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Regional Aircraft List Prices Correlate Better With Net Prices

March 5, 2018

But Average Discount is Still in Excess of 40 Percent

1While the list prices published by the manufacturers of larger commercial jets continue to present a substantive disconnect with the values of new aircraft, the list prices of regional jet makers have better, if still divergent, correlation.

The difference between list prices and values on the larger commercial jets has continued to widen such that the average discount is now approximately 60 percent based on even single unit purchases. Both Airbus and Boeing are intending to increase production of their narrowbodies which suggests the potential for even greater pricing flexibility at least for the A320 and B737 families. For the regional jet manufacturers, the differential between list and the value of a new aircraft has been more limited.

The list prices of the ATR aircraft remain reasonably low when compared to current values, the ATR72-600 particularly. The net price being paid by customers of the ATR72-600, particularly with respect to quantities involving more than five aircraft, may have attracted considerable discounts. A few lessors have entered this market and their purchasing power may eventually distort the market when such aircraft sold on the used market. The ATR72-600 in particular has seen extremely low lease rentals over the last year although the last few months has seen an improvement as the excess has been absorbed. The pricing of the CSeries has been the subject of recent trade disputes. The Delta order for the CS100 reportedly involved a purchase price of approximately $20 million versus the single unit value of $31 million and the list price of nearly $80 million. All manufacturers have participated in strategic pricing with some customers although at $20 million or less, this was exceptionally low if correct. To ensure that the CSeries aircraft is sold then pricing will continue to play a part. The problems of Bombardier in terms of the CSeries has inevitably had an impact on the smaller aircraft with the CRJ900 being offered at low prices which in turn has affected current market values. There are few orders for the CRJ700 as Bombardier pushes the CRJ900 which has a higher gross margin.

The net discount of Embraer aircraft amounts to some 40 percent although with the existing product line in the process of being replaced with the E2 the value of new aircraft is actually falling compared to previous years thereby increasing the net discount. The E175 Enhanced still has a considerable backlog largely due to scope clauses which means that the new E175E2 is too heavy for the existing restrictions. The concentration of the E175 within the U.S. is reminiscent of the ERJ145 issue, the values of which are still being affected. The MRJ product is in the midst of flight development and service entry is still some two years away and as such placing a value on the aircraft requires careful consideration.

The value of a new aircraft is not the net price paid by the customer but is instead the value of the aircraft if it were to have been delivered from the manufacturer to its customer and then immediately sold to a third party. There can be a considerable difference between the net price paid and the value of a new aircraft particularly for example if the aircraft is one of the last to be built for which the specification has not changed for many years. The value of any new B767-300ER, if revived, will likely be less than $60 million, only slightly more than a new A321neo but the net price may be in excess of $70-75 million.

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