B737MAX Values Remain Unchanged – For Now

August 5, 2019

The extended grounding of the B737MAX is inevitably raising questions as to whether the values of the type should be reduced.

The grounding of the aircraft now appears to extend until the end of the year and possibly into the start of next year although at present the regulatory authorities have not provided any definitive dates. Southwest airlines for example is planning for a January restart of B737MAX services after the grounded aircraft undergo maintenance. The number of changes that have to be made to the MAX has still yet to be determined. In the event something more than software changes are required possibly in terms of components, then these will need to be factored in. The extent of additional training will also place pressure on simulator capacity. Therefore, even after the remedies have been agreed, returning the existing aircraft to service, modifying those on the production line and ensuring sufficient training, will all take time.

The issue for values though is whether a discount is warranted for those already delivered, for those in produced but not delivered and for those yet to be manufactured. For those aircraft already delivered, in some ways the value of a B737MAX built in 2018 should be higher than previously forecast as of early 2020 because of the lesser utilization. The lack of utility means that the engines, airframe and components have accumulated lesser time which should allow the value to be higher on a like for like basis. Some calendar-based maintenance items will not be impacted unless these are zero-timed prior to service re-entry. The premium attributed to the lesser utilization due to the period of storage will be eroded to negligible levels in perhaps four to five years.

Apart from the maintenance/utilization adjustment on aircraft already delivered, this leaves the question as to whether the value should be discounted because of “taint”. A discount for taint would apply if it is considered that selling the aircraft would become more difficult to the majority of operators and that an inducement would therefore be needed to the majority to achieve a sale once the aircraft is back in service. For a very few airlines there is a likelihood that the acquisition of a used B737MAX will never be considered; that an inducement to a few more airlines would probably be needed; but that for the majority of operators, given sufficient reassurances, there would be a willingness to buy a used B737MAX without any inducement. If however, it becomes apparent that there few new orders are placed while a number are placed for the A320neo, that more than 25-30 percent of existing orders are cancelled and that more than 20 percent of the fleet are advertised and remain on the market for more than three months, there may be a justification for altering the values. Therefore, for the time being the values of the B737MAX remain unchanged.


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