B777-300ER Values Continue to Edge Higher As Demand Increases

A recent flurry of orders for the B777-300ER has allowed values to edge higher though values of $165 million and higher perhaps apply only to a few sale and leaseback deals. Cathay Pacific has added a further five B777-300ERs to its existing orderbook for 14 of the type. No deliveries have yet been made. Air...

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A recent flurry of orders for the B777-300ER has allowed values to edge higher though values of $165 million and higher perhaps apply only to a few sale and leaseback deals.

Cathay Pacific has added a further five B777-300ERs to its existing orderbook for 14 of the type. No deliveries have yet been made. Air New Zealand, placing its first order for the type, has committed to four units to act as replacements for eight B747-400s. Another three are the subject of purchase rights. Jet Airways increased its orderbook to 13, of which, four have already been delivered. The B777-300ER orderbook therefore now stands at 293 units, of which 99 have been delivered, leaving a backlog of 194 aircraft. The 293 orders have been placed by 22 customers. The order for 28 from International Lease Finance Corporation and 21 from GE Capital Corporation underlines the perceived attraction of the type both as a replacement for the B747 and as a means of meeting growth requirements. Lessors usually order types, particularly widebodies, if they have confidence that the type can be remarketed with relative ease in the medium term. The 293 orders compares for the -300ER with only 108 orders for the A340-600 and 77 deliveries. The A340-600 had a two year head start over the B777-300ER but the last two years has seen such high fuel pricing that orders for the four engine behemoth have been elusive. Values for the A340-600 have continued to slide while those for the B777-300ER have edged ever higher.

The 2007 list price of the B777-300ER ranges between $250-279 million. The level of discounting on widebodies approximates 40 percent and the -300ER is no exception. While Boeing may have an advantage over Airbus in terms of the relative lack of attraction of the A340-600, airline customers are still looking for competitive pricing. While there have been some new -300ERs being advertised for as high as $180 million, the current value of a new -300ER is likely to range between $145-160 million. Sale and leaseback transactions may have seen higher prices as a consequence of financial engineering requirements but these bear little relation to market values. In a period of high fuel prices, the B777-300ER offers exceptional seat mile costs and the type is much sought after, at least in terms of new deliveries. The used market is still largely untested in view of the types recent service entry. The level of lease rentals, however, supports a relatively high valuation. Values have, therefore, been able to register a modest rise. As delivery slots for new - 300ERs extend further into the future, then the pressure on used values will increase such that further rises may occur. While the short-to-medium term may seem to offer considerable attraction, the arrival of the A350-1000 will dent the attraction of the type. The very size of the -300ER and the lack of appetite for 10-year-old equipment will perhaps cause some weakness in long-term residuals. In the meantime, with the expectation of further orders for the -300ER, values can be expected to continue to rise, albeit by a modest amount.

The size of the B777-300ER means that the aircraft will attract a considerable amount of Buyer Furnished Equipment (BFE) and Specification Change Notices (SCNs). The BFE element largely consists of the interior whereby the customer selects the seats, IFE, galleys etc. while the SCN sees changes to the specification of the aircraft including additional avionics. The cost of both categories can add a considerable amount to the base price of the aircraft although only a portion of BFE can be included in the appraised value. The cost of reconfiguring the B777-300ER for a subsequent operator will run into many millions of dollars with the existing configuration largely replaced. ?