FOR CURRENT &
FUTURE AIRCRAFT VALUES

Market for Outgoing Regional Jets Weakens

May 14, 2018

The regional jets are experiencing just as much of a major shift in the product line as the mainline jets and this is inevitably having an impact on the lease rentals of the outgoing aircraft.

The lease rentals for used aircraft have fallen as availability has increased and as more aircraft are needing to be leased on. Seeking to maintain the previous premiums enjoyed by lessors has been difficult although the larger lessors with lower book values are still able to record enviable margins.

Because of the more limited operating base for regional jets then experience can play a significant role in ensuring placement at the right lease rental. To some extent the limited number of lessors in this sector will mean that lessees will have more limited opportunity to negotiate as there will be few other sources of supply.

A short term lease will generally see a higher lease rental to compensate the lessor for higher administration costs as well as possible refurbishment costs. Fortunately, with limited interior options and usually a single class, regional jet interiors require little attention when moving between lessees. Lessors will normally seek the longest possible lease term – subject to the right rental. Three months security deposit equating to three months rentals is the normal with maintenance reserves also payable. Some more credit worthy lessees will likely be able to reduce the security deposit and also perhaps perform maintenance themselves with at least half life return conditions being agreed.

Lease rates courtesy of The Aircraft Value Analysis Company Limited (AVAC). www.aircraftvalues.net; www.aircraftvalues.com.

Regional Jet Lease Rates (Dry) US$ ‘000s pm – May 2018
Aircraft Age Rental Trend Analysis
BAe146-100 1984-89 35-45 The market for the BAe146-100 is as small as the aircraft and the operator base. Remarketing the aircraft is extremely difficult not least because the age profile is older than most of the B737-300s that were delivered. The leasing of the aircraft is therefore problematical and the focus has to be on the non-commercial sector. For any lessor, the emphasis is on a full payout lease that will enable parting out to be contemplated upon the expiry of the lease. Lease rentals can vary considerably.
BAe146-200 1987-93 40-50 The BAe146-200 had a good innings for many a year particularly before the arrival of the E-Jets. With the mainline like interior and reasonable capacity the aircraft could actually be operated on a profitable basis without the need for public service funding or subsidized by a service agreement. Yet, that was a decade or more ago and placing the aircraft has become ever more difficult with parting our becoming a more viable alternative.
BAe146-300 1988-93 40-55 The -300 experienced some volatility in the early years with some operators facing problems but for others the capacity of the aircraft made it ideal for a number of routes. The range of the BAe146 was never that attractive although the ability to service the more noise conscious airports meant that there was some attraction. The lease rentals have failed to be attractive for many years and the market is very much dependent on how much the lessee is willing to pay rather than how much the lessor is willing to lease the aircraft for.
Avro RJ70 1993-97 45-55 There were few built – 12 in total – and few remain in a commercial role having been converted to VIP transports in the main. For those operators seeking to fly a few passengers over a short distance then the RJ70 is a clear candidate.
Avro RJ85 1993-961997-01 45-5550-60 A great aircraft that may not have sold in quantity but for those that did operate the aircraft then the type did provide an alternative to having to operate a larger aircraft. The lease rentals have inevitably hardly varied for perhaps a decade as the type has been increasingly supplanted by newer types. The maintenance costs of the aircraft have been a known quantity for years and this has enabled the few lessors of the type to more easily find lessees. While still featuring four engines, the wide interior and capacity of the aircraft meant it was viable for a wide range of operators. With the arrival of the E2, the Bae146/RJ is two generations behind the latest offerings.
Avro RJ100 1993-961997-01 50-6555-65 The aircraft may be some 30 years behind the E2 but there is something appealing about its capacity – and much lower lease rentals. The aircraft was never a big seller and this means that the used market is sporadic in nature. Those with an auxiliary fuel tank as well as airstairs will make for a more appealing package. The overhead bins near the wing spar can make it frustrating for passengers seeking to avoid paying for checked baggage.
CRJ200ER 1996-981999-05 35-4540-55 The CRJ200ER is an aircraft in its final years at least in terms of relative attraction. There will continue to be a place for the 50 seaters and there will no doubt be those that will continue to favor the type but these are not sufficient to cover all those that still remain in service. Lessors have had to be creative – just leasing the engines for example or turning the aircraft into a corporate role. The rates are very low and have been for many years making placement not only difficult but also of dubious value. The aircraft is of an age which can restrict the countries to which marketing can be made.
CRJ700 2000-072008-14 55-7060-120 The 70 seaters have long since been exposed to the changing market conditions and lease rentals have inevitably fallen as the market has turned its attention to larger aircraft. The U.S. continues to generate some demand due to restrictive scope clauses but aircraft may not always be placed using a vanilla operating lease. Aircraft have moved between lessees but a limited number being advertised shouldn’t be used as justification for assuming that lease rentals remain strong – they continue to fall.
CRJ900 2002-072008-18 60-7070-175 A fragile market continues to beset the CRJ900 despite the placement of fresh orders for the variant. The age profile of the aircraft ensures that more are coming onto the market and these can take time to place not least because of the attractive prices that new aircraft are being offered at. The lower net pricing is allowing more flexibility for lessors if buying new but for those bought at higher levels five or ten years ago, the lower rentals are not attractive. Lessors will be increasingly seeking to retain aircraft with existing lessees. The late arrival of the E175E2 and the MRJ90 as well as the maintenance of restrictive scope clauses will continue to generate some favor for the type.
CRJ1000 2009-18 80-200 The market for the CRJ1000 is weaker than it was with a limited backlog and advancing age threatening the used market. To some extent the CRJ1000 is not so dependent on the scope clause restrictions but instead the type is more exposed to the offerings from Embraer and MRJ for which it has no answer except in terms of lease rentals. The CRJ1000 has been in service for longer than might be imagined and the number of delivered has perhaps not met expectations. Lease rentals for the younger aircraft are perhaps the most vulnerable should they become available as Bombardier will be offering good discounts on new aircraft.
ERJ135 1999-04 30-40 The rates for the ERJ135ER can surprisingly vary by a considerable degree depending on condition and length of lease. Also a number are used in the corporate shuttle role which usually means higher rates. The type though is facing pressures as making any 30 seater commuter jet is difficult in a deregulated environment. A single passenger can make the difference between profit and loss. Rolls-Royce TotalCare can have a very marked impact on marketability such that placement with it can be that much more difficult.
ERJ145 1996-981999-05 35-4540-60 The ERJ145 continues to lose favor. The cessation of production a decade or more ago for this category of aircraft made it all too apparent that the market was moving in a different direction. The large number operated by U.S. airlines have experienced a more volatile market than was initially expected, shifting between operators. The level of availability is a significant issue with dozens available. Lessees can cherry pick the quality aircraft and largely dictate rentals if they have some financial standing. For a time the ERJ145 avoided the pitfalls suffered by the CRJ200 but reality has caught up. Long term storage can make a return to service all the more difficult given the amount of cash that is required so it is better to keep the aircraft leased to an existing lessee even at lower rentals. Seeking to lease the engines only may be a better proposition.
E170 2002-082008-18 60-7070-180 Just as with the CRJ700 the market for the ERJ170 has faced a number of issues over the last five years as more have come onto the market. Finding a lessee is not as easy as might be expected and this takes time. Considerable work may therefore be required before the expiration of an existing lease to ensure a smooth transition. The lack of a backlog for the E170 indicates that the market has moved on to other types. The lack of inclusion in the E2 series points to the problems in this segment of the market although MRJ is close to producing its first flight test MRJ70 which will enter service in 2021.
E175 2004-102011-152014-18e 85-160140-190180-225 The E175 is proving much more popular because it still meets the scope clause limits whereas the new E175E2 is heavier because of the new engines. The Enhanced E175 offering improved efficiency was introduced more recently and is still in demand not least because the E175E2 has been delayed due to scope clauses.
E190 2005-092010-18 75-10090-220 There has been some variation in delivery rates which illustrates that the type has experienced some changes. With the E190E2 having just entered service, the existing E190 is now vulnerable to replacement. The age profile of the aircraft is also such that more will be entering the used market and lease rentals can be expected to fall further in the near term. The E2 is more than just a re-engining exercise and this will ensure a measure of clear water with the existing E190. The range of the aircraft is better than might be imagined even in hot conditions. There are some sector lengths nudging four hours in length which is on a par to larger narrowbodies.
E190E2 2018- 260-300 The E2 has arrived and lease rentals for the first aircraft are likely to be attractive as any lessor will have driven a hard bargain given the potential but unrealized issues that may have arisen during the development period.
E195 2006-112012-18 80-125120-240 A good aircraft that has perhaps operated in the shadow of the E190 with sales failing to achieve the anticipated levels. The aircraft perhaps has too great a capacity for many operators while being too small for others. There has also been a concern that operating performance of the E190/E195 may not be as good as might be wished for. With more than 120 seats in a high density configuration the existing E195 offers considerable efficiency. There are a reasonable number of lessors leasing the type and this should allow some competition such that lease rentals will be adversely impacted in the near term.
328JET 1999-02 30-35 An aircraft that has failed to inspire despite much promise when evolving from the turboprop. Fuel prices are rising once again which is not good news for the smaller commuter jets. Whether Turkey develops a replacement for this aircraft remains to be seen – they may even buy the CRJ series.
F28-4000 1976-80 10-30 There is little to commend the type and leasing is not likely to be of much relevance.
Fokker 70 1995-96 40-50 The market for the Fokker 70 remains difficult and the type is very difficult to place. The rise in fuel prices will not benefit the Fokker 70/100 but will instead see operators seeking a replacement that much sooner. A good aircraft but far from being the ideal vehicle for leasing.
Fokker 100 1991-96 40-55 The type is quickly fading from the commercial sector although there are a number still leased. Lease rentals are remaining stable but achieving rentals of $60,000 per month may now be a forlorn hope and remarketing will take time, effort and money.
Commentary reflects change from the last update to Regional Jet Rentals of February 2018.
THE SEARCH FOR AIRCRAFT VALUATIONS
A one-of-a-kind database filled with aircraft valuation data, including information on leasing, valuations and vital statistics, as well as Aircraft Assessment Reports.
Search an Aircraft Valuator
Error Demonstration

Live chat by BoldChat