Cirium Ascend: Aircraft pricing and engine values increase as availability remains low

With global passenger growth predicted to rise 12% in 2024 (versus 2023 figures), Cirium Ascend Consultancy predicts that ongoing delivery delays and supply shortages may nevertheless continue to impact airlines’ expansion plans. In its 2024 market outlook, Cirium identified that the airlines’ parked inventory now stands at under 2,000 units, nearly 400 of which are GTF-powered A320s (with the 737 MAX 9 almost universally returned to the skies after its imposed grounding). On a rolling average, around 300-400 GTF-powered A320s will be parked at any one time (representing 1.5% of the global single aisle fleet) this year, with peaks of 600+ grounded examples expected during the first half of 2024. Of these aircraft on the ground, around 1,000 are over 15 years old and 720 over 20 years old. However, whereas these would usually not be returned to service, given the limited availability of used inventory (and delays of new deliveries) this may well change. Rob Morris, head of global consultancy at Cirium Ascend Consultancy, describes aircraft demand as a ‘slam dunk for this year,’ noting that demand growth cycle is also driving single-aisle market values. Sales of aircraft with a lease attached is beginning to climb but “slower than anecdotes in Dublin might lead us to expect,” continues Morris, with lease rate growth also catching up to value rates (after last year’s GTF announcements and January’s FAA-mandated MAX production cap). Even with inflated base values (up 3.1% in January 2024), long-term market value to base value ratios have also set record highs, reveals Ascend head of valuations George Dimitroff. The single-aisle market value to base value relationship currently stands at 121% on a fleet weighted average, with twin-aisle values also 141% above base average. Pricing for new aircraft (namely the neo and the MAX) has seen a steeper climb than when the neo and NG first entered the market, but as Dimitroff explains, “what we’re experiencing now is not unprecedented”. However, unlike a similar pricing increase observed between 2003 and 2008, the delivery backlog is bigger this time around (potentially stretching into the 2030s): with in-built OEM price escalation likely to further heighten delivery prices. Engine value as a percentage of total new aircraft value is also on the rise, with Dimitroff highlighting that whereas a pair of powerplants accounted for less that 30% of an aircraft’s total value in the early 2000s, it now accounts for anywhere up to 65% of total neo and MAX values; potentially rising anywhere up to 100% by the end of the decade. Dimitroff adds that with the MAX manufacturing issues ""well and truly in the public’s knowledge now,” combined with a prudent FAA approach to production oversight, there remains the risk that manufacturing capacity might take longer to resume its uncapped output than Boeing perhaps expected. However, while there likely to be no “wild discounts” on the table (citing higher cost of capped unit production), he concludes that compensation for late deliveries (including the as-yet uncertified MAX 7 and 10 variants) may well be possible.