One of the first EETCs of 2017 continues to see strong values attributed to aircraft that are in the process of being replaced by newer products.
The 18 aircraft encompass A2321-200ceos, B737-800s, B787s and E175LRs. The EETC allows for another six aircraft to be added if required. The weight of the A321s is 206,100lbs and therefore represent the high gross weight version. Sharklets are also fitted which is near standard for the A320 and 321s being delivered today. The B737-800s feature a low take off weight of 158,500lbs compared to the highest of 174,200lbs. The E175s represent the Enhanced version. The A321s, B737-800s and E175s are all in the process of being replaced although the entry into service date of the E175-E2 has been put back until scope clauses are relaxed. The backlog for the B787-8 is also dwindling.
The basis of the EETC is as usual Base rather than Market Values and the three appraisers that are normally used for EETCs continue to feature. The Base Values are compared to Market Values prepared by The AVAC (www.aircraftvaleus.net). The values attributed to the A321 remain at $55 million or above for all three appraisers compared to the estimated market value of $51.6 million. With the introduction of the A321neo AVAC anticipates that the value of newly delivered A321ceos will start to decline this year. Two of the three appraisals indicate values of above $49 million for the low weight -800s. The values of the B787s are relatively close to the estimated market values although the base values for the E175s are higher. Once again the future values assigned in the EETC assume that these will fall by some three percent per annum even though there is clear evidence that the average decline is nearly into double digits.
The market value totals at $1.022 billion compared to the average of base values of $1.065 billion. Moody’s has assigned a high rating for the aircraft and has valued the 18 aircraft at $1.014 billion, slightly lower than the base value average. Moody’s states “The gap [in value] grows with the passage of time as Moody’s reduces values faster than the three percent standard used in EETC offering memorandums; specifically 7.5% in year one and 5% per year thereafter for the narrow body and E-Jets and 7.5% in year one, 5% in year 2 and 3.9% per year thereafter for the B787s.” Consequently, in 2022 Moody’s estimates that the 18 aircraft will have a value of $787.2 million compared to the prospectus of $906 million, a material difference given the elapse of five years.
The issue of the rate of decline in future value projections remains a topic for discussion. In a period of higher inflation and stable product line, then a fall of three percent per annum may be viewed as reasonable. Unfortunately, inflationary pressures have remained low for many years. Examining the fall in the values over the last ten years shows that the rate of decline is that much more severe than three percent, easily exceeding ten percent for some aircraft types. Where aircraft have been replaced by new products, the values of those aircraft produced in the final years of the program have sometimes experienced a more significant. With regard to the EETCs then there exists a considerable cushion between the appraised values and the loan amount which should allow for “most” eventualities to be accommodated.