AV Analysis Week 28
This week, our Head of Commercial Analysts, Gary Crichlow analyses the pre vs post Covid-19 trends in aircraft utilisation and values.
At AviationValues, we use the historical trend of utilisation and correlate it with a historical trend of trading values to calculate, in the absence of transactions, the most likely trading price that an aircraft would achieve at any point in time. This enables us to provide daily updated guidance to the market during periods of high market instability, which is when consumers of appraisal values typically need it the most.
Covid-19 Impact on Aircraft Utilisation
On 11 March 2020, the World Health Organisation (WHO) declared Covid-19 a pandemic. By 6 April 2020, the United Nations World Tourism Organisation reported that 96% of all worldwide destinations were subject to some form of travel restriction. Using AviationValues data we examine the impact Covid-19 had on the commercial passenger industry.
The severity of the impact on the commercial aviation industry, due to the unprecedented drop in passenger demand, is illustrated by the chart below. AviationValues tracks the positions of the global passenger fleet daily using each aircraft’s ADS-B signal. This enables a picture of each aircraft’s activity to be built, showing when it is in active service versus temporarily parked or in longer term storage.
Figure 1: Narrowbody and Widebody passenger aircraft utilisation trends
In the years leading up to 2020, the percentage of the fleet in active service was relatively stable at around the 90% level for Widebodies, slightly higher for Narrowbodies. By April 2020 the imposition of travel restrictions, particularly into and out of major travel markets, forced a large proportion of the fleet to become inactive.
Understandably, the closing of borders, and the resultant impact on international regional and long haul travel demand, has had the most lasting effect on Widebodies. Widebodies today have a fleet utilisation of 77%, lagging behind Narrowbody fleet utilisation at 84%. Restrictions on the all important transatlantic and transpacific markets were only fully relaxed in May 2023 with the removal of the United States’ Covid-19 vaccine requirement for all non US travellers. Travel to the United States had been restricted in some shape or form from January 2020 when non US travellers from China were first barred entry. China itself closed its borders under a ”zero tolerance” Covid-19 policy in March 2020, and was the last major air travel market to reopen, only doing so in January 2023.
Because the relaxation of travel restriction policies was not always coordinated, the recovery on international routes, predominantly served by Widebodies, was much slower than the recovery in domestic markets. By looking at snapshots of the fleet on the same day (29th June) between 2019 and 2023, we can see the impact of travel restrictions on representative aircraft types in the figure below.
Figure 2: Percentage of fleet in active status for representative aircraft types as of 29 June
Narrowbodies, represented by the Airbus A320neo and Boeing 737-800 exhibited the highest resilience in terms of utilisation. These were followed by Widebody twins such as the Airbus A350-900 and Boeing 777-300ER. The Airbus A380, like the competing Boeing 747 quadjet, suffered the most significant drops in activity.
Covid-19 Impact on Aircraft Values
At the start of the pandemic, there were expectations from opportunists that the drop in passenger demand would spark a wave of airline restructurings, resulting in a flood of aircraft available for outright sale. There were certainly a number of restructurings that occurred, but lessors and financiers largely acted to avoid large numbers of repossessions, opting to renegotiate financing and lease terms and keep the aircraft with the operator who would contract to keep the aircraft looked after while in storage, itself a very costly exercise.
In addition, a number of the more creditworthy airlines moved to sell and then lease back their aircraft to lessors, who, with cheap capital in plentiful supply, were able to increase their share of the commercial passenger fleet. As a result, there were relatively few (particularly considering the severity of the downturn) open market distressed trades occurring during the pandemic. Nevertheless, it was clear that the market had moved, and that an aircraft on the open market would simply not command the same price in 2020 that it would have done a year prior.
Using utilisation as a proxy, together with transaction prices that AviationValues’ global team of analysts and researchers uncover, AviationValues plots the daily Market Value performance for the entire range of commercial passenger aircraft types. A selection of these, averaged by month, is presented in the figure below, plotting the value that a 5 year old aircraft would have achieved at any point during the Covid-19 period. For comparison purposes, the values of each aircraft type are indexed to its value just before the start of the pandemic, on 1 January 2020. This enables a view of how the market has affected aircraft values, rather than by natural age depreciation. The index of the market low for each aircraft type, as well as its current value*, is called out below and in the following table.
Figure 3: Market Value performance, averaged monthly and indexed to 1 January 2020 for selected 5 year old aircraft types on a Fixed Age basis (i.e., without the effect of age depreciation)
The above illustrates a trifurcation of the market among:
The top performers: new technology Narrowbody and Widebody twinjet aircraft such Airbus’ A320neo and A350, Boeing’s 787 families (the 737 MAX was already grounded during much of the pandemic)
The middle performers: classic technology Narrowbody and Widebody twinjet aircraft such as the Boeing 737-800, Boeing 777-300ER, Airbus A320ceo and Airbus A330ceo
The low performers: the large Widebody quadjets: the Airbus A380 and Boeing 747
Top Performers: New Technology Twins
New technology twins refer to aircraft types with two engines that have been recently introduced into service or whose features e.g. new technology engines, and/or fabrication of the primary fuselage structure is out of composite rather than aluminium. Representing a significant technological or fuel efficiency advance over the preceding generation of aircraft.
They include the following aircraft types:
Airbus A220 family
Airbus A320neo family
Airbus A330neo family
Airbus A350 family
Boeing 737 MAX family
Boeing 787 family
Embraer E190/E195-E2 family
Market Values for these aircraft types have largely recovered to their pre Covid-19 (1 Jan 2020) levels on a Fixed Age basis, and in some cases have now exceeded them.
Figure 4: Fixed Age 5 year historical daily Market Value for representative new technology twins
Middle Performers: Classic Technology Twins
Classic technology twins refer to aircraft types with two engines that have recently ceased production having been superseded by new technology twins. However, they still retain a substantial presence of the overall fleet in current service. These include:
Airbus A320ceo family
Airbus A330ceo family
Boeing 737 Next Generation family
Boeing 777 family
Embraer E190/E195 family
The demand for classic technology aircraft is driven to a large extent by their cost benefit relative to the new technology types that supersede them. In recent months, the availability of new technology replacement aircraft has been constrained by supply chain issues across all the manufacturers, and this has increased demand for classic technology aircraft as alternative lifts.
Market Values for the middle performers are generally still below their pre Covid-19 levels on a Fixed Age basis but are increasing.
Figure 5: Fixed Age 5 year historical daily Market Value for representative classic technology twins
Low Performers: Widebody Quadjets
The swift drop in international demand following the imposition of Covid-19 travel restrictions impacted the largest passenger aircraft, all of which feature four engines, particularly heavily:
Market Values for these types remain significantly below where they were prior to the pandemic.
Figure 6: Fixed Age 5-year daily historical Market Value for representative Widebody quadjet
Traditionally reserved for the longest range and highest capacity routes, the Widebody quadjets have for decades seen a steady erosion of their market share in favour of higher frequency services operated by medium and large twinjets that can service long range routes more efficiently.
This “fragmentation” effect first became noticeable in the 1980s on transatlantic routes where the advent of the Boeing 767 twinjet enabled direct services between secondary city pairs rather than funnelling passengers into Boeing 747s plying the New York to London route. The introduction of the Boeing 777-200ER in 1997 and 777-300ER in 2004, enabled a similar expansion of transpacific routes beyond trunk routes such as Los Angeles to Tokyo. New technology types have accelerated this trend, with even single aisle types such as the A321neo now used in regular service across the Atlantic and the 737 MAX 8 serving London Heathrow from Halifax, Canada.
This has left the largest quadjets deployed on high capacity trunk routes where they were dependent on high passenger demand to offset their high trip cost. With the advent of Covid-19, it was inevitable that, as the most financially unsustainable to operate in a low demand environment, they would be parked.
As demand has returned, the quadjets face the additional hurdle of being the most expensive to prepare for a return to service. This has meant they have lagged the recovery of smaller aircraft.
That being said, AviationValues has tracked a number of operators that have now reactivated at least a portion of their quadjet fleet, including Air China (747-400, 747-8); Asiana (747-400, A380); All Nippon Airways (A380); British Airways (A380); the dominant A380 operator Emirates (A380); Korean Air (A380, 747-8); the dominant 747 operator Lufthansa (747-400, 747-8, A380); Qantas (A380); Qatar (A380); and Singapore Airlines (A380). These are outlined below, as a percentage of each operator’s total Widebody quadjet fleet, in Figure 7.
Figure 7: Operators with active Widebody quadjets as at 30 June 2023 as a proportion of their total Widebody quadjet fleets
The impact of the Covid-19 pandemic on the commercial passenger aircraft industry was unprecedented. Faced with near zero passenger revenue opportunities on most international routes and severely curtailed demand on domestic services, airlines made drastic cuts to their active fleets.
AviationValues’ data shows a clear distinction between the highest performing aircraft, mostly new technology twin engine types; and the large four engine Widebodies that have struggled the most from a utilisation and value point of view.
The market has proved largely resilient, but the recovery in both utilisation and Market Value has very much depended on the aircraft type. Passenger demand rebounded first in domestic markets, for which smaller Narrowbodies were the initial beneficiaries. Only more recently has the long haul international travel on which Widebody utilisation depends started to come back.
The recovery in demand for passenger aircraft has been coupled with a constraint in supply of new deliveries, as well as available slots for maintenance due to well publicised supply chain issues. This has resulted in upward pressure on Market Values across the board for aircraft that are already in service.
AviationValues provides daily updated values, forecasts, transactions, prices, and essential supporting data. We help Aviation and Finance professionals improve asset analysis, reporting, monitoring, pricing and negotiating. We are experts in Automated Valuation Models (AVMs), uncovering transaction prices and data analysis.
Data as of July 2023
Disclaimer: The purpose of this blog is to provide general information and not to provide advice or guidance in relation to particular circumstances. Readers should not make decisions in reliance on any statement or opinion contained in this blog.
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