Fokker 100 Values Potentially Benefit From New Support

Values of the Fokker 100, having suffered one of the most significant declines among jet aircraft in the last 18 months, have the potential to be stabilized by the creation of a new support program from key players, Fokker Services and Rolls-Royce. The virtual collapse in Fokker 100 values, caused by the...

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Values of the Fokker 100, having suffered one of the most significant declines among jet aircraft in the last 18 months, have the potential to be stabilized by the creation of a new support program from key players, Fokker Services and Rolls-Royce.

The virtual collapse in Fokker 100 values, caused by the parking of the US Airways fleet and the announcement of retirement by American Airlines, has seen availability jump to record levels. Some 30 percent of the Fokker 100 fleet of 270 aircraft is already in storage, with a similar amount due to be grounded in the coming months. TAM of Brazil, a major Fokker 100 lessee, has also been less enthused with the type in recent times. However, some 17 of the 70 US Airways aircraft have been leased from Irish lessor Pembroke by Germania after the aircraft were bought from German financial institution KfW. Dutch Fokker Services is due to reconfigure the aircraft and perform maintenance at a cost of $17 million or virtually $1 million per aircraft.

Established in 1993, Pembroke is 50 percent owned by Rolls-Royce and 50 percent owned by GATX Capital. Pembroke has a portfolio of 160 owned and managed aircraft and is also a major B717 lessor. With sales of new engines continuing to fall, revenue from the support of existing engines has taken on even greater significance for Rolls-Royce such that the return to service of currently parked Rolls-Royce powered aircraft is viewed as increasingly important.

The formation of the new FUTURE100 program by Fokker Services and Rolls-Royce, supported by Messier Dowty, Honeywell and Rockwell Collins, seeks to provide a minimum 10-year Total Care program in an effort to contain operating costs. The FUTURE100 program is also being marketed to other Fokker 100 lessors who are faced with considerable placement difficulties.

With the introduction of new generation regional jets and falling BAe146 values, placement of the Fokker 100 has proved increasingly difficult. The combination of low acquisition cost and contained operating costs seeks to provide for a cost effective solution for operators seeking a smaller jet. BAE Systems introduced a similar package a decade ago to support the then ailing BAe146 program. The combination of a total support package, proactive remarketing, leasing to better quality lessees with less potential for premature return, and longer lease terms enabled the BAe146 to be viewed as a type suitable for asset-based financing once more. Only after the number of BAe146s parked at various UK regional airports diminished did values improve.

Values of the Fokker 100 are already below $5 million, contrasting with the $10+ million being indicated only two to three years ago. Lease rates have also been halved such that rates of $50,000 per month may still be viewed as high by some. Yet, the lease rate compares favorably with the minimum $150,000 required for a new regional jet.

The new support program will, however, needs to be complemented by other measures to reduce the excess. Apart from the uphill struggle in placing Fokker 100s with existing commercial operators, Fokker Services is seeking to promote the Fokker 100 as a corporate aircraft, potentially fitting a new fuel tank and incorporating winglets to enhance range. Seeking a price of $10-12 million for a fully fitted corporate jet compares reasonably well with dedicated business jets, but seeming widespread interest has to be turned into concrete orders.

Values of the Fokker 100 are still under considerable pressure despite these latest developments. Current Fokker 100 pricing compares favorably with the newer alternatives and known operating costs will represent a challenge to the efficiency of new generation regional jets. Such is the magnitude of the number parked and due to be retired that any process of rehabilitation will take time and values are likely to stagnate for some time yet, at least until there is evidence of real demand from a number of quality lessees.