Regional Jet Values Wobble; Rentals Still Stable

The problems that continue to plague the North American market, a region vital to regional jet prosperity, are a cause of some anxiety for values of regional jets. The uncertainty surrounding the future of a few major operators is leading to a shift in demand patterns among the more efficient regional...

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The problems that continue to plague the North American market, a region vital to regional jet prosperity, are a cause of some anxiety for values of regional jets.

The uncertainty surrounding the future of a few major operators is leading to a shift in demand patterns among the more efficient regional carriers. Events of the last 18 months initially led to a transfer of routes and traffic from major operators to commuter airlines, but demand from the latter has slowed in the face of economic and structural uncertainty. Values, more than rentals, have perhaps been affected by the current climate partly because so much of operating lease activity occurs outside the U.S.

To date the major lessors have preferred not to participate in the regional jet leasing business, though GECAS has demonstrated some interest. The reason for the lack of appetite lies with the need to invest just as much energy in placing a regional jet as with a narrowbody, even though the financial rewards are less and the risks perhaps greater. ILFC may be once again reviewing the regional jet market, though the new generation of larger types appear preferred. The returns on the larger regional jets may be perceived to be more on a par with those of the narrowbodies.

The prospects for residual values are likely to be more uncertain than those of the A320 and B737NG families however. The demise of the FairchildDornier family of regional jets and a still fluid ERJ170/190 product line points to changing residual values. Boeing has now signed an agreement with Sukhoi of Russia to create a Russian regional jet program that will focus on a range of capacities. Service entry is anticipated to be 2007, which suggests that a launch decision will have to take place within 18 months.

The European market remains the more attractive option for the leasing of aircraft due to smaller quantities, higher specifications and a more fluid market. Lease rates courtesy of The Aircraft Value Analysis Company http://www.aircraftvalues.net.

Regional Jet Lease Rates (Dry) US$ '000s pm - March 2003
Aircraft	Age	Rental	Trend Analysis
BAe146-100	1984-89	50-75	The combination of age and considerable market pressures, not least from the expansion of low-fare carriers, have conspired to cause considerable problems for the type once more. Rentals are considered to have weakened slightly, though the term of the lease and the financial standing of the lessee are vital determinants.
BAe146-200	1987-93	55-85	The capacity of the -200 makes the variant more suited to the needs of the wider leasing environment. The competition from the generation larger regional jets is still muted due to the disparity in rental levels while the contained costs of the -200 are a known quantity. Nonetheless, the BAe146 is now seemingly plagued by more ready availability. The Bae146 market is favored by the presence of BAE Systems, which can offer a variety of support packages and turnkey capabilities. This eases the remarketing process though presents still competition for other lessors. ANZ Bank, for example, is using BAE Systems to remarket its BAe146s.
BAe146-300	1988-93	60-95	The age profile of the -300 does not favor the type. For too long some saw the larger capacity of the -300 warranting at least $10,000 per month premium over the -200 but reality suggests less difference.
Avro RJ70	1993-97	75-100	The 70 seat RJ70 is available in only very small quantities and placement is perceived to be difficult, particularly in view of the competition with the CRJ700 and similar capacity turboprops.
Avro RJ85	1993-96, 1997-01	85-105, 95-125	Rentals are considered to have weakened, albeit slightly, as the European market in particular continues to favor alternative types. The availability of heavily discounted Fokker 100s cannot be ignored. However, the Avro RJ is still be found at many European airports.
Avro RJ100	1993-96, 1997-01	90-110, 100-135	The RJ100 is quite a large aircraft and offers operators lower unit costs, but as with the slightly larger B717, B737-600 and A318 it straddles two market segments. The ability to operate a variety of capacities within the same family represents a positive remarketing tool.
CRJ200ER	1996-98, 1999-03	115-140, 130-180	The problems being encountered in the U.S. market are inevitably causing some reassessment of regional jets but to date rentals have not been adversely affected. More important influences are age and ever lower interest rates. Lack of availability is no longer such an issue as it was. The difference between U.S. and European rentals remains evident with the latter having to pay more.
CRJ700	2000-03	150-190	The CRJ700 is proving to be a good aircraft for the relative small number of operators using the type. The greater capacity over the CRJ200 offers operators greater revenue earning potential. The impact of scope clauses in the U.S. is naturally a barrier to orders as indeed are the weak economic conditions elsewhere.
ERJ135	1999-03	75-115	Rentals of the ERJ135 have not been affected by relatively limited demand. The size of the aircraft makes it a relatively specialized aircraft. The problems associated with the 328JET have benefited the Embraer product.
ERJ145	1996-98, 1999-03	90-120, 115-165	The ERJ145 seems to be enjoying reasonable demand and placement of used units has been reasonably rapid. Though both regional jet manufacturers are facing the prospect of production cutbacks due to the problems of the U.S. market, the rentals of the ERJ145 are considered to have remained reasonably stable over the last quarter.
328JET	1999-02	50-80	The rentals of the 328JET are significantly below those of the comparable capacity ERJ135 reflecting the continued uncertainty over demand for the type. Remarketing the type in the context of a limited operator base and uncertain future production is likely to be problematical.
F28-4000	1976-80	10-30	Stability of rentals may be a consequence of weaker financial status and/or a shorter lease term. However, the risks for the lessor are greatly increased as it becomes more likely that aircraft will be returned prematurely thus warranting a considerable sum to be spend on refurbishment.
Fokker 70	1995-96	40-70	The problems facing the Fokker 70 have not dissipated with time. The limited operator base and availability of alternative equipment are taking their inevitable toll on remarketing and, as a consequence, values.
Fokker 100	1991-96	40-70	The creation of a support package by Rolls-Royce and Fokker Services is seen as essential for any recovery in Fokker 100 rentals. With such manufacturing support there now exists the possibility of placement of a number of units among otherwise anxious potential operators. Dissipation of the surplus is an essential second step.
Commentary reflects change from the last update to Regional Jet Rentals of November 2002.