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Values Strong As Engines Continue to Turn

December 10, 2018

With the delivery rate having much improved since service entry and with the type receiving good reviews from operators, values are remaining stable.

While many B787-9s have been grounded due to problems with the Trent engines, the Rolls-Royce engine variant used on the A350-900 is thus far performing well. However, the engine has not accumulated the same level of utilization as that of the B787 before the engine problems materialized.

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The introduction of the A350 in 2014 represented a significant shift from the expectations of Airbus a decade ago when the focus was on re-engining the existing A330 rather than developing an all-new aircraft. The decision by Boeing to develop the B787, notably the B787-9 and -10, made it apparent that a re-engined A330 would not be able to effectively compete in terms of economics and range. The A350 represented a replacement for the existing A330/A340 product lines.

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The need for a replacement or at the very least a mid-life upgrade for the A330 was first mooted over a decade ago. With the A330/A340 having already been in production since 1993 by 2003 it became apparent that a much improved model would be required. The impetus for such a development was spurred not just by the product life cycle of the A330/A340 but also by the decision by Boeing to move from the Sonic Cruiser to the all-new B7E7. By October 2004 Airbus had made sufficient progress on the design as to designate the new aircraft as the A350-800 and A350-900. However, in contrast to the all-new B7E7 the A350 designations would reflect derivatives of the existing A330-200 and A330-300 – or the A330Lite – using the powerplants being developed for the B7E7 as well as the materials and systems being used on the A340-500/-600 as well as the A380. In March 2006 ILFC cited that the then modest upgrade to the A330 represented something of a response to the B787 rather than being viewed as a long term strategy with respect to the widebody product line. This comment at the ISTAT conference began the process of reassessment by Airbus as to whether to continue with the re-engining of the A330 or to develop an all-new aircraft. Singapore Airlines also started to call for a new aircraft though the development cost was expected to be nearly double that of the A330 re-engining at $8-10 billion. At the Farnborough Air Show of 2006 Airbus announced that it was to move away from the re-engining of the A330 and would develop an all-new aircraft – the A350XWB (Extra Widebody). As expected the new family of aircraft would comprise three aircraft: A 314-seater, the A350-900, to enter service mid-2012, a 270-seat version, -800 to enter service in early 2013 and the 350-seat -1000 to enter service in the first quarter of 2014. These EIS dates were optimistic even though they were some two years later than the A330 re-engining. In addition, the family was to comprise an A350-900L for ultra long-range aircraft and an A350-900 freighter. Engine Alliance considered offering a variant of the GP7000 for the new A350.

The launch of the A350XWB soon saw the placement of additional orders by airlines. In March 2007 it was revealed that instead of EIS in 2012 this would instead be 2014 although 2013 was still being indicated by Airbus. With the rise in the price of fuel during this period the pressure to offer even greater fuel efficiency was particularly intense. It is often the case that the value of the initial version of a new model is discounted due to its lesser payload/range capability compared to a later variant. Airbus has attempted to make it clear that, compared to previous initial models, the payload/range capabilities of the A350-900 were exemplary.

The lease rental of a 2014 built A350-900 today is expected to approximate $940,000 per month based on the same term as above. This compares with a lease rental of a just $1.2 million per month for a new A350-900 delivered in 2018, a modest increase in just over three years. In terms of the future lease rental for a 2014 built aircraft by 2022, this is expected to fall to approximately $800,000 but this depends on whether there any significant improvements made to the existing aircraft. The A350-900 is proving itself in service and the Aircraft Rating is still a B++ indicating that the type is a good risk. As a comparison, the B787-9 built in 2014 had a lease rental of $1.05 million on service entry versus $925,000 of today for the same aircraft representing a slightly shallower profile. The development of the A350 did see some delays but not of the scale associated with the A380 or the B787-8. The production rates took time to increase not least because of delays to the delivery of the interior by suppliers and in meeting the needs of customers in providing a defect free product. The interiors of the newer widebodies have become the battle ground for operators and an A350 interior can cost more than $12 million representing nearly ten percent of the aircraft price.

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