engines - managing the asset and residual values · engines - managing the asset and residual...

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New York Engines October 20, 2011 1washington frankfurt tokyo

Engines - Managing The Asset and Residual Values

David Tokoph Vice President Valuations and Technical Analysis

October 20,2011


New York Engines October 20, 2011 2

Introduction• About MBA• Where the Value in Engines Lies• Retaining Value• Engine Life Cycle• Next Generation Engines• Forecasting Engine Values



Consulting Services Include:• Airline Consulting

• Financial Consulting

• Asset Management

• Valuations

• Technical / Audit Services

• Market Evaluation

mba is an international consulting firm with offices in the US, Europe, and amarketing office in Tokyo, providing a broad spectrum of aviation services toairlines, governments, and the financial community.

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mba Background



The 2012 Future Aircraft Values The red books are going through some exciting changes:+ Addition of engine values+ Addition of C-Series and SSJ100


New York Engines October 20, 2011

Where is the Value in Engines?

An engine has two distinct value areas.-Life Limited Parts-Performance

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Where is the Value in Engines?

Life Limited Parts (LLP’s)- Commercial Engine LLP disk stacks can range from

$500,000 to upward on $5,000,000.- Factors affecting LLP Cost.

- Position in Life-Cycle- Engine Availability.

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Where is the Value in Engines.

Engine O/H Status- Engine performance restorations for commercial engines

have a similar cost range as LLP’s, $500,000 to upwards of $5,000,000.

-Engine Overhaul costs multiple factors such as:-Operation of the Engine, Max power requirements, etc.-Operating conditions.-Segment lengths.-Operators Maintenance Program.

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Protecting Value

Leases Return Conditions Musts Beyond Just “Airworthy”- Maximum Hours Since Shop Visit- Minimum LLP requirements.- Minimum Performance Margins- Engine Shop Visit Reserves- FAA or EASA Requirements- Engine Records (Back to Birth)

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Protecting Value

PMA vs. OEM-First PMA issued by FAA in 1955, over

fifty years later the debate continues.-No concrete statistical evidence causing

safety concerns,-Private partnerships now being struck

between airlines and PMA Manufacturers.

-PMA acceptance and future.



Engine Life Cycle

10

New

Mature

Sunset

Eng

ine

Valu

es

Years Since EIS

In service with second tier operator.

In service with tertiary operator, nearing end of useful

In Service with first tier operator, delivered on new airframe.



Engine Life Cycle

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Source: MBA Future Aircraft Values

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%YoY % Decrease in FBV – New Aircraft/Engine

737-800 (YOM 2011)CFM56-7B26



Engine Life Cycle

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0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%

YoY % Decrease in FBV - Mature Aircraft/Engine

737-300 (YOM 1999)CFM56-3B1



Engine Life Cycle

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0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%18.00%20.00%

YoY % Decrease in FBV – Sunset Aircraft/Engine

737-200 (YOM 1988)JT9D-15




Engine Values

How Do Manufacturers affect Values?

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Next Generation Engines

15

Pratt & Whitney GTF-Geared Turbo Fan-New Technology-Lower Fuel Burn-Lower Emissions-Quiet Engine-In Flight Testing-EIS with C-Series 2014.




CFM LEAP-X-Proven Reliability-Incorporation of Composites-Stronger Core Materials-Low emissions-EIS with COMAC, 2016.

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Pratt & Whitney or CFM?

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Forecasting Engine Values

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0

50

100

150

200

250

300

350

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

Projected Aircraft Retirement

A320-200

737-800

A320 NEO EIS737 MAX EIS





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0

5

10

15

20

25

30

35

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

737 Classic Historical Market Value

737-300 (YOM 1992)737-300 (YOM 1988)737-300 (YOM 1984)

737 NG Program Launch

First 737 NG Delivered





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Source: ACAS, Boeing, Airbus- August 2011

02000400060008000

100001200014000

A320 Family 737 Family Airbus Backlog Boeing Backlog

Boeing v. Airbus Active Fleet and Backlog

737-700

737-800

737-900

A319

A320

A321

A320 NEOA320 Classic Family

737 MAX

737NG

Forecasted 20 Year Aircraft Requirement in 136-220 Pax Range




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Source: Airbus August 2011




How will current generation of engine values perform?• For current generation A320 engines:

– V2500 will decrease in value 2-7% year over year for the next 5 years.

– V2500 projected to stabilize between 1.0%-2.0% value decline YoY after 7-9 years.

– CFM56-5B will experience a more stable decline in value (0.5%-1.0% YoY) for the next 6-8 years.

– CFM56-5B projected to begin to decrease (2.0%-3.0% YoY) 7-9 years from now.

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New York Engines October 20, 2011 23washington frankfurt tokyo

Questions?

engines - managing the asset and residual values · engines - managing the asset and residual...

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