Picking your assets
To borrow a term from the world of personal finance advice, values can go up or down. For a long time aircraft have been seen as a sound investment, with demand for the more popular models outstripping supply as a result of seemingly inexorable growth in air traffic. Even major economic recessions seemed to apply only a temporary break to the production lines of manufacturers. But in recent years questions about economic lives and new aircraft production rates have worried many investors.
The questions remained unanswered in 2013, as the debate over how long new aircraft can expect to stay in revenue service rumbled on and manufacturers insisted their production rates were justified by market demand.
For those investors, particularly some lessors that are concerned by the threat to current market values from new-technology aircraft, recent developments have perhaps brought little cheer. Embraer’s launching of the second generation of its E-Jet family (see Increasing competition in regional market, page 20) and Boeing’s announcement that the 777X will go ahead (see Boeing and Airbus fight for widebody orders, page four) will add to such concerns, but manufacturers are in the business of building better products.
In a world where environmental concerns are thought by many to be the biggest threat to growth in air transport, it is difficult to argue against the logic of developing aircraft with improved fuel burn. But if growth is restrained, the new types will replace the less-efficient current models, rather than meeting a need for additional capacity that many in the industry are relying on. In any case, with fuel accounting for about half of operating costs on long-haul flights, the case for airlines buying new-technology aircraft is increasingly compelling.
Airfinance Journal’s latest findings suggest investors continue to back the best current generation models, but the approaching entry into service of new-technology aircraft is starting to change opinions (see Investors’ and Operators’ Poll 2013, page seven).
Despite becoming increasingly dominant in aircraft operating costs, fuel efficiency is not the only consideration for operators and investors. Maintenance remains a major expenditure, and unexpected costs can seriously impact investor returns. Engine choice will be a key factor in investment decisions regarding the 737 Max and A320neo, and an understanding of maintenance trends for these engines should be high up on any investor’s list of priorities (see New-generation engines, values and costs, page 14).
If the International Air Transport Association’s figures are to be believed, the market for freighter aircraft is more fragile than its passenger counterpart. New freighters are arguably a niche market, and orders have been few and far between.
Passenger-to-freighter conversions offer a lower capital cost solution to operators, but the balance between supply and demand presents a challenge to conversion facilities and investors alike (see difficult markets for new and converted freighters, page 23).
Many aircraft types offer investment value, but not all models can be relied on to provide a good return over a lifetime. Picking winners and losers is not easy, but the data contained in these pages should provide some help.
GEOFF HEARN,
Editor,
Air Investor
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