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E175 Concentration Starts to Impact Values

November 12, 2018

The additional order for 10 more E175s from American provides a further cushion for Embraer until the arrival of the E175E2 in 2021 but this comes at a price.

The orderbook for the E175 stands at approximately 650 aircraft of which 560 have been delivered. This represents a significant amount and now greatly exceeds the 566 orders placed for the E190. The backlog for the E175 is still therefore nearly 100 aircraft. The additional order for 10 aircraft from American, takes the total for the customer to 104. American last placed an order for 15 E175s in May this year. The aircraft will be used by Envoy, a subsidiary of American. The orders have been placed because of the scope clauses that continue to persist in the U.S. This limits the weight of the aircraft and number of seats that can be used on regional routes as a means of protecting the employment benefits of pilots. Scope clauses take no account of the environmental damage being done by the sustained use of smaller and older technology aircraft when new technology is already available nor of the shortage of pilots that exists. The U.S. operators cannot therefore order E175E2s nor the MRJ90 because of the scope clauses. Instead, E175s and CRJ900s continue to be ordered and delivered.

The values of the E175 are therefore becoming increasingly vulnerable despite the considerable orderbook. The concentration of the E175 in the U.S. is already notable. Of the some 560 that are in service, more than 450 are in service with U.S. carriers. Ten operators use the E175 in the U.S. with Republic and Skywest operating more than 120 each and Envoy 45 and Compass 55. The remaining 100 E175s in service outside of the U.S. are operated by only 14 operators. When the existing operators of the E175 in the U.S. are allowed to operate the aircraft that they wish, then finding buyers for used aircraft will be extremely difficult. The placement of a large number into storage can be expected which will have a particularly negative effect on values.

The estimation of values takes into account both geographical and operator concentration and both factors are all to evident with respect to the E175. The experience of the CRJ200 and E145 demonstrates all too clearly the impact of such limited remarketing opportunities. When the last CRJ200 was delivered just over a decade ago it may have had a value of $22 million but today the same aircraft is fortunate to be worth more than $2 million indicating a fall of more 90 percent in 13 years. A new E175 today may have a value of $27 million but in 13 years the value will be less than $8 million representing a fall of 70 percent, even that is perhaps an optimistic projection; the worst case sees a value of less than $3 million – equating to scrap levels. The Aircraft Rating of C+ is likely to fall in the next year having fallen from a B—of two years ago.

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