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IBA Participates in Appraisers Panels at the CAO US Valuation Conference

Alice Gondry, IBA Senior Analyst

Alice Gondry, Senior Analyst with the IBA Group Limited, attended the annual CAO US Valuation Conference, which took place from 8-10th September 2008 in Washington, DC.  The conference assembled some one hundred delegates with a vested interest in the recent developments shaping the airline industry and the likely impacts on investment and aircraft values, from a US perspective.  Alice sat at both appraisers? panels during the event, alongside fellow appraisers from across the world.  The first panel focused on valuation of regional aircraft, from Saab 340B aircraft to the Bombardier CRJ 700, while the second panel paid closer attention to a few main airliners, from the narrow-body Airbus A319 to the wide-body Boeing 747-400.  Key areas discussed included the following points.

The regional market remains highly dependent upon the activities of major US regional affiliates and there is a distinct trend away from 50 seater jets.  Operators are favouring higher yield with larger 90 seater aircraft, with the likes of the Embraer 190/195.  Turboprops and their economics are still very much in favour in today?s context of high fuel price and the performance of the DHC8-Q400 is testimony to this phenomenon.  Some aircraft, like the CRJ 200 models, are finding placement with freighter and corporate conversion programs.

American, Continental and United Airlines, to name just a few, have highly publicised their retirement of older generation aircraft as they welcome new deliveries into their fleets.  Operating more modern and fuel efficient aircraft is one way to reduce unit costs, but operators are also reducing their seat mile costs by operating fewer aircraft and reducing frequency.  It is little surprise that the more obsolete and less fuel efficient aircraft are to see increased levels of storage and availability, but the aircraft getting parked might appeal to some operators, albeit offshore, or find placement under new roles, from freighter to corporate aircraft.  On the other hand, the wide-body aircraft remain relatively unaffected for now.  Freighter conversion programmes provide some aircraft with a valuable extension to their operational life. 

Taking on a more global and positive approach, IBA's Alice Gondry added "IBA has seen evidence that the retirement of many of the US carriers? aircraft is not necessarily impacting the global lease rates and values of older aircraft.  However, some US carriers? aircraft have lower values than EASA compliant aircraft and some US aircraft are proving more difficult to remarket, based on the operators' failure to comply with the MPD or the use of PMA parts.  As such, we believe that the aircraft coming out of British Airways and KLM should fetch higher lease rates and values than their American counterparts."