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Upgrading Older VVIPs Difficult to Finance

May 13, 2019

The market for airliners in VVIP configuration continues to remain limited which is good for sellers.

During the whole of 2018 Airbus delivered a single A320ACJ while Boeing delivered two BBJs, two BBJ MAX8s and two B777-300ERs (VVIP). The Boeing deliveries reflected the sustained demand for a limited number of VVIP airliners. In April 2019 Airbus flew for the first time the ACJA319neo. The aircraft flew from Toulouse to Greenland and back. The aircraft is destined to be delivered to K5 Aviation and features five additional fuel tanks in the cargo hold as well as a lower cabin altitude. Airbus has a total of 14 commitments for the A320neo family ACJs and indicates that there are some 200 Airbus corporate jets flying in the world. The A220 would seem to be an ideal candidate for VVIP use given the more ready availability of the type.

The manufacturers are pushing to secure new orders but in a market where fuel efficiency is not an issue, the need for technical advancements is limited to inflight entertainment, where interiors can be upgraded and utilization of existing aircraft is very low, there is little impetus from existing customers. In contrast to the larger dedicated business jets, owners of airliner types tend to retain ownership of their existing aircraft for many years. The price of oil and economic imperatives will also influence the decisions of the many oil producing nations who traditionally have been a major source of demand. Oil rich nations have a need to spend revenues on other areas. The emergence of charter companies offering dedicated airliners for hire has also reduced the need for owners to have an inhouse capability. New customers have more recently had a preference to convert used aircraft not necessarily because of the longer lead times on new aircraft but because existing aircraft offer the same end result in so many ways. However, finance is more difficult to come by when seeking to borrow for the refurbishment of an aircraft older than 15 years of age. Where a VVIP aircraft older than 15 years of age is in need of major refurbishment, the values may be adversely affected. “New” money has translated into private jet ownership, this has tended to focus more on the larger dedicated business jets rather than airliner types.

Values courtesy of The Aircraft Value Analysis Company www.aircraftvalues.net; www.aircraftvalues.com.

Airliner Business Jet Current Market Values – May 2019
Aircraft Age ValueUS$m Trend Analysis
A318 Elite 2006-082008-13 16-2720-37 The A318 continues to be a viable VVIP aircraft meeting the needs of owners that require capacity at a reasonable price. There are at least three currently on the market with a 2007 vintage aircraft being priced at $23.5 million having accumulated 5,843 hours; a 2009 vintage aircraft with 3,719 hours is priced at $23.9 million. With the A318 not being a member of the neo ACJ family, the market will be limited. However, as indicated above, the relative fuel inefficiency of the A318 is not a major issue. The danger for older airliner types is that the interior may represent the styles of a decade or so ago and will therefore lack the presence of more modern offerings. A dark wood interior with gold fittings has perhaps limited appeal in the used market, particularly if the aircraft is to be used in a charter capacity.
A319ACJ 1998-032003-072007-112011-172019neo 12-2317-3023-4135-7985-95 The ACJ319 represents versatility having the capacity and configurations that will suit the needs of VVIP operators as well as those needing entourage space. The arrival of the A319neo may see the replacement of some older ACJ319s but for the time being the aircraft is seen as desirable. There are some four units on the market with a 2008 vintage aircraft with 3,688 hours being advertised for $49.75 million. It is to be noted how much more expensive than the A318Elite the ACJ319 is. Another 2008 vintage aircraft is priced at $44 million. A 2010 aircraft with only 1,171 hours is also on the market at an undisclosed price. With a range in excess of 6,000 nautical miles (assuming additional tanks are installed), the aircraft represents one of the most versatile of airliner VVIP aircraft.
A320 Prestige 2009-112011-172019neo 30-4337-8795-110 There are perhaps less than 20 ACJ320s in service in varying roles. As such the number being advertised can also be expected to be low with only two being identified for sale. The A320 offers more capacity and volume and may allow a second bedroom which is not so easy on the ACJ319. Values are seen as having experienced some stability even as Airbus is pushing the A320neo variant of which some have already been ordered but replacing an existing aircraft with the A320neo will take time. It is possible to upgrade a commercial A320 but this will be expensive and will have much higher time on the airframe and engines and finding finance to convert an older A320 will be more difficult.
A340-500 2002-09 55-100 Although the A340-500 and -600s have considerable capacity to meet the needs of any owner, there is very limited demand for the type. Pricing can be extremely variable depending on the needs of the seller such that changes of $10-20 million may be seen. As the aircraft ages then the configuration may not meet the needs of newer customers and this will inevitably have a negative effect on pricing. The low utilization has little impact on the fuel component of operating costs and engine maintenance costs can be very limited in such operations. Calendar related maintenance issues can be an issue. The market for the A340-500 is losing some of its impetus as operators have the option to opt for twin engined aircraft which offer similar interior capacity.
BB 1998-032003-082008-112011-17 13-1816-3028-3839-68 The BBJ sees a number on the market at any one time. With the arrival of the BBJMAX then there will be some pressure on the pricing of the BBJ although the emphasis has been on the BBJMAX8 to date. There has been some downward movement in pricing of the BBJ. Again the older examples will perhaps be more difficult to place. A 2011 vintage aircraft is on the market for $56 million which seems rather high. A 2001 aircraft is under offer demonstrating that the market is good for the BBJ. The original hybrid BBJ is losing some of its appeal as age increases and new types are available. The interior space may not be as great as imagined. Seven or nine auxiliary tanks are preferred to ensure that range is at the maximum with anything less warranting something of a discount.
BBJ2 2001-052005-112011-172019MX 16-2825-5147-8095-110 There is a single BBJ2 on the market but there were relatively few delivered. The aircraft can still be traded as at $50 million this not only represents a discount of some 50 percent compared to a new example but it can also be secured within a reasonable period of time. The capacity of the BBJ2 is considerable offering a number of interior options that can greatly enhance its efficiency yet such space can see a highly personalized interior which may not be attractive to potential buyers The BBJMAX8 is priced at over $95 million and this may see some operators seek to replace existing units but because the demand for passenger aircraft is so great then finding a slot for the BBJ MAX will be problematic.
BBJ3 2009-112011-172019MX 40-5854-89105-115 There were only a few ordered and as such there are few on the market and these can taken months if not years to sell. The BBJ3 is not for the faint-hearted in terms of price but capacity offers many options that can provide efficiency. Finding a buyer can take years particularly if the interior does not appeal and requires refurbishment. The aircraft offers yet more space but is naturally not so popular as the BBJ2. The replacement BBJMAX9 is priced at more than $105 million which suggests that the interior costs some $40 million when compared to the price of $55 million for a commercial B737-9.
BBJ747-8 2010-19 140-300 Boeing is still offering the B747-8 to any VVIP customer but the cost for the normal operator the cost may be more than $300 million if a particularly ostentatious interior is selected which compares with $150 million for a commercial customer. The cost of fitting out the aircraft in a VVIP configuration will cost in excess of $100 million. Remarketing the aircraft may also be difficult as most owners in this category have their interior tastes which suggests at a minimum, some reconfiguration would be required all of which takes time and money though at this level that is not usually an issue. The price of Air Force One may run into billions even after the cost cutting instituted by the leader of the free world – a fixed price contract has been agreed at a modest $3.9 billion for two aircraft.
B767-200VIP 1984-02 9-45 There are a number of B767s in a VIP configuration with well known business owners particularly as the cost may be justified. The interior space is particularly large when compared to the cost of acquisition and conversion cost. The type is also readily available although there will be a long wait to customize the interior. The aircraft is ageing and there will be newer B767-300s and B777s that will perhaps be viewed as replacements for the smaller -200 in the coming years. Values are remaining stable in view of the lack of alternatives.
B777-300VVIP 2003-19 100-250 Boeing managed to delivery two B777-300ERs last year. The cost of a B777-300ER VVIP can be expected to be in excess of $250 million depending on configuration. The capacity of the aircraft is substantial and is able to meet the needs of any owner although the two decks of the B747 and the A380 do offer opportunities.
Embraer Lineage1000 2009-19 15-40 There are a number on the market with a 2013 vintage aircraft on the market priced at $20.5 million demonstrating just how quickly pricing can fall. The values of the Lineage 1000 have not performed well. In less than five years the value of a 2013 Lineage has fallen by half. Operators have more choice in this segment in terms of dedicated long range business jets such that Embraer has to sell the aircraft on the basis of its volume rather than its range as range is not its forte. The Lineage 1000E offers more range, a new IFE and cockpit options and this has inevitably impacted the pricing of the 1000.
Commentary reflects the changes in the market since the previous update of February 2019.

 

 

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