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B717 Values Remain Static

September 4, 2017

The market for the B717 remains tight given the limited number in service and the few operators interested in the type.

The last three months has seen relatively little movement in B717 values or lease rentals but such stability cannot persist for very much longer. The type continues to suffer from marginalization as a consequence of a limiter production run and an operator base that falls short of the minimum of 20. Of the 155 in service Airtran operates 64, Delta 24, Hawaiian 18 and National Jet 17. More than two thirds are used in the US. Residual value strength is partly dependent on the ability to remarket the aircraft and there are few operators which would be obvious targets though existing operators may desire more. The ending of production saw the delivery of only 155 units, far short of the 400 deemed necessary for values to stand a chance of achieving even stability.

The Boeing B717-200, developed by McDonnell Douglas as the MD95, was specifically designed for the short-haul, high frequency 100-passenger airline market. Unfortunately the market shifted from a simple replacement requirement to a more complex regional/major relationship which required the use of smaller and larger capacity aircraft. The MD95 sought to make use of modern but proven technology to lower operating costs thereby aiding simplicity, reducing noise and emissions, and offering larger jet comfort. The use of the original DC9 airframe represented a disadvantage compared to the clean design sheet available to Embraer and to a lesser extent, Bombardier. The aircraft was designated the Boeing B717 following the “merger” of McDonnell Douglas and The Boeing Company in 1997. The B717 entered a flight-test program in September 1998 and received joint certification a year later.

The launch customer, AirTran Airways took delivery of the first B717 in September 1999. The B717 sought to meet replacement and expansion needs in the 100-seat category, originally projected at approximately 3,000 aircraft by Boeing over 20 years. Deliveries finally totaled 155 by the end of production virtually unchanged from the order total recorded four years earlier. Deliveries managed to attain 49 in 2001 but then fell by more than half the following year. Deliveries then fell by a half again in 2003 such that only 12 were delivered.

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Competitors to the B717 encompass the B737-200ADV, DC9, B737-500, B737-600 and A318. The Avro RJ100 and larger versions of the latest generation of regional jets such as the E195 and CRJ1000, also represent competitors as does the new CS100 currently under development. The B737-200ADV and DC9 represent an insignificant challenge and indeed offer a possible a source of replacement but those that are being replaced are not necessarily being succeeded by aircraft of a similar capacity.

The serious competitors to the B717 are therefore CRJ1000, the E190/E195 (and the E2s) and the CS100. Orders for the B737-600 and A318 proved to be even more disappointing than those secured for the B717. The A318, representing an excellent aircraft, is part of a family but straddles the commuter and major operator markets. The higher weight of the B737-600 affects operating costs which therefore favor the continued use of the B737-500 and the larger regional jets. In comparison to the characteristics of the A318, the B737-600 appears to possess a number of attributes. The -600 is lighter, has better range, and has similar passenger and cargo capacity. The absence of sizable orders for the B717 and B737-600 therefore suggests that the market segment may have its own problems, thereby potentially also limiting sales for the A318. To the advantage of the A318 however, is membership of the family membership, and the problems with the PW6000.

With over 100 orders by the start of the previous decade, market demand for the B717 appeared reasonable but cancellations soon started to emerge and Boeing faced difficulty in securing new orders. This is a consequence of the type straddling two market segments. The commuter airlines, with a low cost structure and route network that requires smaller capacity equipment find the B717 too large and too costly to operate. The pilot salaries for the B717 are that much higher than for a regional jet and navigation and en-route charges are also too high. Such costs also fail to be matched by any improvement in yields. More seats equates to the carriage of greater numbers of lower yielding traffic rather than business traffic. A high level of utilization is unlikely to be matched by sufficient traffic levels. For the smaller carriers, the use of the B717 makes little sense due to the absence of any existing family. Scope clauses in the USA also limit this segment of the market.

Conversely, for the major airlines, route structures have already been largely established. While the B717 features a similar cockpit with other Boeing equipment, operating costs can also be at a similar level. Pilot salaries will be the same whether they fly B737-700s or B717s. The B717 can therefore be too small for the major operators despite the commonality with existing equipment. Being too large and too small, served to limit potential sales of the B717.

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