The values of the Fairchild Dornier 328JET, which were hard hit by the cessation of production, have gained little since AvCraft Aviation acquired the aircraft line and restarted production in limited numbers. The delivery of the first of eight units, destined for China-based Hainan Airlines, offered some promise to relieve the hard hit values. But the resumption of production has not translated into higher values.

Less than 100 328 JETs were delivered prior to the first halt in production. To date, AvCraft has focused on selling airplanes already produced by Dornier. Hainan, which has received its first unit, previously cut its original order from 21 to eight. The other seven are scheduled to be delivered soon.

Four more 328JETs are destined for the only other current customer, Germany-based Aero-Dienst, leaving AvCraft with seven unwanted aircraft. Until these aircraft are sold, the prospect of production restarting in Germany seems remote. Until production commences, values will continue to exhibit considerable discounting. The available aircraft will have to be considerably discounted, above the previous $10-12 million, if they have any hope of being sold.

A market for a 30-40 seat commuter jet does exist, as evidenced by the 121 orders for the Embraer [NYSE: ERJ] ERJ-135, although operating economics of the smaller jets do not lend themselves to direct replacement of similar capacity turboprops. Landing and other charges, particularly in Europe, take their toll on such aircraft. Orders for the ERJ-135 have failed to materialize to the degree that the backlog now amounts to only a handful. If pricing of the 328JET can fall below $10 million, then there could be an opportunity for it to replace some turboprops. But new orders for 328JETs are needed to demonstrate long-term viability and assure customers that future orders can be fulfilled.

The new owners of the larger 728JET, China-based D'Long International Strategic Investment, are also facing problems, with a production restart not expected until 2006 (CRAN, July 21). Germany again is the target for financing, though given the exposure of German financial institutions to recent aircraft-related losses, there may be some reluctance to pump further millions into such a risky industry.

>>Paul Leighton, editor of Aircraft Value News, contributed to this report.<<