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Monday, April 28, 2003

Regional Jet Values Decline Despite Demand

Despite an apparent need for regional jets (RJs) - in particular US Airways order for over 400 RJs - their values are beginning to show signs of decline. The problem is not that the major carriers don't need the regional operators to fly jets on formerly mainline routes, but that the majors can't afford to pay the regionals to fly the routes.

The current financial distress of the majors is putting their regional partner in a state of uncertainty. The regionals don't know how many RJs will be needed in the future and how much revenue and yield will be generated from those already operating. Although there are no reports of any RJ orders being cancelled, they are being deferred.

Paul Leighton, editor of Aircraft Value News, a sister publication to C/R News, noted that the possibility of a regional carrier having to remarket itself following the collapse of a major partner is impacting RJ values. With European airlines unable to absorb anything more than perhaps 20 to 30 used RJs within a three month period, the effect of a disposal by a single large U.S.-based regional operator could pose significant problems.

Though saber-rattling by the U.S. government continues, the seeming resolution of the conflict in the Middle East should allow some measure of confidence to return, prompting a greater willingness to travel and offering the prospect of improved fortunes for operators. The wider economic problems continue to persist in the U.S., though recent political tensions have played a role in delaying an improvement, suggesting that there may be a measure of optimism in the coming months.

The values given below are in millions of U.S. dollars and are based on The Aircraft Value Reference published by The Aircraft Value Analysis Company http://www.aircraftvalues.net. An aircraft rating (Rtg) has been included for the first time for regional jets reflecting the suitability of the type for asset-based financing over the medium term with a range of A++ (best) through to E--(worst).

 

Regional Jet Current Values US$m - April 2003
Aircraft
Age
Value
Rtg
Trend Analysis
BAe 146-100 1983, 1988, 2.6, 4.6, D++ The BAe 146 has lost much of its attraction over the last few years due to a changing market structure, increase in availability and introduction of competing types. Values have declined by more than 10 percent over the last six months, a trend that shows no sign of abating. The availability of Fokker 100s at heavily discounted pricing and rentals has played a role, which could suggest that once some of the Fokker excess dissipates there may be some improvement for the BAe146. However, the - 100 variant is perhaps not the most desirable.
BAe 146-200 1985, 1993 3.9, 7.4 C- A number of BAe 146s were parked in the desert for a time so that the lower accumulated hours resulted in a higher value. However, much of this premium has now been negated such that the aircraft should be valued on its original year of build rather than compensating for a year or two of storage. Again, values have declined over the last quarter. The Avro RJs will prove the greater attraction in the near term, though values will have to remain realistic.
BAe 146-300 1988, 1993 5.5, 7.7 C- While values of the -300 have fallen by nearly 10 percent over the last six months, there is still some way to go before the downward trend is likely to be halted. However, at around $6 million, the -300 represents something of a bargain when compared with $20m+ for the new larger regional jets and in view of known and contained operating costs. The -300 still represents something of a marginal product in terms of straddling market demand.
Avro RJ70 1993, 1996 8.3, 11.3 C+ Despite the cancellation of the Avro RJX program, values of the Avro RJ continue to drift downwards. There are in any case very few Avro RJ70s in service, which suggests that the variant is either a niche or marginalized product. The former could see some resilience from values while the latter warrants rapid deterioration. While the RJ70 does have something of a niche role, the original lack of orders for both the BAe 146-100 and RJ70 underline the lack of appetite for the type.
Avro RJ 85 1993, 1998 10.0, 14.6 C++ With a cost and capacity that still has considerable merit, the expectation of RJ85 values slipping into the abyss appear misplaced. The type may not be common in the U.S., but both the BA 146-200 and RJ 85 are a common sight at major European airports. The major European operators, like their U.S. counterparts, increasingly have to rely on regional affiliates to perform regional services. While BAe Asset Management is doing a sterling job in placing aircraft, there is a clear expectation that age and competitive forces will conspire to force values to continue declining.
Avro RJ 100 1993, 1998 11.2, 15.9 C++ The Avro RJ 100 is perhaps suffering the fate of other larger regional jets. Straddling the divide between the major and regional operators, the former consider such aircraft not the best use of expensive resources, while the latter feel that the type offers too great a capacity.
CRJ100ER 1993, 1998 10.1, 14.1 B- The last quarter has seen the effect of a non-existent backlog and a turbulent U.S. market take hold of CRJ100 values such that there has been a noticeable 5 percent fall. After resisting the initial downward pressure, CRJ values are experiencing a sense of reality. The CRJ100ER represents the earliest model and as such is perhaps vulnerable.
CRJ200ER, (U.S.) 1996, 1999, 2001, 2003 13.2, 15.5, 17.1, 18.7 B+ Despite a large number being sold, a measure of caution has crept into current and residual values. The fluid nature of the U.S. regional structure, the constant pursuit of lower costs mainly through high capacity and cost pressures have resulted in a slight deterioration of values over the last quarter. For the CRJ200ER in particular, values have fallen by some 4 percent over the last six months. This downward trend is also partly a consequence of greater availability and shorter delivery times from the manufacturer. Bombardier is working hard to ensure placement of used aircraft as they become available, and this activity will be fundamental in containing the negative effects of availability.
CRJ700 2000, 2003 17.9, 21.8 B+ The values of the CRJ700 have moved only slightly over the last six months partly due to the recent service entry of the type and the loss of FairchildDornier as a competitor. However, a change in production specification and a change in MTOW could see values of the CRJ700 experiencing a fall in the short term. The European market appears to offer the greater appeal for the type, but an improvement in the U.S. economy could see a surge in demand for the type.
ERJ135ER, 1999, 2001 10.7, 12.0 B- While there appears to be potential for a revival of the 328JET program for the time being, values of the ERJ135 have enjoyed comparative stability. The need to ensure that operating costs remain under control at a time when revenue generation is problematical is of crucial importance. For many operators, a small capacity regional jet can prove uneconomic, a factor that is contributing to something of a lackluster order book.
ERJ145ER, (U.S.) 1996, 2001, 2003 11.0, 14.8, 16.6 B The values of the ERJ145ER are perhaps managing to resist some of the downward pressure on regional jets, but there is an expectation that the next quarter could see a decline. There has been some movement in terms of surplus ERJ145s being placed which represents a positive development. One of the more significant issues to note is the predilection for U.S.-based aircraft to remain in the U.S. thus prescribing remarketing.
328JET 1999, 2001 6.8, 7.7 D-- The last six months has inevitably taken its toll on values of the 328JET. The potential restarting of production is unlikely to produce any improvement in existing values, not at least until such time as a number of orders emerge.
Fokker 70 1995 6.1 D-- The support offered by Rolls-Royce and Stork represents an important move in rehabilitating the Fokker products. To some extent the support package should have been created in the wake of the collapse of Fokker back in 1996, using the BAe Asset Management system as the model.
Fokker 100 1987, 1993 2.2, 4.5 D-- There have been notable reports of a number of Fokker 100s being acquired at a price of less than $3 million, though at least $1 million more will need to be spent on each aircraft. To some extent, values of the Fokker 100 could be considered to be at rock bottom, with up being the only direction of travel. Much depends on the placement of the very considerable excess.

 

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