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Monday, July 21, 2003

Regional Jet Values Stable For Summer

Most regional jet values are enjoying some stability after a recent period of modest decline (CRAN, April 28). A number of new orders and the continued diversion of services from major to regional operators have been responsible for the stability. The issue of scope clauses has historically been a cause of restraint, but there are indications that relaxation in the face of market reality may occur earlier than previously expected.

Nonetheless, the next quarter may see some further decline, though this has as much to do with the aging of the regional jet fleet as with concern over the market segment. There are a number of issues that still affect the regional jet market in particular. The concentration of regional jets in North America is a major cause for concern, as any concentration would be. Regional jet residuals are particularly vulnerable to changes in this market segment and to structural shifts in a single region. In the event there is a major drive toward the acquisition of larger regional jets, the prospects for re-marketing a large number of 50-seat regional jets are not promising. The recent past has already indicated that while there can be swift changes to commuter operators, acquisition of surplus regional jets can be equally prompt.

The 50-seat regional jets have now enjoyed nearly a decade of growth, with deliveries virtually outstripping those of larger types. The number in service is such that there appears to be little likelihood of a shortage emerging. Instead, the reverse is expected, with a steady flow of used examples entering the market. Values are therefore expected to see a period of decline as the balance of supply and demand swings in favor of the former.

The 70- to 80-seat segment of the market, by contrast, is facing a tough time. Just as the 50-seat regional jets had to prove their viability, the 70 seaters also have to justify their expense. The 70- to 80-seat segments are further complicated by a still fluid product line. Both Embraer and Bombardier have to refine their new regional jets to better meet the needs of operators. This has the potential for marginalization of some variants.

The values in the table below are in millions of U.S. dollars and are based on The Aircraft Value Reference published by The Aircraft Value Analysis Co. (http://www.aircraftvalues.net). An aircraft rating 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).

>>This article was written by Paul Leighton of Aircraft Value News<<

Regional Jet Current Values - July 2003 ($US Millions)
Aircraft
Age
Value
Rtg
Trend Analysis
BAe146-100 1983, 1988, 2.6, 4.6, D++ The BAe146-100 continues to face a tough market. This aircraft is clearly showing its age and, while the widebody may still be attractive to passengers, operators are now able to consider alternative types. Most other aircraft of this vintage are increasingly being viewed as targets for replacement and the BAe146 is no exception. Age is sufficiently against it as to ensure a continued decline in values.
BAe146-200 1985, 1993 3.9, 7.4 C- Though the BAe146 as a whole is increasingly losing its foothold on remarkable success over the last decade, the -200 still has merit among operators. While four engines may seem a burden, the known operating costs and proven ability remain important attributes.
BAe146-300 1988, 1993 5.5, 7.7 C- One of the key advantages of the BAe146 is its low cost compared to the new generation of regional jets which cost in excess of $20 million. The -300 has the advantage of considerable capacity. Re-marketing is far from impossible and there is always likely to be some demand for the BAe146, though this will do little to hold back the continued deterioration in values.
Avro RJ70 1993, 1996 8.3, 11.3 C+ The few Avro RJ70s in existence could pose problems for residual value calculations. On one hand, the aircraft could be perceived to be a marginalized variant and as such could suffer from perceived lack of interest. Conversely, this aircraft may be considered suited to a niche role, such that, while demand may be limited, the few potential buyers that do exist could be willing to pay a premium. The probable outcome is that this aircraft will find a role as an executive transport.
, Avro RJ85 , 1993, 1998 , 10.0, 14.6 , C++ , While values of the RJ85 continue to fall, the decline is more a reflection of cessation of production and age-related issues than market isolation. This model is still used by a reasonable number of operators and retention by Lufthansa and Swiss should illustrate that the economics of the aircraft work. Some existing operators could acquire additional units.
Avro RJ100 1993, 1998 11.2, 15.9 C++, BAE Systems has to work hard at placing aircraft but the re-marketing arm of the company remains one of the most proactive and experienced of the manufacturers. The Avro RJ100 continues to offer considerable capacity at reasonable cost, but values continue to experience a decline and the newest models appear to be the most exposed.
CRJ100ER 1993, 1998 10.1, 14.1 B- The lack of orders for the CRJ100ER and its role as the first in service naturally increase the vulnerability of this model to market changes. This aircraft has experienced a fall in value as the CRJ200ER has dominated and this decline continued during the last quarter. There now appears to be a discernible differential appearing between the -100ER and -200ER.
CRJ200ER (U.S.) 1996, 1999, 2001, 2003 13.2, 15.5, 17.1, 18.7 B+ After experiencing a quarter of falling values, the CRJ200ER has regained some of its composure. Orders are still reasonable but like so many other types, the CRJ200ER is a victim of its own success. The very popularity of the CRJ200ER has led to strong values, but in the coming years the 50-seat market is likely to face a tough challenge from the 70 seaters, suggesting that there could be a rapid readjustment to values. For the time being, the regional market in the United States continues to benefit from the problems the majors are experiencing.
CRJ700 2000, 2003 17.9, 21.8 B+ As forecast, the fluid nature of the 70- to 80-seat segment of the regional jet market has spawned the CRJ705 -- a new variant that offers the capacity of the CRJ700, but uses the fuselage of the CRJ900. With the CRJ700 already undergoing production changes to achieve commonality with the CRJ900, the early examples of the CRJ700 could become exposed. For the present at least, the relative newness of the 70 seaters is keeping such negatives at bay.
ERJ135ER 1999, 2001 10.7, 12.0 B- There is some confusion as to whether the ERJ135 has a competitor in the form of the 328JET. At present the ERJ135 is the dominant aircraft in this particularly specialized segment of the market. This aircraft has proved that it can make money for operators, and with the drop in the price of fuel there is further potential for revenue maximization. The only problem is that many U.S. travelers now prefer to make journeys by surface due to the hassle of security procedures. The 30-seat commuter jets may therefore find the market particularly challenging.
ERJ145ER (U.S.) 1996, 2001, 2003 11.0, 14.8, 16.6 B The ERJ145ER continues to offer considerable advantages for operators. The order book remains impressive, even taking into account the difficult market. Where a number have become available, they appear to have been quickly re-absorbed back into the fleet. Values have enjoyed a measure of stability as the operator base has expanded, but a differential between values of the ERJ145 and the CRJ200 in favor of the latter remains evident.
328JET 1999, 2001 6.8, 7.7 D-- The values of the 328JET continue to experience weakness, even though production may be restarting. The issue is not one of whether production is restarting but rather whether new orders are likely to emerge. The existing operator base, at less than a hundred, points to marginalization.
Fokker 70 1995 6.1 D-- Values of the Fokker 70, after suffering continued decline, are now experiencing lesser deterioration thanks to the support packages developed by Rolls-Royce and Stork. However, there is little prospect of stability emerging until values are down to around $3 million.
Fokker 100 1987, 1993 2.2, 4.5 D-- Like the Fokker 70, the Fokker 100 is enjoying a measure of improvement. Though values have not reached rock bottom, at $2 million, there is little movement available. The new support packages and re-absorption into the fleet may result in some improvement.
Commentary reflects changes from last update in CRAN, April 28, p. 6.

 

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