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Turboprop Rentals Relevant to Popular Types

June 10, 2019

Leasing turboprops remains something of a specialist exercise at least if the maximum return is to be made.

Because the value of a turboprop suitable for an operating lease ranges between $5-20 million this means that the returns can be relatively limited at least in dollar terms if not ROI. The management of the aircraft has therefore to be streamlined ensuring that the administration of the asset and the credit takes up as little time as possible. Yet, because of the limited number of competitors in this field, then a premium compared to a narrowbody jet can be applied to the lease rental. There is a need to ensure that maintenance reserves are being paid on a regular basis. This is because many lessees will be dependent on cash flow and given that the difference between a profit and loss for a turboprop operator can be a single passenger on each flight, it is all too easy for an operator to suspend maintenance reserve payments and potentially default. There are other advantages to leasing a turboprop. The configuration and specification of the turboprop is usually standard which reduces significantly the cost of reconfiguring the aircraft. Some $250,000 can be expected to be spent on reconfiguring the aircraft and probably much less.

The ATR, Saab and Dash8 products are the principal vehicles for leasing because they have the ability to be remarketed and have standalone asset value. The other types tend to be financed via a finance lease or via a straight loan where the credit represents a more significant part of the equation. The market for the leasing of turboprops therefore continues to center on the larger and more modern types.

Rentals are expressed in thousands of US dollars per month and are for indicative purposes only. Long lease terms, less credit worthy lessee, return conditions, will vary rentals considerably. Aircraft Rentals courtesy of The Aircraft Value Analysis Co. Ltd. (AVAC) www.aircraftvalues.net.

European Specification Turboprop Lease Rates (Dry) US$ ‘000s pm – June 2019
Aircraft Age Rental Trend Analysis
ATR42-300 1985-901990-95 30-3530-45 The -300 remains an important aircraft offering a low cost asset for operators with ticket price constraints. The type may be nearly 35 years of age but it still feels relatively modern. Maintenance is not necessarily an issue except perhaps in terms of structure and electrics. The issue of corrosion will require higher levels of maintenance and the electrics do not necessarily have the reliability of todays aircraft but then the lesser complexity of the systems may be a bonus. The -300 has not enjoyed the widespread support of lessors for many years not least because the aircraft has been replaced by newer variants and due to a change in structure that more favors larger aircraft. There have been a number of conversions to freighter which perhaps allows for leasing opportunities at rates significantly higher than those that can be obtained for passenger aircraft.
ATR42-500 1995-012002-082009-12 45-6055-6560-70 The -500 represents a significant improvement over the earlier versions and remained in production for over 15 years. The type is very much an essential part of the fleet even if the demand for 50 seaters is limited. That very limited market ensures that there is consistent demand for the aircraft given that there are few alternatives. The aircraft is still being leased in reasonable numbers with NAC being the primary lessor. Other lessors include Elix Aviation Capital, ACIA Aero Leasing, and Castlelake for example. The rates are now stable after having declined in recent years. The advancing age of the -500 has now been compensated for in the values. Yet at the younger end of the spectrum, there may be some decline in lease rentals given that the relevance of lease convergence to the type (lease convergence and value convergence reflect market forces which sees the youngest converge on the oldest).
ATR42-600 2012-19 65-140 The -600 is available in limited numbers and again NAC dominate the lessors for the variant with Knight Aircraft Leasing also present. With the -600 being the only 50 seat type on the market – at present at least – there is something of a captive market for those wishing to acquire a more modern aircraft to replace an earlier generation.
ATR72-200 1989-96 30-40 The -200 has been in service for some 30 years and has proved to be a worthy type. While there have inevitably been a number scrapped there are a surprising number still in service even if some have bene converted to freighters. Lessors that lease the type include ATR as well as NAC and Elix Aviation Capital. The aircraft is of an age and value that a more direct finance package may be arranged rather than an operating lease. The type can still be moved between operators with relative ease. Although there are a number of freighters on the US register, the majority of passenger configured aircraft are located outside of North America as there are to some extent, spheres of influence. The returns on older turboprops can be more limited if a lessee cannot be found sufficiently quickly. Retirement is an ever present option when a major maintenance event occurs but at least the aircraft can be maintained with relative ease.
ATR72-500 1998-022003-12 45-6050-90 A good aircraft that was delivered in seemingly high numbers – until the arrival of the -600 clearly showed that this segment of the market has considerable attraction. The -500 provided the performance and interior enhancements that were needed to more readily combat the regional jets. The -500 offered lessors with a type that had widespread appeal to a range of both first and second tier operators. With a desire to find more lucrative markets, the -500 was seen as overcoming the concerns associated with remarketing, excessive management time and credit overview. NAC and ATR are among the lessors of the aircraft although AVAP, Castlelake, Aergo Capital, Investec, Injet Leasing and Solenta Aviation also feature. A total of 365 -500s were produced which given the limited demand in some years, represents a success.
ATR72-600 2011-19 75-165 The lease rentals for the -600 have seen some volatility in recent years due to a surplus of used units emerging and then taking time to dissipate into the market. There has been an element of recovery but perhaps not to the extent of matching previous peaks. The market still has some anxiety not least because the leased fleet is growing. At least there seems to be less competition in this segment of the market than for the larger commercial jets. Lessors include NAC, AVAP, Elix Aviation Capital, GECAS and Transportation Partners. With no new aircraft waiting in the wings, the aircraft is considered to be a desirable turboprop asset but a sense of realism is needed. The depth and breadth of the operator base is notable but that can be at the expense of placement with weaker credits which could serve to erode lease rentals going forward. The Dash8-400 has an advantage in terms of seat count.
Beech 1900C 1983-87 15-25 There is little appetite for the 1900C even if the 19 seater still has a role to play not least because the aircraft is rather old. The versatility if not the interior comfort of the 1900C endeared the type to many operators but the market has moved on. The type is more suited to traditional financing rather than leasing and the price is sufficiently low as to allow cash purchases.
Beech 1900C1 1987-92 10-30 The 1900C1 introduced slightly better performance but comfort levels were still largely absent. Rentals have remained a constant for many years though a straight purchase is perhaps preferable for many operators.
Beech 1900D 1991-01 20-35 The Beech 1900D should not be dismissed as an irrelevance to the leasing market. Even though the type has not been in production for nearly two decades, the type was still one of the last 19 seaters to be built. Those in good condition are still in demand from operators who still consider the type to be well suited to their needs. The short sector lengths means that the fuel component of direct operating costs is limited ensuring that there is little appetite for paying a premium for a new product. Any lessor will be looking at the longest possible lease. The standup headroom at least for those under six feet is a bonus on such a small aircraft.
DHC6-300 1969-751976-88 40-5550-75 The DHC6 is still very much a favored aircraft by a wide range of operators. The aircraft can also be the subject of a lease although a straight financing arrangement may be viewed as a more common means of placement. The limited utilization of the aircraft and the expansive support network of the type ensures that the aircraft has remained in service despite advancing years. The maintenance burden on the Dash6 is limited with many facilities able to undertake the necessary work. The Twin Otter has represented the ideal vehicle for leasing over the years and the type has perhaps represented the best of investments of any turboprop or jet. Lease rentals are holding steady but the actual rate is dependent on the length of the lease and the lessee. The -400 is selling but is not having an impact on -300 rentals.
DHC7 1977-821983-88 <20-3020-30 The market for the DHC7 is non existent and has been in such a predicament for many years if not virtually since fuel prices increased above $11 a gallon which is a long, long time ago. The very downtown airports that the aircraft was designed to service had little appetite for such operations. There were few Dash7s ever produced and there are fewer aircraft on the market. The aircraft remains very specialist even with the lower price of fuel. Inevitably a number have been scrapped and others have been written off and there are very few remaining in service.
Dash8-100Dash8-100BDash8-100Q 1984-911992-961997-01 20-4025-3530-40 The aircraft may be viewed as old but there are still a good many operators wishing that they could acquire one, at least one in good condition. Whether the aircraft is then leased is more doubtful as direct financing will be more of an option. This is not to say that the type cannot be leased as Castlelake are a lessor as is CIT. Aircraft Leasing Services and Avmax are also lessors as is NAC. There are a number on the market at any one time and this provides for considerable competition although the option of leasing is perhaps not seen as a primary option. A lease allows new market entrants and those seeking to replace earlier types to acquire the type at relatively low cost and thereafter the aircraft may be purchased. The type is facing pressure from newer variants as well as larger offerings. The -100 offers PW120A engines, while the -100B is powered by PW121 engines. The Q also has PW121 engines but a restyled interior and a vibration suppression system.
Dash8-200A Dash8-200Q 1992-961997-02 30-4030-40 Bombardier made a number of improvements to the smallest Dash8 variant over the years offering operators slightly more efficiency than the forgoing model. Such is the marginal performance of the smaller turboprops on some routes that the extra bit of power makes the difference. The -200A offered operators the chance to use PW123C engines.
Dash8-300Dash8-300Q 1988-961997-08 35-4545-60 The -300 is still viewed as a competitor to the ATR42-500 and as such remains in demand. The type has continued to be a vehicle for the operating lease with Aerocentury, Elix Aviation, GECAS, Avmax, Castlelake all participating as lessors to a greater or lesser extent. With the right aircraft to the right lessee, the aircraft can still make money for the lessor. Some 267 -300s of all guises were built before production ceased which is more than a credible number.
Dash8-400 2000-11 50-90 The ability to place the -400 among different lessees remains very much viable. The type may have had its problems but this has not dented interest in the aircraft. The existing the lessors will be working hard to pre-place the aircraft thus avoiding a substantive surplus from emerging, thereby adversely impacting lease rentals. Just as with the ATR products, NAC and Rand Merchant Bank feature in the lessor list. As the years have progressed more have been placed via the operating lease.
Dash8-400NG 2011-98 80-175 The new owners of the product – Viking – will no doubt seek to keep it going as all there is no none recurring development cost involved and the leases on existing production facilities remain in place for a few more years. Supporting the type will not be an issue as Viking are well versed in the product. But if sales continue at the expense of net pricing then this will not benefit the used market. Should lease rentals for the non-NG fall, then so too will those for the NG. Aergo Capital, NAC, GECAS and Investec are lessors of the aircraft and placement continues albeit specialist knowledge is something of a necessity. There are few NGs on the market but there will always be some available even as some operators ditch regional jets in favor of the turboprop.
BAe J32 1988-93 15-30 The leasing of the aircraft has been part and parcel of the model for decades though today the aircraft is more likely to be acquired via a traditional loan. BAe were the first manufacturer to recognize the importance of being proactive in the turboprop market and formed Asset Management very early on though it could be argued that this may have been a matter of necessity.
BAe J41 1992-97 20-35 There were only ever 104 sales and most are being advertised on the basis of a lease rather than a direct sale. The market is skewed towards the lessee rather than the lessor. The J41 arrived too late to capture a sizeable portion of the market. Few were built which was fortunate in one way but precludes operators from building up a fleet of any size.
BAe ATP/J61 1988-93 30-45 The conversion to freighter has been a positive but this means that there are fewer available for those wishing to build a passenger fleet. With even fewer sales than the J41, the aircraft was always going to have a checkered history. The aircraft is of a vintage which makes retirement all the more likely.
Do328 1992-01 20-30 Lease rentals are at perhaps at levels that prevents further falls. There are a few being advertised for lease but this will not prevent variability in lease rentals. The Do328 still has much to commend it in terms of utility for some operators but again the aircraft is more likely to be acquired via traditional financing than a lease. The heritage of the aircraft still commands some attraction. Some aircraft are leased by Aero North International and MHS Aviation.
EMB110 1980-89 10-25 There are a significant number in storage which makes for difficult remarketing at least for those in less than good condition. Leasing the aircraft may not be the most obvious course of action for operators with normal finance being the preferred option. An excellent aircraft for those that need a no-nonsense 19 seater capable of dealing with both good runways and bad airstrips. Getting from A to B is the main concern with comfort levels of lesser importance. The ability to maintain the aircraft easily and fix problems is a prime consideration for operators.
EMB120 1985-931994-99 15-2520-30 The sophistication of the EMB120 should not be underestimated in terms of the glass cockpit etc. As such the aircraft can be flown on a diverse range of sectors. The lease rentals for the type may not be high but with such stability comes reassurance of some return. Maintenance and cabin refurbishment costs are contained. Even if larger aircraft are being sought the type remains a possibility for a range of operators.
Metro III 1981-91 <10-25 A big money earner it may not be but placed with the right operator it can generate profit without too much management – or risk. The Metro III has a long heritage and this particular variant still has considerable attraction for financiers.
Metro 23 1992-99 20-30 In common with the Beech 1900D, the Metro 23 was the last of the 19 seaters and with no new production, operators have no option but to go to the used market. The rates for the Metro 23 can vary depending on the lessee and the term of the lease. The aircraft is good at what it does but lessors will not make a great living out of leasing the type.
Fokker 50 1987-96 30-35 The aircraft continues to have its advocates with Largus Aviation, Aerocentury, AFT and even Bombardier being listed as lessors. A few have moved between operators over the course of the last year with some being placed into storage. There are always a number of Fokker 50s on the market in varying condition and any lease rental can be variable. Most wish to be sold as is but leases also remain relevant to some extent even if rate. The fortunes of the type have been variable and lease rentals are considered to be lower.
Saab 340A 1984-89 20-30 There are too many on the market and this is containing lease rentals. inevitably there will likely be no change as aircraft coming off lease. The Saab 340B and B+ are the more sought after but even for these variants there are always some available. Some are being advertised as part out candidates. The competition is intense and therefore lease rentals are not expected to rise.
Saab 340B 1989-96 25-40
Saab 340B+ 1995-99 30-40
Saab 2000 1994-99 30-45 Jetstream Aviation Capital, Rockton and NAC are listed as lessors of the aircraft indicating that the type still has some attraction for lessors although some are in storage. Rates can vary depending on the term of the lease and the nature of the credit. Very few were built and this is causing problems when operators are seeking used aircraft. A number are used in the non-commercial as corporate shuttles which underlines how little attraction there has been in the commercial role.
Commentary reflects change from the last update to Turboprop Rentals of March 2019.

 

 

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