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Ascend Consultancy Weekly Team Perspective: Cirium Ascend Base Value Updates July 2024


Cirium Ascend released updated Base Value (BV) forecasts on 1 July 2024. Read about some of the key themes in the latest revisions.

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George-Dimitroff

By George Dimitroff, Head of valuations, Cirium Ascend Consultancy

Cirium Ascend released updated Base Value (BV) forecasts on 1 July 2024. They went live in Cirium’s Values Analyzer platform shortly after midnight BST (GMT +1). Some of the key themes in the latest revisions include:

  1. The BV floor is getting higher

    Engine values have been increasing more rapidly than aircraft values and the portion of an aircraft’s value that is attributable to its engines has been increasing steadily over the last few decades. Higher engine values mean higher part-out values toward the end of an aircraft’s life, which means that the floor at which BVs level off (which itself is not a horizontal line) is now higher than it used to be. This has been observed most recently with older generation aircraft but is also expected to apply in the future with new generation aircraft.

    Our single-aisle aircraft BVs have been relatively stable since 2014, with limited (if any) impairments during Covid.

    However, it is becoming increasingly evident that older aircraft are “cashing out” at retirement, generating proceeds higher than historical trends suggest.”

    This is not just because of the current heated market environment.

    Our new BV curves for single-aisles are shallower to reflect this fact. They take engine values into account alongside other factors. However, the BV does not necessarily equal the Part-Out Value, even if it may be guided by it.

    Current BVs are broadly unchanged for most younger types but increase with age – be it the current BV of an older aircraft, or the future BV of any aircraft, young or old. Due to the compounding nature of increases, projections further into the future will see greater increases in Half Life values.

  2. Engine green time does not depreciate as fast as previously projected

    A thorough analysis of the change of engine overhaul and LLP stack value over time indicates that engine value green time is depreciating less rapidly than projected previously. We specifically focussed our analysis on how this “green time” depreciates in Phase 2 (out-of-production) and Phase 3 (retirement) of an engine’s life, and while some worse performing engines did have significant double digit percentage drops in certain periods of time, the longer-term trend has been one of more gradual decline.

    We have taken these findings into account to modify some (but not all) of the depreciation rates of engine green time, and in most cases the decline is now less steep.

    Please note that the three-phase methodology for treating engine green time value that was introduced in November 2023 remains in place and we have simply modified some of the parameters within that logic to reflect our new expectations for the future.

  3. Current production delays push some inflection points further into the future

    The ongoing supply chain issues and constrained production rates at all OEMs mean that there will be fewer new deliveries in the coming years than previously expected, and consequently fewer aircraft will be retired in the next few years than projected in the 2023 Cirium Fleet Forecast.  Consequently, the engine programmes powering newer generation aircraft will likely have longer production runs, and thus take longer to enter Phase 2 or 3 of their lives, than previously projected.

    Another factor that contributes to later entry into Phase 2 or 3 for engines is that OEMs have now made it clear that some (but not all) of the technological improvements that they are developing currently and in the next few years are expected to be fully retrofittable to in-service engines at their next shop visit, which means that older engines could be upgraded to the latest production standard.

    Therefore, such engines are now not expected to see their values decline prematurely due to replacement by a more efficient version of the same engine.

    Consequently, inflection points for such engines are moving further out into the future than previously expected.

  4. New years of build see annual BV growth above the long-term trend for longer

    In late 2022 we implemented a change to our new aircraft BVs for what was then the next three years of production (up until 2025), so that those years of build showed slower-than-usual declines in new pricing in real terms (or faster increase in absolute terms) than the historical long-term trend suggested. The current supply shortages, full orderbooks, high escalation rates and our projection that the single-aisle market will not return to a supply / demand balance until at least 2028, result in an extension of this “holiday” period by another 3 years (until 2028). Build years from 2029 onwards return to the long-term new value trend, and we will continue to monitor and review them in light of how OEM new pricing and the supply / demand balance evolve over the next few years.

    The net impact of these changes, each of which in themselves can be relatively small, potentially compound to lead to more substantial increases to some BVs, especially for mid-life and older aircraft, or forecasts further out into the future, especially on a Full-Life basis.  Ultimately, our aim is to continue to refine our forecasts to be able to provide expectations of residual value that are as realistic as possible within the dynamic and rapidly evolving industry landscape. We will be publishing a more detailed Inside Track on Values newsletter in the coming week fully detailing the BV changes type by type, which will be available as usual in the publications section of Values Analyzer.

Learn more about Cirium Values Analyzer.

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