Values Shift in Dynamic Engine Leasing Market

 - July 8, 2013, 12:50 PM
The Rolls-Royce Trent 700 turbofan is one of several engines identified by the International Bureau of Aviation to have held their value well in the leasing market. (Photo: Rolls-Royce)

Aero engines continue to represent “a robust investment opportunity” for those trading in the market for leased spares, according to the International Bureau of Aviation (IBA). However, the UK-based consultancy’s 2013 Engines Value Book, published last week, shows significant variations in engine values and shifts in demand for leased powerplants.

“With more aircraft parting-out and more money pumping into the spare engine leasing market, never before has it been so important to understand the differences between seemingly similar engines,” commented Dr. Stuart Hatcher, IBA’s head of valuations and risk. “The value profile of high-thrust variants of current production engines remains strong, with the GE90-115, GEnx-1B, CF34-10E, CFM56-7BE, CFM56-5B/3, V2500-A5 Select One, Trent 700/900/1000 and the GP7000 featuring at the very top.”

According to IBA, engine manufacturers themselves still dominate the supply of leased turbofans to operators of widebodies. In its view, the situation leaves leased equipment investors to focus on the leading narrowbodies. “At the bottom end [of this narrowbody segment], values [of engines] remain under pressure but, providing there is enough [in-service life], leasing demand may be strong enough to reap strong rates,” said Hatcher. He identified four narrowbody turbofans in the category, namely high-thrust variants of the CFM56-3C1, Tay 650s, PW4000-94s and CF6-80C2s.

Since publishing its 2012 Engines Value Book, IBA has seen upgraded models drive dips in values of typically high-demand engines. The new edition of the report identifies the lower-thrust variants of the oldest CFM56-5B, -7B and V2500-A5 as those that have lost the most “momentum” because the aircraft that they power no longer operate every day and their on-wing times have reached a point at which their demand has fallen among lease customers. At the same time, concluded IBA, the market for disassembling such engines for parts has become saturated, softening demand to the point that only price cuts make transactions viable for operators.

Nonetheless, IBA says that the engine leasing market remains in good health. “Old, unserviceable engines will be broken for spares,” said Hatcher. “The demand for current-build IAE and CFM engines will continue well past the introduction of the PW1000G and Leap X. Excess supply engines will be taken up by expected fleet dispersal activities. Outdated engine builds will be upgraded or parted-out and provided aircraft fleets remain in service, demand will remain for even the least desirable.”

The Engines Value Book, introduced by IBA in 2003, is an annual reference for operators, banks, leasing companies, MROs and manufacturers.