What Appraisers Think a Used Boeing 777 Is Really Worth

Delta Air Lines CEO Richard Anderson caused something of a thunderstorm in the aircraft market back in early October when he said that his airline could purchase a used Boeing 777 for $10 million. That’s quite a savings when we consider that a new 777-200ER carries a list price of $277.3 million from Boeing Co. (NYSE: BA). A larger version, the 777-300ER, carries a list price tag of $339.6 million.

At a meeting last week sponsored by aircraft appraiser International Bureau of Aviation (IBA), some 150 attendees talked over Anderson’s claim and what might be happening in the market for wide-body, dual-aisle, twin-engine passenger jets. They agreed that Anderson had a point:

• Values for the 200ER have seen rapid decline in recent years with age having relatively little effect on trading appetite – last off the line effect.
• Richard Anderson’s comments, whilst sensational, are closer to reality than lessors would like to admit – although 10mUSD would still only give you an aircraft in below-half-life condition.
• The potential downside risk for the 200ER remains considerable.

Boeing, which sent no representative to the meeting, has no outstanding order for a 777-200ER but does report orders for 182 777-300ERs, plus 42 orders for 777F freighters.

The IBA noted that more than 160 wide-body planes are coming off leases over the next four years, most of them Boeing-made, although some Airbus A330s are also in the mix.

In addition to the purchase price of the airframe, refurbishing the engines and reconfiguring the cabin can add $20 million or more to the cost of buying a used 777. It can also take up to two years to reconfigure a plane from a three- or four-class configuration to a two-class configuration.

The IBA report also noted other factors that affect the cost of a used 777:

• The economic life of an aircraft is getting shorter and … a reset in the understanding of risk might be necessary in future. The poor residuals currently being debated might ultimately lead to higher lease rates if the economic life concept is put into question.
• A few 777s are finding homes but its sheer size and cost of operations are barriers to some.
• Widebodies, need a lot more care and expertise than a narrowbody and that increase naturally knocks out a number of potential customers – be they airlines or lessors.
• [T]here was tentative agreement that the market [for used 777s] is weakening and that aircraft might currently be overvalued.

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One interesting note about the 777 is the high concentration of the fleet among just a few airlines. A full 50% of the fleet is operated by just nine airlines, with Emirates the leader, flying 151 of the plane’s various models. Delta is described as a “minnow in terms of a current 777 fleet” with just 18 777s in its fleet. The top 10 leasing firms manage 70% of the leased planes.

Emirates said on Monday that it plans to retire 26 planes in 2016, including nine Boeing 777s. The airline is also acquiring 20 Airbus A380 superjumbo jets and 16 new Boeing 777-300ERs next year.