The market for the A320neo is improving as traffic in some countries and regions starts to open up again but there remains a question mark over when – or even if – values of new examples will equate to pre-Covid levels.
At the start of the Covid Event there was considerable variation among appraisers as to the extent of the effect of the pandemic on values of new narrowbodies such as the A320neo. In the absence of transaction data, which is sparse even in the strongest of markets, some appraisers considered that there was little or no effect. Other appraisers, favoring the modelling of relevant factors, including a more than 90 percent fall in traffic and the storage of nearly half the fleet, as well as expecting anything but a short sharp shock that the majority seemed to favor and incorporating historical trends, considered the effects of the Covid Event to be so severe as to reduce values of a new A320neo by more than 15 percent. As events unfolded, and the realization that the duration of Covid would extend beyond 2020, a decline in values of even new A320neos became apparent and necessary. To some extent, the reality of the situation was obscured by the sustained delivery of new A320neos but this had more to do with contractual issues than market conditions. Customers may defer deliveries or switch to alternative models with the agreement of the manufacturer but as long as the manufacturer can meet the contractual obligations in terms of delivery dates there is no opportunity to cancel an order without incurring the loss of payments made to date. Where orders are cancelled, the manufacturer can retain the payments made to date which will allow the cancelled aircraft to be sold on at a discount thus inducing the acquisition of unwanted and undelivered aircraft.
The recovery in values of new aircraft depends on the severity of the downturn and also the position of the aircraft on the product life cycle. As a result of the financial crisis, the value of a new A320ceo fell by a 15 percent – similar to that experiencing during the Covid Event. The recovery of new A320ceo values was slow and even by 2013 values were still well below pre-financial crisis peaks. Low interest rates and depressed inflation contributed to the absence of a recovery. Thereafter, the launch of the A320neo contained values of new A320ceos exacerbated by Airbus increasing production. In the immediate aftermath of the events of 2001, the value of a new B737-800 fell by some ten percent. The type had only recently entered service and was in short supply. Values soon recovered as the market improved such that in only some two years, the value of a new -800 was back at pre-2001 levels aided by high inflation. In the financial crisis the value of a new B737-800 declined by some twenty percent and, while some recovery was evident in the following years, the value of a new -800 remained below financial crash levels through to the end of production. The rate of inflation has been a major consideration over the last decade or more having barely been above a few percent each year. The rise in production rates has also allowed the manufacturers to contain the selling price. For the B757 values fell by more than twenty percent post 2001 from which there was no recovery partly because the product life cycle of the type was coming to an end.
Consequently, from the historical evidence it is not necessarily the case that the value of a new A320neo will recover to pre-Covid levels either in the short or medium term. There is however an expectation among some financial institutions that because of the vaccination program, everything should immediately go back to pre-Covid levels. This will not be the case. Immediately before the Covid Event, the value of a new A320neo amounted to nearly $52 million, increased to some extent by the MAX grounding. As a result of the Covid Event, the value of the A320neo fell by some 18 percent to $43 million – the same as for a new A320ceo pre-Covid. By the end of 2020, the value of a new A320neo had recovered by some four percent and by April 2021 by another six percent. Consequently, the value of a new A320neo now approximates $47 million. While there is little doubt that the market is recovering the question is when traffic will recover to pre-Covid levels. Assuming a 2.5 percent per annum rise in new pricing will still values of as new A320neo being some $2 million lower than pre-Covid levels even by 2025 but if a five percent per annum rise is experienced then the value will be in excess of the 2019 value by 2024. A one to two percent per annum rise will be similar to the recovery profile experienced after the financial crisis. The issue for this recovery is the rate at which new deliveries increase, not least the reintroduction of some 800 MAX aircraft and the restarting of production. Only if older aircraft are then permanently retired will there be some effect on the value of new A320neos and B737MAX aircraft above one or two percent per annum.