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Remarketing B737-900ER Becomes Ever More Difficult

May 13, 2019

The market for the B737-900ER is proving to be difficult in view of the restricted operator base and the clear preference for the A321-200.

The B737-900ER arrived late to the market, long after the A321 had established itself. For some years Boeing did not consider that a larger aircraft than the B737-800 which could fly longer sectors was worthy of consideration. But with the interest in the A321, the need for a competitor was clear. However, just as with the B737-9 there was a reluctance to match the capacity of the A321-200 and only with the B737-10, which itself may need some improvement to adequately match the A321neo, has there been an appreciation that the market demand is sufficient to warrant fresh thinking. The previous reticence on the part of Boeing has been an issue and as such there have been 505 orders for the -900ER of which all but nine have been delivered. There have only ever been 15 customers for the -900ER. This compares with 1,799 orders for the A321ceo from 100 customers. Moreover, there are now 106 operators of the A321 compared with 22 operators for the -900ER. The concentration of -900ERs is all too evident with Alaska operating 92, Delta 112, Lion Air 69 and United 136. These four operators operate 80 percent of the fleet. A key consideration when determining values is the concentration of the operator base in terms of regions and the number of operators. Sixty five percent of the fleet is located in the U.S.A. and with only three operators. Consequently, the assumption that the B737-900ER has a higher value than the A321-200 would appear to be counterintuitive.

Indeed, the values of the -900ER have been falling by a considerable degree and just as with the -900, the value of the -900ER is now worth less than that of the smaller B737-800 and considerably less than the A321-200. A 2016 vintage -900ER has a value of approximately $38 million which compares against $39.5 million for the B737-800 (174,200 lbs) and $41.2 million for the A321-200 (89 tonne version). The values of the -900ER have therefore been sliding at a considerable rate with the limited number of customers always translating into little differentiation in values when compared with the -800. The residual values of the -900ER are expected to continue to remain lower than the A321-200 throughout the next 20 years despite the latter having a much longer product life cycle which will see value convergence play a role in the coming years. During the next five years the values of the -900ER are expected to fall by nearly 30 percent including inflation and by more than 40 percent when excluding inflation. While the U.S. operators may be expected to retain their existing -900ERs for another decade or more, this should not be seen as an indication that residual values will also remain strong. Low levels of availability are never an excuse to assume high residuals. The fall in the values of the -900 and -900ER may however, make the two variants ideal targets for freighter conversion assuming that the additional engineering and design work is not onerous.

 

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