CSeries Prices Inflated; Interesting Sidelights; Overnight News

Prices paid for the Bombardier CS100 and 300 have yet to reach the $40+ million list price which is out of synch with what it should be, according to ATDB's sister publication Aircraft Value News Editor Paul Leighton, who added discounts of up to 30 percent are needed.

“Whereas Airbus and Boeing can claim the 35-45 percent disparity between list price and net selling price is a function of history, the development of a new aircraft by Bombardier should allow a closer correlation between the two,” he said in a recent post. “The CS100, a 110 seater, has a list price of $42.7 million and the CS130, the 130 seater, a list price of $49.9 million. While these list prices are considered to be much higher than the net selling price, whether they be launch customer pricing or ‘normalized’ prices, they are still more realistic than those of Airbus and Boeing.”

He pointed to the experience with Airbus and Boeing aircraft in suggesting list prices of the CS100 and CS300 still need to be discounted by 30 percent to reflect net selling prices. Based on the Airbus and Boeing aircraft, the list prices of the CS100 and CS300 still need to be discounted by 30 percent to reflect net selling prices. “The list price of the B737-600 in 2008 averaged $55 million and the B737-700 $64 million,” he said. “The A318 had a list price of $59.1 million and the A319 $70.3 million. But the values of B737-600 and A318 are well below $30 million while the values of new B737-700s and A319s are now fortunate to exceed $35 million. The basis of the list prices needs to be defined. If they reflect today’s market conditions, then by the time the first aircraft is delivered in perhaps 4-5 years, the list price of the CS100 will have risen to nearer $50 million, depending on inflationary pressures.”

He also said launch customers could be priced at significantly below $30 million for the smaller jet with the larger coming in only $4 million to $5 million more. “The launch customers for the CS100 and CS300 will be able to secure sizeable discounts just as the initial customers for the A380 and B787 received incentives,” he said. “Pratt & Whitney will also be anxious to validate the PW1000G powerplant and will also be offering discounts.”

The issue reflects the declining values of aircraft in general and Leighton noted that both turboprop and corporate jet values were following the trend of commercial aircraft. During a recent panel of aircraft appraisers, values across the board were down with the singular exception of the Beoing 767-300ER 1992, which International Bureau of Aviation (IBA) Managing Director Phil Seymour valued at $23.1 million, a $2 million premium over the aircraft's base value. Seymour noted that all four appraisers on the panel agreed that the market values for all of the other 10 aircraft were either at, or below, the base value. The aircraft valued were the Airbus A320-200, A321-200, A330-200 and A380-800, as well as the MD-83 and the Boeing 737-800, 737-900ER, 767-300ER, 747-400, 757-200 and 787-8.

"This is the first time that we have seen aircraft values so low for many years and it is understandable that this trend is worrying the industry,” he said. “Lessors, in particular, are concerned that appraisers may be thinking of decreasing the base values of some aircraft because the market values have come down so much, but I think this is unlikely. In fact, I believe that the current uncertainty in the industry will mean that in-production aircraft will continue to be used for longer periods, in some cases seeing aircraft lifetimes extended by three or four years - which will actually increase the future base values of these models."

He cited fewer transactions as the primary factor. “Those businesses which are used to the cyclical nature of the aviation sector know that most sales in today's market have an element of distress about them,” he said. “The wise guys know its time to hold current generation aircraft but owners of older types may decide its time to cut and run.

“Now is a time for getting your house in order and keeping hold of what you've got, rather than chasing new opportunities,” he said, pointing to the mood amongst manufacturers, lessors and airlines. "For the financiers it's a slightly different situation. On the one hand there is the concern of potential lack of liquidity, whilst on the other they are looking at more favorable returns on the investments they do move forward with. Conversely, some suppliers to the industry, such as consultancy companies are doing well at the moment gaining a lot of new business in areas such as contingency planning, repossession planning, surveillance and monitoring of airlines, and liquidation of surplus airlines' stock."

Seymour also expressed concerns over growing protectionism. “Whilst I can understand this concept and the thinking behind it, I hope we haven't quite reached this stage yet,” he said. “Overall the industry is working hard to adjust to the constantly changing marketplace, but it also knows that we're not past the difficult times yet."

Interesting Sidelights
Performance Bonuses at UA, DL
After taking the top spot of the major network carriers in on-time performance in the first quarter, United issued bonus payments for employees. For every month that the company finishes first among its network peers, employees earn a $100 payout. If the company finishes second or achieves its internal goal, employees earn $65. So far this year, front line employees have earned $265 in cash incentives. Under the program, more than 40,000 front line employees each have the potential to earn up to $1,200 cash bonuses for on-time performance. United launched its Arrival: 14 cash incentive program in January.

Meanwhile, Delta Air Lines said it is adding $6 million to employees’ paychecks for meeting February operational performance goals. Delta’s monthly incentive payouts are based on U.S. Department of Transportation (DOT) data as well as the company’s own internal goals. The extra pay amounted to approximately $100 each, for most eligible employees. This is on top of a payout of $4.5 million for January performance.
In 2008, the Delta Shared Rewards Program and Northwest Performance Incentive Plan paid out more than $58 million to employees. In total, last year Delta employees received more than $275 million in combined incentive and profit sharing payouts.

Improved Consumer Stats Great, But…
The Air Transport Association of America (ATA) said that while government data show that flight delays have fallen recently, much more must be done to improve service by accelerating the implementation of NextGen -- a modernized air traffic management (ATM) system.

"The Department of Transportation (DOT) Air Travel Consumer Report shows that customer service has improved, especially in getting passengers to their destinations as scheduled, but much more must be done, and now," said ATA President and CEO James C. May. "We can significantly improve the service that we provide travelers and shippers by jumpstarting the transformation of our antiquated ATM system to a more efficient, environmentally friendly system using satellite technology."

The February improvements are attributable both to the efforts of the airlines and the government to improve schedule integrity and also to the significant drop in the number of flights in 2009 versus 2008. "We are pleased to see the improvement, but the clear warning is that as the economy recovers and demand again grows, we will find unacceptable levels of delay unless we move swiftly to modernize the ATM system," said May. "We have a window of opportunity to accelerate system modernization during this period of slackening demand -- a failure to act now will exact a tremendous cost increasing delays in just a few years. The administration and Congress have a unique opportunity to stimulate the economy while preparing for growth. They must make our NextGen a national priority."
Airlines' On-Time Performance Improves

Alaska Celebrates Statehood with New Livery
Alaska Airlines unveiled its latest livery honoring the 50 anniversary of Alaska’s statehood in which a Boeing 737-400 is adorned with the design of a 16-year-old Sitka student. The Spirit of Alaska Statehood touched down in Sitka yesterday. Hannah Hamberg’s design features a musher and sled dog, state ferry, Native Alaskan canoe, bear and whale, along with the statement, "We're all pulling together." The plane will be routed throughout Alaska and the West Coast to celebrate the unique role air travel plays in the everyday lives of Alaskans. (Overnight News is below)




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