There is a growing divergence between aircraft base and market values as the global effects of the Covid-19 pandemic drive down demand, according to data from independent aviation consultancy, IBA.
The gap between aircraft base values – the underlying economic value of an aircraft in an open, unrestricted, stable market with a reasonable balance of supply and demand – and market values have grown by as much as 40 per cent, it says.
IBA president, Phil Seymour, said: “Aircraft base and market values are diverging at the greatest extent ever seen and to the extent that, across the global commercial aircraft fleet owned by airlines, there is now a gap of around $60 billion. This figure is not related to leased aircraft, only those that are owned by the airline.
“This could become an impairment issue for airlines unless those aircraft are earning revenue, either now or as part of the long-term plan for an airline, which makes getting the right valuation imperative. Those valuations must be assessed by a reputable valuer (ISTAT accredited) and one that has been subject to IAS 620 assessment by the auditors rather than a rough order of magnitude opinion of the management team which may have been acceptable in the past.”
The consultancy says that the fall in passenger demand caused by Covid-19 is driving a “dramatic fall” in new aircraft commitments, with lease starts down 57 per cent on 2019 levels according to data from its platform IBA.iQ.
Each aircraft not earning revenue attracts a wide range of significant costs including parking and storage, CAMO, re-marketing and maintenance. These cost burdens, coupled with the oversupply of aircraft against current demand, are driving aircraft market values downwards to distressed levels.
For example, IBA’s current half-life market value for a 2015 built Boeing 787-8 is circa $74 million against a base value of circa 73 million. However, its distressed value range for that aircraft is significantly lower at between $42.69 million and $57.74 million.