Airliner Values Struggle To Rise Amid More Market Uncertainty

 - February 25, 2011, 9:15 AM
Values of older aircraft remain particularly soft despite a marked jump in airline profitability last year. (Click image to see larger version.)

Aircraft valuation specialist Ascend painted a mixed picture of prospects for airliner leasing and sales this year in its Evolution 2011 webinar on February 10.

“We did not see a strong recovery in 2010, but we can say fairly firmly that we have now reached the bottom,” said Olga Razzhivina, the London-based group’s valuation services manager. Generally speaking, the value of in-production airliners has stabilized and, from her perspective, increased financing from new leasing groups is pushing sale/leaseback activity back almost to levels seen in the boom year of 2007.

However, values for older aircraft remain very soft, although Ascend doesn’t believe they will decline any further this year. But Razzhivina warned that any further decline would undermine the slow recovery and any sustained improvement in the market will depend on increased availability of financing for five- to 15-year-old aircraft.

In Ascend’s view, a recovery in aircraft values hinges on airlines seeing a further improvement in the profitability that they registered in 2010. That will mean increased yield on tickets and better aircraft utilization rates–factors that by no means one can take for granted given serious concerns over fuel costs and instability in key markets like the Middle East.

According to Paul Sheridan, head of risk advisory for Ascend in Europe, the Middle East and Africa, the market might actually benefit from a dip in new aircraft orders during 2011. Last year, new orders exceeded deliveries and Sheridan questions whether a growing backlog is healthy for the values of existing aircraft in the market.

Ascend predicts a global total of 1,198 airliner deliveries this year (of which no fewer than 1,077 will be from Airbus and Boeing). It estimates the total 2011 requirement for senior debt financing on airliner sales and leases to exceed $50 billion.

“2011 should be the year of the debt financiers, rather than of the operating lessors,” Sheridan predicted.