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IBA queries if engine values are ‘artificially’ high

 IBA, an aviation consultancy has updated its current views on engine values, lease rates and maintenance costs alongside market intelligence supported by the IBA.iQ aircraft database.

Kane Ray, Head Analyst – Commercial Engines, reflects on the overall stability of the engine market but flags some strengthening market values for engines indirectly impacted by recent engine EIS issues.

“We are aware that some operators are extending existing leases on current engine options and this is keeping values buoyant whilst new generation technology enters the market.

We are also seeing stronger short-term lease rates for the CFM56-5B/-7B due to tightening availability of supply and increased shop visits.”

In the past year, the industry has seen the CFM LEAP-1B enter into service on the Boeing 737 Max whilst the new Pratt & Whitney PW1000G has been plagued with early launch problems resulting in an emergency Airworthiness Directive in December.

Orders look strong for the A320neo which stand at just over 5,750 and B737Max at 4,230, and it is worth noting that the A320ceo and 737NG still have considerable order books to fulfil. The single-aisle market is still dominated by the A320 and 737 families making them the most sought after assets in the market with stable market values.

The twin-aisle market is currently dominated by the Airbus A330ceo and the Boeing 777 with airframes active and an order backlog.

Last year IBA saw the 787-10 enter service with the Trent 1000-TEN engine and in the coming months IBA expect more deliveries of these aircraft.

The order book for the Boeing 787-10 is currently 168 aircraft with approximately 45 aircraft coming with the Trent 1000-TEN fitted and further 25 unconfirmed.

The latest engines containing the most up to date technology retain the greatest value in single-aisle and twin-aisle aircraft and with maiden flights fast approaching the A330 and Boeing replacement aircraft, the 777X, will bring their Rolls Royce Trent 7000 and General Electric GE9X engine counterparts.

Unlike the single-aisle market these are rather more susceptible to value changes as once a secondary market has been established the fleet to replace is far less. When these engines are new however, they track close to list price unless the host aircraft performs under par.

IBA expects to see the GE9X to start certificate testing in 2018 and this expected to last until 2019.

As with last year, the CFM56-5B/-7B and the V2500-A5 engines are still experiencing frequent trades and stable values with demand expected to grow as more engines are removed for maintenance.

Due to the supply, demand and ease of access to credit, IBA have seen investors buying up surplus engines and parts, resulting in artificial value inflation. Kane Ray says “CFM56-5B/-7B short-term lease rates are also stronger than in the past two years, driven by shop visits and reduced availability of spare parts.”

Limited availability of spare parts could mean longer downtime during maintenance compounded by a longer wait and higher pricing for those parts, plus possible increases in lease rates too. The problem eases by 2024 onwards says IBA when the numbers of A320ceo and B737NG aircraft retiring each year will release engines onto the market for part-out or redeployment.

Bombardier’s CSeries has encroached on the single-aisle twin-engine market and comes close to matching the A319 capacity albeit with a shorter range. And IBA suggests keeping a close eye on Embraer 190/195 aircraft and the respective CF34-10E engine as lease ends come up and aircraft enter the secondary market.

The introduction of new regional aircraft such as the Embraer E2, MRJ and MC21 will also impact values.

IBA welcomes those interested in learning more about this research to visit them at the EBACE 2018 event this week.