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A220 Financing Becomes Easier As Confidence In Residuals Improves

May 13, 2019

The takeover of the CSeries by Airbus is beginning to secure tangible results as financial institutions have sufficient confidence in residual values to lend against the asset value of the type.

To date some of sales of the CSeries (A220) may have been difficult to secure because of the potential problems in finding finance. This created a circle of uncertainty as fewer orders increased the potential risk for lenders due to a limited operator base and therefore remarketing opportunities. This concern over remarketability has played a role in containing residual value expectations. But more recently the A220 has seen interest from lenders with Avation financing five A220-300s to be operated by Air Baltic for twelve years. The inclusion of the A220 in the latest Delta EETC provides further evidence that the A220 is suitable for mainstream financing, although EETCs are more focused on the credit than the asset. The round of financing may however be viewed as a means of realizing a greater return due to potentially greater risk and the lack of opportunity to finance the A320 or B737NG. The acquisition by Airbus overcomes some of the risk and Export Credit agencies may also be involved.

There are still concerns over the relative strength of A220 residuals as orders have yet to be announced in sufficient quantity to ensure that production rates will improve. Airbus is currently focusing on reducing production costs and streamlining the process before seeking a jump in production rates. The problems of financing a delivery slot for the A320neo and B737MAX are naturally turning operators to the A220.

Appraisers have different views on the values of the A220 as noted with the Delta EETC above. For the A220-300 a range of seven appraisers sees an average of $37 million with the lowest being $35 million and the highest $43 million. At $43 million this nearly equates to the value of a new A320ceo. The low of $35 million reflects the risk of remarketing the aircraft to a third party rather than the net selling price from Airbus to the customer. There is inevitably a need for some caution at this stage of the product life cycle of the A220 as the type is still maturing both in terms of technical performance and orders. However, values of new aircraft can be expected to increase going forward which in turn will allow an improvement in residual values of those aircraft already delivered.

 

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