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American Order for E175s Represents Limited Risk Despite E2

November 13, 2017

The backlog for the current version of the E175 continues to nudge nearly a 100 representing a significant amount given that the replacement of the type is already scheduled.

The latest order for 10 units from American Airlines does not however represent much of a risk as the purchase price – though not eliciting the same level of discounting that Delta secured on its CSeries order – will have been sufficiently attractive as to negate the expected increasing rate of decline over the next years. The current list price of the Embraer 175 is approximately $46 million which compares with $51.6 million for the E175E2. The current market value according to Aircraft Values Pro (www.aircraftvalues.net) is $28 million although other estimates are in excess of $29 million. The price that American will have paid will be much less and will likely have been negotiated as part of previous orders. American has ordered some 74 E175s of which more than 60 have been delivered. The American price will perhaps be less than $23 million which provides considerable profit when selling the aircraft through EETC structures. Such a discounted price will provide protection against the fall in E175 values which are expected to fall by at least 55 percent over the next ten years.

In the short term the fortunes of the E175 may actually be better than might be imagined in view of the arrival of the E175E2. The entry into service of the E2 has been delayed until 2021 due to the failure of U.S. airlines to relax restrictive scope clauses to allow the operation of far less polluting aircraft in the near term. This delay – along with the delay to the MRJ – has meant that operators have little choice but to opt for the current offering. While the rate of decline in E175 values may be less severe in the short term there will be a return to expected falls as service entry of the E175 nears and as the MRJ gains certification. While there may still be a 100 E175s to be delivered these will increasingly be viewed as end of the line aircraft which in turn means a fall in delivery values and a greater fall in residual values in the medium term.

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