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  • Lessor Direct Orders – A Good Bet Paying Off

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Thomas Kaplan Senior Valuations Analyst, ISTAT Appraiser
    Thomas Kaplan Senior Valuations Analyst, ISTAT Appraiser

    Thomas Kaplan, Senior Valuations Consultant, Cirium Ascend Consultancy

    During the depths of the pandemic, airlines and operating lessors with new aircraft deliveries due from Airbus or Boeing were typically happy to defer those deliveries if they could. The strategy of lessors having speculative orderbooks was in question as there was increased risk of having to accept delivery of unplaced aircraft, or placing those deliveries at depressed lease rates.   In today’s strong demand environment with reduced delivery rates of new aircraft, a near term delivery slot is suddenly rare and highly prized. With strengthening Market Lease Rates, the lessor strategy of having speculative orders now appears to be paying off.

    Who are the lessors with the largest orderbooks and who have access to the prized near-term slots?

    We will limit the analysis to Airbus and Boeing as they are the most backed-up in terms of orders with almost no availability before 2030, especially in the narrowbody segment. The operating lessor orderbook with Airbus and Boeing is over 2000 aircraft, with most due for delivery this decade.

    Who are the lessors with the largest orderbooks and who have access to the prized near-term slots?

    Source: Cirium Fleets Analyzer fleet data; Airbus and Boeing aircraft

    As we expect the current supply and demand imbalance to persist at least through 2026, the conditions for placing lessor orders should remain favourable in this period. The below chart shows which lessors have scheduled deliveries from their orderbooks from now to the end of 2026. Avolon has the largest lessor orderbook with over 400 aircraft, however only a quarter of these are expected to be delivered in the next two and a half years. This also includes 32 A330-900neos, which do not have the same supply constraints as other types and thus lessens their early-slot advantage.

    The below chart shows which lessors have scheduled deliveries from their orderbooks from now to the end of 2026.

    Source: Cirium Fleets Analyzer fleet data; Airbus and Boeing aircraft

    Air Lease Corporation and AerCap have the largest number of aircraft delivering in this time frame at over 200 and 150 respectively. However, in both cases according to Cirium fleet data, two thirds of these are already placed with airline lessees. If these placements were not negotiated recently during the tighter market conditions, that leaves only around 60 available jets with each lessor to place at good rates. Our database estimates that SMBC Aviation Capital has 75 unplaced narrowbodies due for delivery by 2026 which puts them in a strong position in this seller’s market. Our database may not capture all the negotiated placements and letters of intent, so remaining availability may be even less.

    While stock prices move based on many factors, we note that Air Lease (AL) and AerCap (AER) stocks have performed well this year, increasing by ~10% and ~24% respectively since January.

    In contrast, BOC Aviation, another publicly traded large lessor but with a fewer near-term orderbook positions, has seen its stock more flat, down around 4% YTD. Of course, these stock movements are not just because of an OEM backlog, but investors may want to take note of the current advantage these positions hold.

    Given the lack of lessor orders for 2029 and beyond, lessors will need to order quickly if they want to make furthers bets on speculative delivery slots. Otherwise, the Purchase and Leaseback market will remain the only option for lessors to grow their fleet of new aircraft organically. This has historically been a far more competitive market and if lessors are not able to renew their speculative orderbooks, then it can only become even more competitive with consequences for pricing. But that is a story for another day.

    Learn more about Cirium Fleets Analyzer.

  • Is A330neo Coming to China? – A Suitability Analysis

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Yuanfei Zhao (Scott) Aviation Analyst
    Yuanfei Zhao (Scott) Aviation Analyst

    Yuanfei Zhao (Scott), Senior Aviation Analyst, Cirium Ascend Consultancy

    Recent market developments suggest the potential introduction of the A330neo, the successor to the popular twin aisle type A330ceo, to China. A June release from Bloomberg indicate discussions are ongoing between Airbus and Chinese airlines for the sale of over 100 A330neo aircraft. While Airbus has yet to confirm these discussions, the market awaits further developments.

    This raises the interest to examine the potential of this type to be introduced to the China market. From a cost and performance perspective, the A330 family has been designed primarily for short to medium range dense routes while offers competitive pricing relative to its counterparts, such as the A350s. Cirium’s data illustrates this, with the full life market value of a Trent-powered A330-900neo (built in January 2024) and devoid of additional specifications, estimated at approximately USD107 million. In contrast, the equivalent figure for an A350-900 stands at USD158 million..

    “This pricing strategy positions the A330neo favourably in terms of unit cost, operational expenses, and performance balance within its designated market segment, despite its capability to operate long-haul routes.”

    Such characteristics clearly differentiates itself from other main twin-aisle types such as the A350, or the 787 and the 777, which primarily target longer-range routes.

    The chart below demonstrates the average block range for each of the aforementioned aircraft type operated by Chinese airlines on all flights departing from China since 2015, encompassing both domestic and international routes.

    Cirium Schedules data

    Source: Cirium Schedules data

    The average block range flown by the Chinese A330ceo fleet is 2,250km, whereas for the A350, 787 and 777, the ranges are 2,530km, 2,920km and 3,780km respectively.

    This underscores that not only does the A330ceo fleet operate on shorter routes on average compared to other main twin-aisle types in China, but the average block range of other long-haul types operated by Chinese airlines is also not significantly longer than that of the ceo fleet.

    Analysis of flights operated by Chinese airlines between 2015 and 2023 reveals that only 14% of these flights exceed 5,000km. Given this context, it appears economically prudent for Chinese airlines to utilise more of the A330 fleet on the majority of their short to medium-range routes.

    Cirium Fleets Analyzer

    Source: Cirium Fleets Analyzer

    From a fleet planning perspective, out of the 212 in-service and stored A330ceo aircraft in China, 33 units (15% of the total fleet)  are currently aged 15 years or older.

    “These aircraft are likely to face fleet planning decisions before the end of this decade. Additionally, approximately 22% of the fleet is on operating leases with foreign lessors, including Chinese fund-backed lessors registered outside of China.”

    The destinies of these leased aircraft upon lease expiries are subject to higher uncertainties, with lessors having the flexibility to decide whether to extend leases, relocate assets to more lucrative markets, retire and part out the aircraft for better value extraction, or covert them from passenger aircraft to freighters based on prevailing market dynamics.

    In summary, the cost and performance characteristics of the A330 family aircraft align well with the Chinese market, offering a balanced combination of asset unit cost, operational cost (on a per-seat basis) and type/route suitability. If Chinese airlines intend to maintain or even expand their A330 fleet in the long run, it is advisable to commence planning for the new generation neos. However, major considerations include the scarcity of delivery slots and production rate constraints of OEMs, which have resulted in virtually no available delivery slots for aircraft like the A350 and 787 before the end of this decade. While there may be a limited number of A330neo delivery slots still available during this decade due to the relatively small orderbook of this type, they are unlikely to be plentiful.

    Consequently, it may be until the next decade before new A330neos can establish a sizeable fleet within Chinese airlines for replacement or growth, even if orders are confirmed and placed promptly.  

    Learn more about Cirium Schedules, Cirium Fleets Analyzer.   

  • Quantifying Volatility in Aircraft Values

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Thomas Sweeney - Cirium Ascend Consultancy
    Thomas Sweeney - Cirium Ascend Consultancy

    Thomas Sweeney, Valuations Associate, Cirium Ascend Consultancy

    In the current supply constrained environment, the majority of aircraft values are on an upward trajectory. All of our existing market analysis indicates that this constrained supply will continue for several years yet and potentially for the majority of this decade. Demand is projected to resume its growth trend, although there is some risk in this assumption. Having just experienced the extreme downturn of the pandemic we are well placed to assess the risk that each asset presents based both analysis of historical data and understanding of the market dynamics of that type.

    To illustrate how various assets have performed, we plot the graphical distribution of Market-to-Base Value ratio around a balanced market, which is represented by a MV/BV ratio of one. Below are examples of these graphs for three different aircraft types on a 10-year horizon which demonstrate the full range from stable to highly volatile.

    The Airbus A350-900 is an asset which has proved very popular with operators and investors. An efficient new generation aircraft, it is an optimal size for many operators’ long-haul networks and production has been more stable than for its competitor, the Boeing 787. This has resulted in relatively stable values for the type:

    It is unsurprising that Market Values for the type have mostly been below Base, given that a large proportion of its in-production life has been taken up with the pandemic.

    It is more noteworthy that Market Values have barely gone below 90% of Base.

    It demonstrates the relatively low volatility of this type. Demand for this aircraft is high with a diverse operator base and it has had time to prove its performance. It is the largest in-production type at present, as the 777X continues to struggle in certification. This is driving the view that demand, and hence values, are unlikely to fall significantly in the near and medium-term.  

    The newest Boeing 737-700s (2012-2018) have a less stable profile, with Market Values showing significant time spent between 75% and 90% of Base:

    Quantifying Volatility in Aircraft Values

    The Boeing 737NG family has been a very successful programme and demand for this key narrowbody type can only fall so far. However, this variant of the family is one of the more volatile types. The smallest variant in a family is generally less popular as a consequence of its relatively poorer seat mile economics. The -700 is highly concentrated with Southwest Airlines, which has 380 aircraft, comprising over half of its in-service commercial fleet. These younger aircraft are both a smaller portion of the fleet and face faster depreciation and higher volatility as they are late in the production cycle, already being taken over by newer technology. Despite these aspects, the type retains the same engines as other more popular variants of the 737NG family and as such, is prevented from the extreme volatility that can be seen on other types.

    The Airbus A380 is an example of a type that has shown very high volatility as scepticism over its economic viability became increasingly widespread over the past decade:

    By now, the Airbus A380’s weaknesses are well known – such a large aircraft requires a high load factor to remain profitable and selling enough seats to maintain this load factor is challenging on all but the densest routes.

    Its very high concentration in Emirates’ fleet, with which the type is almost synonymous, and very small operator base renders it difficult to trade on the open market.

    The pandemic showed that the A380 was amongst the earliest aircraft types to be stored or retired and this is reflected in the third chart, where the Market Values fall below even 50% of Base.

    In conclusion, understanding the value trends and market dynamics for different aircraft types is essential in the current supply-constrained environment. These types show that there isn’t one key factor in volatility. Both elements of the physical value of the asset, such as position in production cycle and technical capability, and economic value, such as an optimised size for high load factors and yields, play a part in volatility. A statistically rich historical dataset and understanding of the market position of each asset allows us to both quantify downside value risk and predict future volatility.

  • Can COMAC Truly Challenge the Airbus and Boeing Duopoly?

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    RobMorris Cirium
    RobMorris Cirium

    Rob Morris, Global Head of Consultancy, Cirium Ascend Consultancy

    Since the unfortunate 737-9 Max accident in January laid bare Boeing’s continued 737 production woes, we have been asked many times about the potential for COMAC to step up and fulfill single-aisle aircraft demand which is being frustrated by slow Boeing deliveries. The question is further magnified when considering Airbus’s own struggles to ramp A320 family production, which came close to averaging 60 aircraft per month in 2019 before reverting to less than 40 per month through the pandemic, up from the current 50 or so per month towards the planned target of 75 per month in 2026. As one senior leasing executive put it at ISTAT Asia in Hong Kong in early May “Boeing and Airbus have offered a window of opportunity for COMAC”. Another said “AB today becomes ABC in ten-years time”. In essence, the door is open for COMAC but can they step through it?

    From a demand perspective, the opportunity certainly exists.

    Our latest Cirium Fleet Forecast, published in November 2023, projects demand for more than 40,000 single-aisle and twin-aisle passenger jet deliveries over the next 20 years.

    In the 20-year period 2000-2019 Airbus and Boeing between them delivered just under 19,600 commercial passenger jets (including five from the legacy McDonnell-Douglas range which Boeing had acquired in 1997, rendering 2000 the year that the large commercial aircraft market became the duopoly we know today). Hence, unless today’s duopolists are able to double their output through 2043, there is certainly headroom for a third player.

    But can COMAC step up with the current C919 to exploit the opportunity in the commodity single-aisle space where that demand projection estimates almost 33,000 deliveries? The orderbook signals optimism, with 998 aircraft currently recorded as on firm order in Cirium’s fleet database to add to the five which have already been delivered. However, as the chart below illustrates that backlog is shown as scheduled for delivery through 2040, a far longer delivery horizon than any competing Airbus or Boeing single-aisle. Only 46% of the backlog is committed to six airlines, all of whom are domiciled in China. The remaining 543 aircraft are on order with 12 operating lessors, all of whom are Chinese owned and domiciled aside from BOC Aviation. These aircraft will need to find customer placements and it is unusual for a new aircraft programme to feature so many lessors so early in its genesis. This perhaps suggests how airlines are viewing the C919 for now, although the recent orders for 100 each from Air China and China Southern are likely to have a much firmer status than many of the lessor orders.

    Cirium’s Fleet Forecast also signals optimism, with the current projection for just under 1,700 C919 programme deliveries through 2042. The vast majority of those deliveries are expected to be to domestic customers, with only around 250 aircraft expected to be sold to export customers largely in belt and road countries where political influence can drive sales campaigns. With more than 6,000 new single-aisle deliveries expected in China over the forecast period, C919 is expected to capture around 25% market share compared to Boeing’s 30% and Airbus’s 45%.

    With that optimism, how is COMAC performing today as it strives to break into the single-aisle market, and how does that performance benchmark to the most recent successful market entrant which of course was Airbus in the late 1980s? Airbus delivered its first A320 to Air France in March 1988. COMAC delivered its first C919 aircraft to China Eastern Airlines in December 2022. 17 months later, COMAC have now delivered five aircraft to that single customer. Within 17 months of the first delivery of its A320 back in 1988, Airbus had delivered 49 units to nine different airlines in Europe, North America and Asia. Ten times as many aircraft delivered globally by Airbus more than 35 years ago when the market was inter alia much smaller than it is today. Airbus did have one significant advantage over COMAC today, in that since the 1960s Airbus’s partner companies in France and the UK had manufactured and delivered more than 630 passenger single-aisle aircraft, Caravelles, Tridents and One-Elevens, to almost 90 customers globally, facilitating aircraft support networks which Airbus was able to leverage to ensure their customers enjoyed dispatch reliability and performance necessary to establish the A320 family as a credible and global competitor to the then competing Boeing and McDonnell Douglas single-aisle aircraft. COMAC does not have that support network in place and thus has to work very hard to build it to support airline customers who will be expecting performance and dispatch reliability that benchmarks favourably against those delivered by the established Airbus and Boeing products.

    How are the aircraft already delivered performing today? Cirium’s data shows that China Eastern’s five aircraft are presently scheduled on three domestic routes from Shanghai Hongqiao to Chengdu, Beijing and Xi’an.

    Flight tracking data confirms that in April the aircraft operated a total of 398 flights, averaging 5.9 hours per day.

    In the same month, all Boeing 737-8 Max and A320neo in service in China averaged 8.1 and 8.4 hours flown per day respectively, so C919 is clearly being scheduled and flown conservatively for now averaging around 70% of the Boeing and Airbus peers, as the aircraft starts to prove itself in operational service. However, there are already signs of improvement since as recently as February C919 was achieving only around 50% of the average daily hours of 737 and A320. There are also signs of improvement from a route perspective, with a C919 reportedly scheduled to operate a single Shanghai Hongqiao to Hong Kong return sector on 1 June 2024, with further reports that this will subsequently become a regular route for the aircraft type.

    What about the future? As already noted, Cirium’s backlog indicates an expectation that COMAC will deliver more than 130 aircraft to customers in 2031. COMAC themselves have stated an intention to develop a production capacity of up to 150 aircraft annually within the next five years. COMAC are also developing a family of aircraft, somewhat akin to Airbus’s strategy with the A320 augmented with smaller and larger A319 and A321 variants. The shorter fuselage ‘plateau’ version was launched in February with an order by Tibet Airlines. At face value the potential to manufacture 150 aircraft annually by 2029 seems ambitious. It took Airbus more than ten years to achieve more than 150 annual deliveries, albeit the 168 A320 family aircraft delivered in 1998 did represent more than 30% market share in the then single-aisle market where Boeing delivered 324 aircraft that year and McDonnell Douglas (by then owned wholly by Boeing) delivered 42 aircraft. Cirium’s forecast projects delivery of around 1,800 single-aisle aircraft globally in 2029, so 150 aircraft from COMAC would represent less than 10% of the total market.

    There is no doubt that the door is potentially open for COMAC to step through and join Airbus and Boeing in the large commercial aircraft market. However, this analysis suggests that the pace at which COMAC will walk through that door is relatively slower than Airbus walked through the same door more than 30 years ago. At present Boeing is clearly weakened, but with time Boeing will fix its issues and return the Boeing 737 family to a level of production some four times larger than COMAC’s stated intent in 2029. In the same timescale Airbus is likely to be producing its own A320 family at around six times the scale that COMAC intend.

    The barriers to entry in the large commercial aircraft market have always been huge – potentially insurmountable for many as witnessed by Bombardier’s ultimately doomed efforts with its CSeries. COMAC are the latest challenger. COMAC does enjoy is a huge domestic market, where China will perhaps consume as many as 15% of all new single-aisle deliveries. It can leverage that domestic market to generate sales. But for now the relative pace of those sales seems set to be much slower than even Airbus achieved as it entered the market in the 1980s. Hence, it seems likely that it will be a very long time before AB today genuinely becomes ABC.

    LEARN MORE ABOUT CIRIUM FLEET FORECAST.

  • The Impact of Rising Interest Rates on Lease Rent

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Toshimitsu Sogabe, Aviation Consultant, Cirium Ascend Consultancy

    The US Federal Reserve board has raised interest rates 11 times in a row since March 2022. It announced on May 1 that it would keep the policy interest rate unchanged. This was the sixth consecutive meeting at which there was no change to the federal funds rate target.

    Since there is a certain degree of correlation between interest rates and lease rents, it is likely that rising interest rates have contributed to the rise in lease fees. However, there is room for discussion as to whether the increase in lease rent has been sufficient.

    The above chart shows that the market lease rates of Airbus A320neo and Boeing 737 Max jets have reached the $400,000-per-month mark

    Source: Ascend Value Trends, Federal Reserve Economic Data (FRED)

    The above chart shows that the market lease rates of Airbus A320neo and Boeing 737 Max jets have reached the $400,000-per-month mark. The lease rate of the A320neo was over $400,000 per month in 2015 but was subsequently on a downward trend before finally recovering to that level this year.

    However, a review of interest rates during the same period shows that the yield on the 10-year US Treasury note was much lower in 2015 than the current level.

    Similarly, lease rates for the previous-generation 737NGs and A320ceos, whose new-aircraft prices would have been lower by a few million dollars, were at their highest level of over $400,000 per month in 2007/08, yet the yield on the 10-year US Treasury note at that time was again below the current level.

    Is the Extent of Lease-Rate Increases Insufficient?

    The reasons that lease rates for new aircraft are currently at the same or lower levels than in the past, despite the higher financing costs, are presumably as follows:

    (i) While demand for aircraft financing has been increasing, there are not enough sale-and-leaseback opportunities in the leasing market because of a lack of supply of next-generation aircraft, and therefore there has been excessive competition among lessors; and/or (ii) Leasing companies have high expectations for residual values, end-of-lease compensation and maintenance reserves when pursuing a transaction.

    As for (i) above, the most recent monthly production rates of Boeing and Airbus highlight a clear shortage of next-generation aircraft. For single-aisle aircraft, Airbus averaged 46 per month in 2024’s first quarter, whereas Boeing averaged 12 in February/March. Although the speculative orders placed by a handful of lessors for the new aircraft were able to secure their pipelines, lessors generally see challenges in securing new aircraft transactions. Some lessors are considering a strategic shift to secure the top line by acquiring mid-life aircraft. 

    Regarding (ii), it is believed that some lessors are increasing their expectations in anticipating higher residual values at lease expiry as well as lease-end compensations, because of the rising maintenance costs for both next-generation and previous-generation equipment and the fact that the supply of next-generation equipment is not keeping pace with the demand. However, caution is required when considering whether this will become a mid- to long-term trend.

    Cirium Ascend Consultancy will continue to monitor market changes in lease rates and any changes in lessors’ approaches to new sale-and-leaseback transactions.

  • Diminution in Aircraft Value: Some Widely Held Misconceptions

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Tony Brooks, ISTAT appraiser
    Tony Brooks, ISTAT appraiser

    Anthony Brooks, Senior Analyst – Certified Civil Expert Witness, Cirium Ascend Consultancy

    Diminution in Value is defined as “the calculation of damages in a legal dispute” and describes a measure of value lost due to a circumstance or set of circumstances. Where aircraft are concerned, this usually refers to an incident where the aircraft has suffered damage of some nature. The purpose of Aircraft Diminution in Value due to damage is to provide the claimant with a form of compensation for an incident which may affect the re-sale value of the aircraft.

    We all see regular articles and news stories where aircraft sustain damage from airport vehicle collisions, during maintenance or even incidents on the production line.

    Over the last 20 years we have provided reports involving aircraft which have been involved in a wide variety of incidents at different stages of operation or production.

    OPERATIONAL STATUS OF AIRCRAFT AT POINT OF INCIDENT CIRIUM ASCEND CONSULTANCY DIMINUTION IN VALUE CASES

    In fact, In the cases that we have been involved in to-date, over 80 percent have involved an aircraft not in operation at altitude. These include 36% involving a stationary aircraft (largely those involved in airport vehicle collisions), 27% have occurred on the production line at different stages of construction and 18% whilst in maintenance.

    Misconceptions

    One broadly held misconception is the view that when damage to an aircraft occurs, the cost of the repairs equates to the Diminution in Value and is paid out by the insurer. The repair cost in fact is totally separate from any potential loss in value due to damage history and is usually settled fairly quickly by the insurance company. A Diminution in Value claim can take years to settle through the Court or Arbitration process if not agreed at an earlier stage.

    Another widely held view is that even though an aircraft is repaired back to a condition pre-incident and, in some cases, resulting in it being in a better condition than before, that there should therefore be no loss in value. One can also argue that this should also be the case where a damaged area is replaced with brand new components rather than instigating a repair. Unfortunately this is not always the case.

    Damage history can be a bargaining lever in negotiations between a buyer and seller.

    Even if there are no ongoing special inspections instigated as a result of the damage (which itself can sometimes seriously affect its value) a perception issue can remain with the aircraft over its lifetime. Damage history can be a bargaining lever in negotiations between a buyer and seller, the strength of which can depend on several factors, one being the market conditions at the time of the incident. In a situation with low availability the seller’s bargaining power will be greater as the buyer has less aircraft to choose from whereas in a market with high availability the buyer will have a higher choice of undamaged aircraft to choose from and so the seller may have to offer a larger discount due to the damage in order to sell the aircraft.

    Look out for a Viewpoint article later on this year where I will be explaining the Diminution in Value subject in more detail including its purpose within the aviation industry, we’ll outline some more of the factors we analyse which determine to what extent, if any, a Loss in Value exists and we’ll also look at the methods used in dispute resolution.

    FOR MORE INFORMATION, CONTACT US. 

  • A Snapshot of the Long Range Business Jet Market

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Youcef Berour Minarro
    Youcef Berour Minarro

    Youcef Berour Minarro, Principal Valuations Analyst, Cirium Ascend Consultancy

    On the 29th March 2024, after over a year of delay and with particular uncertainty over recent months, Gulfstream’s new G700 which sits in the Long Range business jet segment received its FAA type certification which marked a key milestone towards customer deliveries. This milestone also marks a revenue recovery for the parent company, General Dynamics which claimed the delays faced by the longer FAA certification process, following the Boeing 737 Max incident, resulted in a loss of $1 billion in revenues and $250 million in earnings for 2023.

    Once delivered, the 10X will be Dassault’s largest and longest range aircraft, competing directly with Bombardier’s Global 7500 and Gulfstream G700

    In addition to receiving certification, Gulfstream also announced performance improvements for the G700, namely the take-off and landing distances which are now shorter than originally planned. With this positive development for the G700, we think this makes a good excuse to look into how the Long Range business jet market as a whole is doing and what we should expect for 2024.

    Other OEM Developments

    Following its FAA and EASA certifications in 2023, deliveries are now underway for Dassault’s Falcon 6X, two aircraft are now in service with production expected to ramp up this year. Cirium’s own new delivery forecast is predicting approximately 15 handovers this year before ramping up into 2025. Dassault’s in-development Falcon 10X which was originally scheduled for EIS in 2025, has now been delayed by two years to 2027, citing supply chain issues. Once delivered, the 10X will be Dassault’s largest and longest range aircraft, competing directly with Bombardier’s Global 7500 and Gulfstream G700.

    Bombardier’s Global 8000 remains in-development having been re-launched in 2022 as a longer range variant of the Global 7500 (over 165 aircraft now in service). The 8000 is intended to replace the 7,700nm range 7500, which is certified up to Mach 0.925, and features the same fuselage/length. Performance gains will come from software updates on the GE Passport engines and optimisation of the empty weight allowing more fuel to be carried in the existing tanks. Bombardier is planning to offer a retrofit option to 7500 owners via a Service Bulletin (SB). The Global 8000 is expected to enter service in 2025.

    The current in-service business jet fleet stands at over 23,000 aircraft, of which the Long Range segment accounts for almost 4,000 aircraft.

    Fleet Size

    The current in-service business jet fleet stands at over 23,000 aircraft, of which the Long Range segment accounts for almost 4,000 aircraft, or 17% of the whole business jet fleet. Aircraft in this segment typically feature over 5,000 nautical miles in range and are typically the flagship products for the various OEMs. The spread of OEMs in this segment is much more limited compared to the rest of the business jet fleet, the Long Range market is currently dominated by Gulfstream (49%), Bombardier Global family (28%) and Dassault (24%). The Gulfstream G550 is the most popular type in this segment, with 570 aircraft in service, followed closely by the tri-jet Falcon 900 family with 529 aircraft in service.

    Source: Cirium Fleets Analyzer, In-service, April 2024

    Source: Cirium Fleets Analyzer, In-service, April 2024

    Inventory and Liquidity

    Based on publicly listed availability, over a 12-month period in 2023, our analysis suggests that total inventory levels for Long Range business jet aircraft increased significantly in 2023 compared to 2022. At the beginning of 2023, there were around 160 Long Range business jets available for sale in the public domain, or just over 4% of the fleet. By the end of 2023, this figure increased to over 230 aircraft (50% increase). We are seeing a similar trend for the whole business jet fleet, with the Midsize segment showing the greatest increase in inventory levels over a 12 month period.

    As at April 2024, there are currently 230 Long Range business jet aircraft for sale, which equates to 6% of the fleet for sale.

    In terms of liquidity, Cirium Fleets Analyzer data shows a decrease in the total fleet transacted in 2023, around 20% less than 2022. So far in 2024, we have seen a relative slow down in second hand sales, and increased days on market for aircraft which suggests the market may be softening.

    liquidity, Cirium Fleets Analyzer

    Source: Cirium Fleets Analyzer and Publicly Sourced Inventory

    What Does 2024 Look Like for Long Range Category Values?

    So far this year, inventory is still trending up while liquidity is trending down as aircraft appear to be sitting on the market for longer. We are seeing a general trend of pricing reductions when discussing with aircraft traders as it pertains to our aircraft value reviews. Already over the course of the first four months of this year, we have seen some softening in aircraft values during reviews. In this size category alone, we have conducted reviews across the Gulfstream G450, G550, V, and G650/G650ER types, observing reductions in Market Value opinion ranging from 2% to as much as 11%, although most notably by as much as 20% on the G450 as its market in particular has significantly slowed down since a reduction in charter operations. We should note that younger G650ER aircraft have seen values remain stable, while Bombardier’s Global 7500 has seen our opinions increase by 2-6%. We should not be surprised to see more of the same through 2024, and we’ll report our analysis to the market as it happens.

    FOR MORE INFORMATION, CONTACT US. LEARN MORE ABOUT CIRIUM FLEETS ANALYZER.

  • Flight Forward: Examining the ACMI Ecosystem in Europe

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Eleni Maragkou, Valuations Analyst, Cirium Ascend Consultancy

    The ACMI (Aircraft Crew Maintenance Insurance) market continued to show strong demand in Europe last year, with more than 130 wet-leases recorded in Cirium’s database during Q4 2023 involving passenger jets. Passenger demand remains strong, with latest IATA data indicating traffic grew more than 20% in February over 2023, which Ascend estimates to be more than 4% growth over February 2019.

    The number of wet-lease transactions in Europe reached a new peak in 2023, with almost 700 transactions involving 368 different aircraft, with an average lease duration of two months.

    Many aircraft were contracted for up to six months, covering the period of peak demand around the summer season, especially by leisure orientated airlines.

    The chart below shows that in Q1 2024, there has already been 150 wet-lease transactions to European carriers.

    While both traffic and aircraft utilisation continue to increase, the supply of new aircraft remains constrained due to the supply chain issues affecting production rate by OEMs, as well as the well-known issues with the Max and GTF.

    To meet the growing demand in summer 2024, Fly2Sky Airlines has secured an ACMI contract for two Airbus A320s, registered LZ-MDI and LZ-FSD, from SkyUp Airlines Malta. Leading European ACMI operators include SmartLynx Malta with 27 aircraft and SmartLynx Latvia with 21 aircraft. Those two airlines are part of the Avia Solutions Group of airlines. CityJet will operate five CRJ1000s for Lufthansa, indicative that regional aircraft are also active in the European market. UK-based ACMI start-up carrier Ascend Airways, part of Avia Solutions Group, has received its air operators’ certificate from the Civil Aviation Authority (CAA) and has acquired its first 737 Max-8 in Q1 2024. A further new ACMI provider, Fly4 Airlines, which is 49% owned by TUI and 51% by Poland’s Enter Air, is launching services with leased, former TUI, Boeing 737-800s this summer.

    Cirium Fleets Analyzer data shows that the mid-life jet trading market is active, increasingly global and with a diverse set of airline customers.

    The chart below shows the fleet where the operator is an airline ACMI, ranging from youngest of 5 years (737 Max) to oldest 35 years (BAe 146) with a preference of 16-17-year-old A320s and 737s. These are the most popular aircraft for ACMI operations with 115 aircraft in service, proving that mid-life to older aircraft are still important assets flying.

    ACMI leasing in Europe looks set for another good year in 2024, given the current and continuing supply-side constraints. ACMI leasing offers great flexibility, especially for the peak travel seasons in which we will see it play a vital role.

    FOR MORE INFORMATION, CONTACT US. LEARN MORE ABOUT CIRIUM FLEETS ANALYZER.

  • AAM Snapshot April 2024

    READ ALL OF THE LATEST UPDATES FROM ASCEND CONSULTANCY EXPERTS WHO DELIVER POWERFUL ANALYSIS, COMMENTARIES AND PROJECTIONS TO AIRLINES, AIRCRAFT BUILD AND MAINTENANCE COMPANIES, FINANCIAL INSTITUTIONS, INSURERS AND NON-BANKING FINANCIERS. MEET THE ASCEND CONSULTANCY TEAM.

    Ascend analyst Tim Chun Hing Li
    Ascend analyst Tim Chun Hing Li

    Tim Li, Aviation Analyst, Cirium Ascend Consultancy

    As we move into the second quarter of the year, the Cirium Fleets Analyzer database logged slightly below 450 new order commitments for the Advanced Air Mobility (AAM) sector since the beginning of this year, taking the total to slightly over 13,500. The AAM market is inching closer to some of its initial target dates for operation, including Volocopter vowing to begin operations during the Paris Olympics 2024. Some progress has been made in the first quarter, with EHang kickstarting its public sale of the E216-S after obtaining the world’s first type certificate from the Civil Aviation Administration of China (CAAC), and other OEMs (Original Equipment Manufacturers) obtaining production organization approvals (POAs) from their regulators, which further paves the way towards production of the designs. However, there is still no absolute certainty that these operations will be realised.

    Data coverage Includes:

    Market GroupingManufacturerTypeComment
    eVTOL – UAV/UASBETA TechnologiesALIA-250 
    eVTOL – Urban Air MobilityAMSL AeroVertiiaNewly added
    eVTOL – Urban Air MobilityAerofugiaAE200 
    eVTOL – Urban Air MobilityArcher AviationMidnight 
    eVTOL – Urban Air MobilityAscendance Flight TechnologiesAtea 
    eVTOL – Urban Air MobilityAutoFlightProsperity 1 
    eVTOL – Urban Air MobilityBETA TechnologiesALIA-250 
    eVTOL – Urban Air MobilityCrisalion MobilityIntegrityNewly added
    eVTOL – Urban Air MobilityDuFour AerospaceAero3 
    eVTOL – Urban Air MobilityEHangEH216 
    eVTOL – Urban Air MobilityEHangVT-30 
    eVTOL – Urban Air MobilityEve Air MobilityEve 
    eVTOL – Urban Air MobilityHorizon AircraftCavorite X7Newly added
    eVTOL – Urban Air MobilityJaunt Air MobilityJourney 
    eVTOL – Urban Air MobilityJoby AviationS4 
    eVTOL – Urban Air MobilityLilium GmbHLilium Jet 
    eVTOL – Urban Air MobilityManta AircraftANN2 
    eVTOL – Urban Air MobilityOdys AviationOdys eVTOL 
    eVTOL – Urban Air MobilityOverair IncButterfly 
    eVTOL – Urban Air MobilityPlanaCopterPlane CP-01 
    eVTOL – Urban Air MobilitySirius AviationSirius Jet 
    eVTOL – Urban Air MobilitySkyDriveSD-05 
    eVTOL – Urban Air MobilityTCab TechE20 eVTOL 
    eVTOL – Urban Air MobilityVertical Aerospace Group LtdVX4 
    eVTOL – Urban Air MobilityVolocopter GmbHVoloCity 
    eVTOL – Urban Air MobilityVolocopter GmbHVoloConnect 
    eVTOL – Urban Air MobilityWisk Aero LLCCora 
    eVTOL – Urban Air MobilityXTI Aircraft CompanyTriFan 600 
    Business Electric – Multi EngineElectraElectra eSTOL 
    Business Electric – Multi EngineAirflowM200 
    Business Electric – Multi EngineBye AerospaceeFlyer 800 
    Business Electric – Multi EngineElectronElectron 5 
    Business Electric – Multi EngineEviationAlice 
    Business Electric – Single EngineBETA TechnologiesCX300 
    Business Electric – Single EngineVoltAeroCassio 330 
    Regional Electric – SmallAura AeroERA 
    Regional Electric – SmallHeart AerospaceES-19Programme cancelled, and revised to ES-30
    Regional Electric – SmallHeart AerospaceES-30 
    Regional Electric – SmallJektaPHA-ZE 100 
    Regional Electric – SmallLYTE AviationLA-44 Skybus 
    Regional Electric – SmallMaeve AerospaceMaeve 01Programme cancelled, OEM revised to M80*

    eVTOL – Urban Air Mobility (UAM)

    The total number of order commitments captured by Cirium Fleets Analyzer for the eVTOL sector is now slightly above 10,300. EVE Air Mobility and Vertical Aerospace continue to stand out as the OEMs with the most order commitments, even though they did not record any new in the past nine months. These new commitments are predominantly from the Asia Pacific region and are lacking familiar names like lessors that previously logged.

    Source: Cirium Core, as of 3 April 2024

    Source: Cirium Core, as of 3 April 2024

    Sustaining Financing: A Vital Component for Industry Growth

    According to Cirium data, there has been a decrease in the rate of growth of order commitments. In the past six months, the net growth of total commitments amounted to just slightly below 600 units, with around 80% of activity from the Asia Pacific region. Overall, these order commitments observed represents a decline of over 50% compared to the previous six-month period. However, during this stage in the development cycle, a slowdown in the rate of orders is not unexpected.

    As per Cirium’s Fleets Analyzer database, there are currently more than 20 designs registered that have received order commitments, with new entrants continuing to emerge. These factors indicate that enthusiasm towards the AAM market has not yet started to fade.

    Source: Cirium Core, as of 3 April 2024

    An order commitment generally means payment is committed to be made in the future and is often subject to agreed terms and conditions. An example of such a condition is meeting development timelines. While commitments can increase the confidence of investors and eventually translate into payments, they are often not an immediate source of cashflow for the OEM. Product development, particularly of such pioneering technology, is both lengthy and costly. To achieve any milestones set out to fulfil promises and thereby the ability to realise the AAM vision, the OEMs will continue to require new financing, either from their parent companies, governments or existing/new investors.

    A decrease in direct financing would have significant implications for the future development of the industry. In order to ensure continued support for product development and marketing efforts, consolidation could be something to watch for in the near to medium-term future.

    Business Electric – Multi Engine

    Source: Cirium Core, as of 3 April 2024

    The total tally of order commitments for the electric business aircraft sector now stands over 3,200, marking an increase of approximately 500 commitments in the last six months. The Dallas-based JSX Airlines accounts for over 330 of them, spreading across types including Aura Aero’s ERA, Electra’s eSTOL, and Heart Aerospace’s ES-30. Electra’s eSTOL also received an additional commitment from US-based regional aircraft operators Surf Air (90), as well as from India’s Jet Set Go (50).

    *The European startup Maeve Aerospace has revised its strategy and introduced a new concept, an 80-seater hybrid-electric aircraft dubbed the M80. This means that the original M01 44-seater is now on hold. It remains uncertain whether the initial orders will be transferred.

    Most designs for this larger gauge concepts have now diverted from the vision of the aircraft being fully powered by electricity alone, and are instead based on a hybrid concept.

    The Cirium Ascend Consultancy AAM team will continue to provide valuable insight to the market. We would be pleased to hear any thoughts, comments or feedback you may have, so do not hesitate to contact us for more information.

    Sara Dhariwal
    Lead Appraiser – Helicopters & AAM

    Ascend analyst Tim Chun Hing Li

    Tim Chun-Hing Li
    Aviation Analyst

    Pascal Chui

    Pascal Chui
    Valuations Analyst

    Yuri Zhang

    Yuri Zhang
    Valuations Analyst

    Eric Tamang

    Eric Tamang
    Valuations Analyst

  • Navigating Offshore Helicopter Demand in 2024

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Eleni Maragkou, Valuations Analyst, Cirium Ascend Consultancy

    The offshore oil & gas (O&G) helicopter market presents the industry with more opportunities for replacement rather than growth in the next decade. The emphasis is predicted to be on newer designs with better economics and payload/range, according to the Cirium Helicopter Forecast and discussion at the latest Cirium webinar, Helicopter Offshore 2024. The panel provided perspectives on market dynamics and the future outlook, from industry experts comprising Bristow senior vice-president key accounts Samantha Willenbacher, Lider Aviacao chief executive Junia Hermont, and Cirium Ascend Consultancy lead appraiser helicopters and AAM Sara Dhariwal. The event was moderated by Cirium Ascend Consultancy head of consultancy operations Chris Wills, a senior ISTAT appraiser.

    In summary:

    • The ratio of the operational O&G helicopter fleet to the number of oil rigs decreased from a high of 1.1 in 2016 to 0.8 in 2024.
    • The in-service offshore configured fleet has contracted by around 25% from the peak in 2014.
    • Preference is shifting towards the cabin and range combinations of medium and super medium aircraft sizes.
    • The Cirium Helicopter Fleet Forecast predicts limited growth, with 90% of the 400 new deliveries forecast in the next 10 years to be replacements and a compound annual growth rate (CAGR) of just 0.3%.
    • Petrobras in Brazil is increasing activity, with an investment of $102 billion forecast during 2024-2028, while new bids for 2026-2027 are expected to add 50 aircraft.

    Sara Dhariwal noted that the proportion of operational helicopters relative to the number of active oil rigs has reduced from a high of 1.1 in 2016 to 0.8 today. It indicates that there has been a reduction in the significant surplus that existed following the O&G downturn. The reduction is due both to a recovery and increase in active oil rigs, and the fact that the in-service offshore configured fleet has contracted by around 25% since the peak in 2014.

    There is a shift in preference away from single engine and light/intermediate twins, towards the larger cabin and longer-range combination of the medium twin and super medium aircraft sizes. The Cirium Helicopter Forecast predicts that this trend is likely to persist in the next decade, driven by various factors including a move away from the heavy size due to limited replacement opportunity.

    Right sizing remains a key factor for the industry and helicopter values, with the past decade seeing both under- and over-capacity. The implications of this trend were also discussed, based on the future of the offshore market, with a need to adapt to changing market dynamics and for operators to invest in the right size of helicopters to meet demand and customer needs. Diversification of the fleet is key to mitigating supply-orientated risks.

    In the higher capacity helicopter categories, there is evidence that the super mediums, including the AW189 and the H175, are gaining more market share from the main heavy type, the Sikorsky S-92A.

    Competition in this size category is about to become even greater with the entry of the Bell 525 Relentless. During HAI HeliExpo 2024, Norwegian oil major Equinor announced a commitment for 10 Bell 525s, which is the first major order for the type.

    Deliveries are scheduled to begin in 2026. The increasing competition in this size category reflects the preference for helicopters with greater capacity and range, catering to the evolving needs of offshore operations. The Cirium Helicopter Fleet Forecast suggests that the trend is likely to continue into the next decade, driven by technology and changes in operational requirements.

    Age can be challenging if their age limit comes midway through a contract…

    Samantha Willenbacher, Senior Vice-president Key Accounts at Bristow

    Bristow’s Willenbacher commented: “Age can be challenging if their age limit comes midway through a contract… the older AW139s, short nose with TCAS 1 and we are seeing this a lot in Brazil which is switching more to requiring TCAS 2. That is a proportion of the AW139 fleet that is going to need to find a part of the world where these aircraft can operate. Customer requirements are shifting.”

    In terms of values, the Rotorcraft Aircraft Market Sentiment Index (RAMSI) by Cirium Ascend Consultancy focused on the offshore sector and indicated a positive trajectory for most in-production types operating in the sector with values trending upwards. The exception is the S-92A, where there appears to be some uncertainty, as it currently faces issues with a shortage of MRO and spares capacity.

    The Cirium Helicopter Fleet Forecast anticipates the focus to be on the replacement of around one-quarter of the current fleet, meaning that 90% of the forecast 400 new deliveries in the next 10 years will be replacements, and a CAGR of just 0.3%.

    The majority of the deliveries are predicted to be of newer designs with better economics and payload and range. The new medium sized Airbus H160 and super medium Bell 525 will be the latest types entering the offshore market. The forecast is for around 40% of deliveries to be of medium and super medium types, with the combined category anticipated to increase its share to 50% by 2032.

    The challenges in the O&G support industry include the importance of long-term contracts to drive investment confidence and encourage growth and stability in the sector.

    Petrobras contracts have only five years, so in order to invest in new helicopters, we need to have long-term contracts

    Junia Hermont, Chief Executive at Lider Aviacao

    The Cirium Helicopter Fleet Forecast anticipates limited growth over the next decade, driven by emerging markets. Challenges such as equipment diversification, contract terms and an aging fleet remain key considerations for operators. The emergence of new technologies such as manned and unmanned vertical take-off and landing aircraft (VTOLs), could present development opportunities for the industry but requires careful navigation through certification processes and operational adjustments.

    In conclusion, the offshore helicopter market presents both challenges and opportunities while seeing signs of recovery. By understanding the market dynamics, fostering confidence and embracing technological advancements, key industry players can navigate the evolving landscape and capitalise on recovery prospects in the years to come.

    FOR MORE INFORMATION, CONTACT US. Watch the webinar, Helicopter Offshore 2024, on demand now.

  • 2023 Boeing 737 Production Rates

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    RobMorris Cirium
    RobMorris Cirium

    Rob Morris, Global Head of Consultancy, Cirium Ascend Consultancy

    At the recent Bank of America Global Industrials conference in London on 20 March Boeing’s CFO Brian West was non-specific about the current 737 production rate but did note that previously the company did get to ‘low- to mid-30s’ per month. Cirium fleet data illustrates this via the chart below, which tracks first flights from both Boeing and Airbus’s key single-aisle production lines. However, it also clearly shows that Boeing achieved only 19 and 11 first flights in January and February respectively, well below the ‘low- to mid-30s’ that we can see was achieved between February and July last year when we saw a monthly average close to 36 aircraft. Since that time we have seen a clear downward trajectory and now production sits around ‘low- to mid-teens’.

    What does this mean for 2024 deliveries? At present, Cirium Ascend’s working hypothesis is for 500 737 Max deliveries this year. A few weeks ago that did feel like a robust assumption, but there now seems to be significant downside risk to this hypothesis.

    To date (as I write on 22 March), Cirium’s data records 58 737 deliveries in 2024, including one 737-800 based P-8 which is excluded from the analysis (but is included in the first flight data above). Hence, as we approach end of the quarter only 57 737 Max in that total. The same data indicates that Boeing have 167 Max in inventory – aircraft which have flown but not yet delivered – but this total includes 27 737-7 Max and 6 737-10 Max which almost certainly will not be delivered to customers in 2024 as neither variant has yet been certificated by FAA. Hence, the maximum we can assume will be delivered from inventory is 130 737-8 Max and 4 737-9 Max. Add those to the year-to-date total and we achieve 191 deliveries.

    This means that Boeing will need to fly and deliver a further 309 aircraft to achieve our current hypothesis of 500 deliveries.

    Applying simple arithmetic, that would mean more than 34 new-build aircraft per month if we assume that Boeing is able to ramp back up to its ‘low- to mid-30s’ next month. However, this seems an unlikely scenario. Perhaps more likely to assume that it will take up to three months before Boeing can fix its issues and start to increase production back towards those mid-2023 levels again.

    In this scenario, if we assume that production remains around today’s levels through June, then ramp back towards the ‘low- to mid-30s’ by September, the resulting additional new-build aircraft in 2024 is around 250 units. Adding those to the current total and estimated future deliveries from inventory results in a total 2024 delivery estimate of around 440 aircraft.

    There is one potential bright spot that mitigates this risk marginally. In Boeing’s Q4 earnings call on 29 January, CEO Dave Calhoun noted “there are around 25 airplanes produced in 2023 that are still WIP (work in progress)”. If these aircraft have not yet flown then they could be candidates to be completed and delivered this year, to some extent reducing that downside risk (albeit we don’t know what variant these are).

    Hence, the downside risk to our existing hypothesis of 500 737 Max deliveries in 2024 is around 40-60 aircraft.

    We are already hearing airlines speak of expected delivery shortfalls this year, which continues to exacerbate regional and global capacity shortages. Boeing’s production woes on the 737 need to be fixed quickly if this ‘crisis’ isn’t to continue for a long while yet.

    FOR MORE INFORMATION, CONTACT US.

  • The Future of the E175 and 70-Seater Regional Jets

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Alex Vathylakis
    Alex Vathylakis

    Alex Vathylakis, PhD, Principal Valuations Analyst, ISTAT Appraiser, Cirium Ascend Consultancy

    In a significant move for Embraer, American Airlines’ recent firm order of 90 new E175-E1 aircraft has not only boosted the OEM’s order book but also created another scope clause oxymoron: a past generation jet at the top of the OEM’s order book, accumulating a total of 190 orders which is almost 10 units more than the E195-E2. Based on American Airlines’ press release, the E175-E1 is expected to deliver through the early 2030s. As the Mitsubishi SpaceJet was already the first scope clause casualty, does the E175-E2 also now face the same threat? And how do the latest developments impact the existing fleet?

    Historical fleet trends show that North America continues to increase its concentration of 30-to-70-seater aircraft, with limited appetite for smaller regional aircraft in other parts of the World.

    At the same time, there seems to be no scope clause relaxation in sight, despite Embraer’s hope to deliver its first E175-E2 in the late 2020s. A substantial order from a non-US, perhaps Indian, operator would thus be the remaining hope for the programme, although this seems unlikely given the past long-term trends.

    While Embraer may have more flexibility to keep a programme dormant for longer, it is presumably more challenging to keep Pratt & Whitney committed to produce a scaled-down GTF engine at smaller volumes than initially planned due to the SpaceJet’s termination. This would be in addition to the major challenges which the wider GTF programme is facing at present and for the years to come.

    All of the above creates continued favourable winds for the larger scope clause compliant regional jets, and especially the most fuel-efficient, “Enhanced” winglet-equipped E175-E1 sub fleet. Despite the US concentration, they are expected to enjoy a solid liquidity advantage as well as better value retention compared to all other 50- to 70-seaters.

    This is also supported by the fact that the 50-seater market will continue to contract, as US Majors United and American follow Delta in exiting the ERJ-145 and CRJ100/200 types.

    At the same time, this is resulting in a reduction in flight frequencies on some routes or the complete cessation of others, making it remarkable that there is such inelasticity in the US market towards introducing turboprops, as perception, and arguably comfort, are not traded for greener, more fuel-efficient, and similarly sized turboprops.

    This suggests a growing opportunity for a new aircraft to fill the gap as well as to bridge a wider range of market classes, which could be anything from a less risky new-gen turboprop, or an open-rotor aircraft family, to a hybrid-electric or hydrogen-powered aircraft. Until then, E175-E1 program will have reached its 30th production anniversary by the time the last of this recent American Airlines order are delivered, marking the longest production run of a commercial passenger jet of its generation.

    SEE MORE ASCEND CONSULTANCY POSTS. LEARN MORE ABOUT CIRIUM FLEETS ANALYZER. OR FOR MORE INFORMATION, CONTACT US.

  • The Alaska – Hawaiian Merger

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    YIRU ZHANG
    Yuri Zhang

    Yiru Zhang, Senior Valuation Analyst, Cirium Ascend Consultancy

    The recent termination of the JetBlue and Spirit Airlines merger has brought more attention to the merger of Alaska and Hawaiian Airlines. There are some similarities but also many differences in the two cases. The unsuccessful case might not be a bad sign for Alaska and Hawaiian.

    Route

    Alaska Airlines ranks as the fifth largest passenger airline in the US. It serves more than 100 destinations across North America, with three hubs including San Francisco International Airport (SFO), Portland International Airport (PDX), and Seattle Tacoma International Airport (SEA).

    Meanwhile, Hawaiian Airlines operates a wide network centered around Hawaii to major cities in Asia Oceania, and North America. Key routes are Honolulu to Tokyo, Maui to Seattle, and Honolulu to Los Angeles.

    Once the merger is completed, Alaska’s strong presence on the west coast combined with Hawaiian’s Hawaii-centered routes can bring more flexibility for travelers to connect among destinations covered, for example, Tokyo – Hawaii – San Francisco.

    Source: Alaska Airlines

    Fleet

    Optimization of the fleet structure is one thing that Alaska and Hawaiian must consider. Alaska’s fleet consists of two Boeing Single-Aisle types, 737 NG and 737 Max, with 80 more 737 Max orders through 2027 (which may be delayed due to the recent investigation). Hawaiian operates a fleet with Boeing 717 for domestic short-haul flights, and Airbus A321 and A330 for long-haul transpacific routes.

    Source: Cirium Fleets Analyzer

    In 2023 Hawaiian announced its plan to replace the 717 fleet by early 2024, but due to the increasing demand, there are still 18 717 currently in service. The previously mentioned potential replacements include A220 and E195 E2, while as the merger goes on, it was widely believed that the final pick would be 737 Max. However, given the recent turmoil at Boeing, this is becoming uncertain again.

    Hawaiian Airlines holds firm orders for 18 787-9 aircraft as of today. After the first delivery of the 787-9 earlier this year, Hawaiian Airlines now has three different aircraft types for long-haul missions. Hence, they need to decide which one to keep, to optimise cost on maintenance, training, etc.

    JetBlue-Spirit

    The JetBlue and Spirit merger was blocked by the Justice Department due to a violation of antitrust law. Spirit Airlines has benefitted its travelers by operating as an ultra-low-cost carrier. According to the US Bureau of Transportation (US DOT), in 2023 Spirit Airlines had 5.1% domestic market share. This means that if the merger happened, higher fares would apply to a large group of travelers which could potentially disrupt the market.

    From that perspective, their situation doesn’t seem to apply to the Alaska–Hawaiian case. According to the same statistics by USDOT, Alaska and Hawaiian rank fifth and tenth, respectively, with market shares of 6.4% and 1.7%. The combined 8.1% will still stay at fifth and far from United, which holds 16% shares.

    Source: US Bureau of Transportation

    Another difference is that the business models of Alaska Airlines and Hawaiian Airlines, or at least in terms of service, are not as different as they are between JetBlue and Spirit. There doesn’t seem to be a lot of opposition from either shareholders or passengers.

    At this point, it seems like there won’t be as many barriers for Alaska and Hawaiian compared to the earlier blocked merger. However, they still need to be careful about regulatory requirements, financial implications, and other issues for the merger to go through.

    SEE MORE ASCEND CONSULTANCY POSTS. LEARN MORE ABOUT Cirium Fleets Analyzer. OR FOR MORE INFORMATION, CONTACT US.

  • 737-800 Freighter Conversions; Exuberance Abating?

    Cirium Ascend Consultancy is trusted by clients across the aviation industry to provide accurate, timely, and insightful aircraft appraisals. The team provides the valuations and analysis the industry relies on to understand the market outlook, evaluate risks and identify opportunities.

    Discover the team’s industry reports & market commentaries. Read their latest expert analysis, viewpoints and updates on Thought Cloud.

    Chris Seymore aviation market analysis
    Chris Seymore aviation market analysis

    Chris Seymour, Head of Market Analysis, Cirium Ascend Consultancy

    Cargo conversions of the Boeing 737-800 have been a success story since the first aircraft was modified in November 2017, as the fleet approaches 250 aircraft in the second quarter of 2024. Yet there are concerns that there is now some oversupply emerging. This may be borne out by the fact that 45 aircraft are currently parked.

    737-800 Annual Cargo Conversions 2017-2023

    Source: Cirium Fleets Analyzer

    The number of aircraft converted annually has steadily increased, with a new peak of 72 aircraft modified during 2023. There are three programmes available, from Boeing, Aeronautical Engineers (AEI) and IAI-Bedek. Boeing’s -800BCF has proven to be the most popular, accounting for almost two thirds of conversions, followed by AEI at 27% and IAI with just 7%. Three quarters of aircraft have been converted at MROs in China, notably in Jinan, Shanghai and Guangzhou.

    The -800 freighter is now in service with 62 operators in 38 countries, notably in Europe, China and the rest of Asia-Pacific. It will soon surpass the combined conversions of the predecessor 737-300/400SF; the extra pallet and 10% more volume than the -400SF has made the -800 a popular successor. Yet three quarters of conversions have actually been for growth rather than replacement, mainly to cater for expanding e-commerce demand.

    Operating lessors have largely driven the conversion market, accounting for almost 80% of business to date.

    Direct conversion orders by airlines/integrators have been limited, with ASL Group, China Postal and DHL the largest customers.

    The popularity of the conversion with lessors is evidenced by some thirty different entities modifying their aircraft. AerCap leads with a quarter of conversions to date, followed by BBAM at 10%.

    Driving the increase in conversions, especially in 2021-22 was the availability of passenger feedstock aircraft as the market struggled to recover from the Covid-19 pandemic. Surplus mid-life+ aircraft, typically after two leases, had conversion as an attractive option to extend their useful life. The average age at conversion has been 19 years in the past two years and across all conversions the ages have ranged between 10 and 25 years.

    But this scenario has now shifted, as airlines are struggling to add passenger capacity due to delays in getting new aircraft, due to supply-chain problems and the ongoing Max issues.

    Thus lessors are seeing much more activity in the passenger market, with lease extensions and being able to quickly place aircraft coming off lease. AEI noted late last year that it was seeing some conversion slot deferrals and indeed converted fewer -800 aircraft in 2023 than a year prior.

    However, a slowdown in conversions may not be such bad news for supply and demand, as almost 20% of the converted fleet is parked.

    Of the 45 currently parked, six can be effectively excluded as they are in Russia. Of the remaining 39, 11 are with airlines or integrators and most are yet to enter service post conversion. This leaves 28 lessor aircraft, of which 15 have been placed with lessees but are yet to enter service. Some of these were converted as long ago as mid-2022, indicative of the issues some lessors have had in placement. Thus just 13 are with lessors and have no future lessee yet identified; one of which was converted 15 months ago, so there is certainly some surplus of supply.

    This softening of demand has driven the Current Market Lease Rate down in the past three months, albeit they still remain close to the levels enjoyed in 2018/2019, as can be seen in the chart using data from our new Value Trends module.

    737-800 Freighter Market Lease Rate Trend

    Source: Ascend Value Trends; for 12-year old aircraft; mid year and current 2024

    Announced conversion orders halved last year to 34, but the backlog remains robust at around 120. The number converted in 2024 looks set to be lower than 2023, driven by the aforementioned feedstock issues, but the fleet is forecast to ultimately double, and conversions to continue into the 2030s.

    There remains the opportunity of significant replacement of over 200 737NGs and competition is limited. The rival A320 conversion programmes have gained limited traction to date as most focus is on the larger A321.

    So yes, there is some short-term surplus of converted 737-800s and impact on lease rates, but the headline number of 45 parked does not tell the whole story.

    SEE MORE ASCEND CONSULTANCY POSTS. LEARN MORE ABOUT Cirium Fleets Analyzer. OR FOR MORE INFORMATION, CONTACT US.