet Engine shops are backlogged, spare engines are scarce Dwindling supply of 737-400