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B757 Residuals Look Increasingly Fragile

September 4, 2017

While conversions of the B757 to freighter are still taking place so too are parting outs indicating that the market for the type is weakening.

Values of the B757 have been stable in the last few years. Between 2016-2017 values fell by only some four percent, half the average annual fall. A large number of B757s are located in the U.S. but operators are pulling the type out of some thinner routes while others are replacing them with other types such as the A321ceo and A321neo. Aventure Aviation has acquired an ex-United B757 (MNSN 25073) for part out and is actively seeking others to also scrap. The freighter conversion program may still be active but then so too are B737-800s and A320 family members set for conversion. The product life cycle of the B757 overlapped B738-800 and A320 family production by a number of years so in terms of age, there is not necessarily too much of a difference.

The B757 is however, suffering from increasing maintenance related issues. Airframe problems are a problem regardless of whether the aircraft is operated for three or 13 hours a day but engine maintenance is much more dependent on utilization. The cost of overhauling the Rolls-Royce engine can cost more than $4 million per engine with on wing time being in excess of 20,000 hours assuming a three to one hour to cycle ratio. The small package operators using the aircraft for perhaps six hours a day will therefore be incurring an engine overhaul once only every ten years or more but a passenger configured aircraft may require an overhaul every five years. Overhauling both engines will be considerably in excess of the half life value of the aircraft. The list price of the LLPs is now in excess of $5 million making on-going maintenance a costly exercise.

The retirement profile of the B757 is however, still exemplary. While more than 1,000 were originally delivered with the last being produced in 2005, only some 200 or 20 percent have been removed from service though this does not include those which are parked and in storage. During 2015 49 were retired and a further 44 in 2016. For the first six months of 2017, 11 were removed. With the delivery of new replacement aircraft accelerating then at least another 50 are expected to be retired during the course of 2017. An increase in the rate of retirements will have an effect on the value of remaining aircraft. Parting out existing aircraft will increase the supply of spares, not least spare engines, while the remaining fleet will be contracting. Moreover, the aircraft that are remaining in service will likely be used less intensively reducing the need for spares.

Instead of the four percent fall in value seen over the last year, the next twelve months may see the annual fall rise to more ten percent before easing back to nearer eight percent per annum over the next five years.

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