Jetrader

What’s Driving Aircraft Values Today?

Aircraft valuation has always depended on a combination of supply, demand and market confidence. Today, however, those relationships have become more complicated.

During the Aircraft Valuation Outlook session at the ISTAT Hub at the Farnborough Airshow, panelists examined how aircraft shortages, maintenance inflation, engine availability and airline profitability are influencing values across today’s fleet.

Panelists included moderator Stuart Rubin, senior vice president at Avitas and current chair of the ISTAT Appraisers Program; George Dimitroff, global head of valuations at Cirium; Olga Razzhivina, director at Oriel Consult Limited; and Mike Yeomans, head of advisory services at IBA Group Limited.

While supply constraints continue to underpin much of the market, speakers suggested valuation trends are becoming increasingly differentiated among aircraft types.

Airline Economics Are Becoming More Important

The panel opened by acknowledging that airlines are entering a more challenging operating environment. Higher fuel prices are expected to weigh on profitability, while audience polling suggested declining airline margins could become one of the industry’s defining themes over the next year.

As a result, panelists generally expect additional airline defaults and restructuring activity, particularly among weaker operators. At the same time, consolidation opportunities could emerge, especially in markets where additional scale offers financial advantages.

Even so, today’s supply-constrained environment continues to provide meaningful support for aircraft demand.

Engines Are Driving More of the Value Equation

Perhaps no asset class better illustrates today’s market than aircraft engines. Full Performance Restoration shop visit costs have increased significantly since 2019, driven by rising material costs, shortages of used serviceable material, constrained repair capacity and increasing LLP prices.

Those pressures have dramatically strengthened engine values. Panelists noted that used serviceable material (USM) now accounts for roughly 80% of overhaul expenses, while shortages of spare engines continue supporting lease rates and values across multiple engine types.

One of the session’s more striking observations was that, in certain cases, installed engines on new-generation narrowbody aircraft may generate greater economic returns than the aircraft themselves through engine leasing opportunities.

Supply constraints have become so severe that relatively young aircraft are occasionally being dismantled primarily to support engine demand rather than because of traditional retirement economics.

The panel also noted that less durable engines can sometimes command higher values simply because replacement demand remains exceptionally strong.

Widebody Aircraft Continue to Benefit From Scarcity

While engine values remain exceptionally strong, widebody aircraft also continue benefiting from limited availability.

Panelists said lease rates and market values for major widebody aircraft have increased more than 5% this year, supported by persistent shortages and relatively modest production increases.

Several speakers suggested the imbalance between supply and demand is likely to continue throughout the remainder of the decade, with manufacturers showing little appetite for production increases that could create future oversupply.

That scarcity has also simplified some aircraft transitions, with lessors increasingly able to place widebody aircraft without extensive cabin reconfiguration.

Narrowbody Markets Are Beginning to Normalize

Conditions differ somewhat within the narrowbody market. Lease rates have eased from the exceptionally high levels seen over the past two years, particularly for secondary leases and post-production aircraft. Values, however, have remained comparatively stable.

Panelists attributed much of the moderation to gradually improving aircraft availability rather than weakening demand. They also expect retirement patterns to differ between Airbus A320ceo and Boeing 737NG fleets as production rates continue evolving over the next several years.

Supply Constraints Still Define the Market

Although some market segments are beginning to normalize, panelists agreed that supply constraints remain the dominant force influencing valuations.

Aircraft deliveries continue facing delays, while shortages of engines, cabin interiors, components and maintenance capacity limit fleet availability across the industry.

Those constraints have kept lease rates and values elevated despite growing concerns around airline profitability and operating costs.

Looking ahead, speakers suggested aircraft values will increasingly depend on a broader set of variables than simply production rates. Airline credit quality, maintenance economics, fuel prices and engine availability are all becoming more influential as the market gradually moves into its next phase.

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