The need for short-term capacity by Shanghai Airlines in the form of new B767-300ERs can be expected to lead to substantive discounting from Boeing [BA] and commensurate values.

Despite Shanghai having been allocated nine B787s out of an order for 60 placed by China earlier this year, the carrier needs to receive additional capacity to facilitate planned expansion before the arrival of the B787s beginning in 2008. The carrier is therefore contemplating ordering both B737s as well as a number of B767-300ERs. Boeing is anxious to keep the B767 line open until the U.S. Air Force B767 tanker contract is finalized. With the backlog of B767-300ERs standing at only eight units as of the end of March, the pressure to secure additional orders for delivery in the short term is mounting.

Orders placed at this stage of B767 production will receive sizeable discounting, including the use of credits for the purchase of future aircraft. While list prices for the B767-300ER are in excess of $120 million, new orders are likely to attract nearly a 50-percent discount including credits. Values of aircraft built in the twilight of a program have traditionally experienced rapid depreciation. The B767-300ER will be no exception. The previous decline in both B757 values and lease rentals was partly caused by an extensive product lifecycle. Operators were reluctant to pay a premium for younger examples when aircraft exhibiting a similar specification and performance could be acquired or leased for a third of the price. Values and lease rentals of the younger aircraft therefore fell to levels closer to those built earlier in the program.

The values of new B767-300ERs are unlikely to exceed the net pricing to be paid by a new customer. As the service entry of the B787 nears, there is likely to be increased pressure on newer B767-300ERs values, to the degree that within 10 years of entering service, a B767-300ER built in 2005 may be worth less than $30 million, even after being adjusted for inflation.