Category: Ascend Consultancy

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.

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Thomas Sweeney, Valuations Associate, Cirium Ascend Consultancy

Demand for aircraft and seats is high across the aviation industry and by most measures, is at or above 2019 levels. Growth and values are therefore driven primarily by supply, which remains constrained. OEM production is arguably the most significant factor in this, with other constraints such as low lessor availability of aircraft a downstream effect. Therefore, an in-depth understanding of Airbus and Boeing commercial deliveries during 2023 helps illustrate the current supply landscape and gives an indication of how it might evolve over the next year and beyond.

In the calendar year 2023, data from Cirium’s Fleets Analyzer shows that Airbus delivered 721 commercial aircraft (including passenger and freighter aircraft but not business airliners) and Boeing delivered 504. These figures are provisional until OEM confirmation, but any differences would be minor. Some sources have reported around 10 more Airbus aircraft than shown here. Both companies have increased their output from 2022, Airbus by 66 and Boeing by 54. Notably, Airbus achieved its goal set out in the beginning of 2023 to deliver 720 commercial aircraft.

Splitting into each aircraft type makes clear where each company has succeeded and fallen short:

Unlike Airbus, Boeing did not set a clear overall target for commercial deliveries. Instead, it laid out targets for their two most significant types, 737 Max and 787, during investor meetings. Their targets were 400-450 for the 737 Max and 70-80 for the 787 at the beginning of the year. Boeing later revised down its 737 Max target during Q4 2023 to 375-400, in anticipation of missing the original figures. Boeing finished the year with 386 737 Max deliveries, achieving only the revised target. It delivered 73 787s, in line with its original aim. Airbus made its target primarily through deliveries of the A320, A321 and A350.

Boeing’s underperformance on 737 Max deliveries is mainly a result of the manufacturing defects discovered in April and August. This becomes very clear looking at 737 Max deliveries by month over 2023:

Both defects were a result of quality problems with parts supplied by Spirit AeroSystems. In both cases, Boeing was able to recover deliveries within two or three months but not without very significant effects on the numbers during that time. Looking forward, Boeing’s ability to deliver these will be determined by whether it can avoid further issues of this nature. The manufacturer has proved itself able to deliver between 40-50 aircraft per month several times over the past year and consistently achieving even the low end of that range would result in a significant increase in delivered aircraft in 2024. Despite making significant progress on last year, the 787 programme was also hit with multiple manufacturing issues in H1 2023.

The delivery rate dropped to as low as one in the month of February but rose to 11 by December.

To see real progress in 2024 and beyond, the most significant step for Boeing will be to turn the corner on these manufacturing issues and cement a steady pipeline of aircraft deliveries. It remains to be seen whether the recent 737-9 (Max) accident and subsequent FAA inspection AD which has grounded around 160 aircraft, will have a material effect on this aim. Cirium data estimates that fewer than 30 737-9s are scheduled to be delivered in 2024, around 5% of the total scheduled 737 Max deliveries.

Airbus has not been without its own problems, especially in the widebody market. A350 supply chain constraints in most of 2023 restricted deliveries to the extent that the total for the year slightly decreased from 2022. Like the 787, deliveries were beginning to ramp up in the final months of 2023 – if that continues, we can expect at least some increase in A350 numbers during 2024. It was largely a successful year in 2023 for the A320 family, with a combined total of 563 deliveries for the A319, A320 and A321. Airbus stated in early 2023 that supply chain issues will delay deliveries of some A320 family aircraft in 2024, but with time to prepare for that situation, it will likely be less significant than recent issues with the 737 Max.

This data also reveals something significant for fleet distribution in the medium-to-long term.

Airbus has now fully transitioned to new generation aircraft, either to the Neo version of existing models or fully new aircraft.

About 18% of Boeing’s output was freighter variants of legacy models, the 747, 767 and 777.  Boeing delivered its last 747F in 2023 and ICAO emission regulations mean the 767F and legacy GE90-powered 777F will have to be phased out by 2027. Boeing has historically been dominant in the factory freighter market but will be challenged with the introduction of the A350F. Boeing hopes to maintain both its freighter output and market position with introduction of the 777-8F, but with continued uncertainty over the timeframe for introduction of the 777X, this is far from guaranteed to be a smooth transition. Boeing may supplement its freighter deliveries with a 787F, but recent history raises questions over how quickly it could establish a reliable pipeline for either of these aircraft. Airbus could certainly have as many issues with the A350F but the fact remains that it already has almost a 60% share in total deliveries without producing any freighters – Boeing will need a solid transition to new generation freighters to simply maintain that gap and will need to perform very well to close it.

Airbus may be looking in a better position relative to Boeing at this moment, but it must not be overlooked that both are performing far worse than was expected two years ago.

The Cirium Fleet Forecast 2021 (released in Q4 of that year) predicted just over 860 deliveries for Airbus and around 720 for Boeing in 2023, over 140 and 200 more respectively than was achieved. Our forecast demand in that analysis was essentially correct – further evidence that the current heated environment across aviation is a result of the supply environment and can be expected to continue for some time to come.

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Daniel Hall, Senior Valuation Consultant, Cirium Ascend Consultancy

The business aviation sector has been a consistent growth and success story over past years – flight activity is up, order backlogs have grown, inventory for sale reduced, and notably for us as appraisers, market values have shown considerable increases from Q1 2021 through to the end of 2023. At the time of writing this (December 2023), Market Values in the Business Turboprop through Light through to the Super Midsize categories are up by 48-71% on average, on a fleet-weighted constant age basis (i.e. removing the impact of asset depreciation). The below chart illustrates these changes by size segment category. These are tremendous numbers, but they have brought with them a fundamental question – how does one accurately forecast a residual value following this market value growth, and what is the downside risk to these numbers should (or when), markets normalize towards a more balanced level?

Source: Cirium Values Analyzer, Cirium Fleets Analyzer. Market Value changes are a fleet-weighted average, and on a constant age basis for aircraft up to 25 yr old, Large (removed for analysis) includes high-% low-$ changes to older types including those to small niche variant fleets.

Typically this is where the Base Value concept comes in. The International Society of Transport Aircraft Trading (ISTAT) defines “Base Value” as follows: Base Value is the Appraiser’s opinion of the value of an aircraft (or other aviation-related asset) in a stable market with a reasonable balance of supply and demand…(full definition continues). At Cirium Ascend Consultancy we use the Base Value to forecast a future residual value. By comparing Market to Base Value (as a ratio), it also provides some indication of how the market is for that asset type. Market Values had increased at levels far beyond any appraisers’ expectation, but by mid-2023 it was increasingly apparent that there had been a more notable shift in the market – this wasn’t a usual cycle, and we would not see values fall back to levels last seen in early 2020.

We therefore embarked on a project to review our current, and future Base Value projections, with a focus on the above-mentioned size categories.

We have chosen not to amend our opinions for the Long Range or Bizliner categories; these have not seen the same level of value change and their existing forecasts are proving resilient and accurate for guidance to investors.

There are several fundamentals which have guided us during these revisions:

• We remain in a high inflationary environment. This has driven large changes in new pricing which for the first time in over a decade has shown improvement, by range of 10-30%. Previously, new pricing was relatively static year over year, despite inflation at that time.
• Manufacturers have grown order backlogs to levels not previously seen – now at two-three years for most models. This gives assurance that there will not be over-production or ‘white tails’, thus keeping those gains in new pricing.
• We remain in a supply chain pressured environment – labor, parts, expertise – collectively this has held back abilities to grow production rates, so as above, keeping supply steady at strong demand continues to help pricing, and value retention. 
• The industry has seen many new users (of business aviation) – flight activity has dipped but does remain in the region of 15% up on 2019. Many are now moving to fractional, a sector which is recording growth in its fleet share. These users of fractional may be individual aircraft buyers in the future.
• Cirium Ascend Consultancy’s opinion is that even if demand softened, manufacturers would not be able to drop new pricing. Suppliers (engines, avionics etc.) will have increased their cost to the OEM – this rarely reverses; therefore, we expect these prices increases to stay.
  • Price increases for new / young aircraft helps the entire value curve, as there is a trickle-down effect. Effectively this creates a minimum Base Value improvement of 10-30% by starting point, which can be seen on many types.

We should emphasize that we do expect markets to continue to normalize – therefore Market Values will fall as supply and demand balances. Therefore, our Base Value increases are only so far – but today leaving many Market to Base Value ratios at approximately the 120-130% level, which is a far change from many types which were at 150%+.

The Changes

We have made changes to around 75 business aviation variants. On average, the fleet-weighted average change to our Current Base Value opinion is a 32% increase and the distribution ranging from negative 6.5% through to positive 156%. Just a handful of variants saw a small negative change which was needed as part of this major review. The models with very large percentage increases are off a lower-dollar base, for instance an older Beechjet 400 model where the previous value was below $1.00m. Around two-thirds of change was within 35%, as the below distribution chart displays.

Note – outliers (negative & very large increases) not included.

Each aircraft variant had the following reviewed:

• Current Base Value (starting point).
• Residual Value Curve – based on market value retention performance and competitive landscape.
• Position in the production cycle – we made some revisions on our view of an aircraft type variant in its own technology cycle.
• Residual floor value – our estimation of aircraft part-out / scrap value.
• Changes become effective online from September 1^st through December 2^nd, 2023.
• The HondaJet does not feature below as we made changes to this type in May 2023 following the introduction of the Elite II.

Base Value Inflation – Jan 1 2024

Separate to this review (and the figures presented below) is our inflationary change made to all aircraft Base Values on every January 1st. In recent years we have been reviewing actual US dollar CPI inflation at the end of each year and applying this uplift to New Year values. For 2024, we have inflated all Base Values by 3.1%, both current and future, which is reflective of US CPI-U index (all cities, all goods, not seasonally adjusted) obtained for the 12 months ended 30 November 2023 (as is our usual methodology). We have also applied a 4.1% escalation (1% above inflation) to all maintenance costs, which allows Full-Life values to keep up. The forward default inflation to future curves remains at 2% (unless selected otherwise by the user).

A full summary of changes as-at December 2023 can be found below:

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