The aircraft values displayed on ascendV1.com , which inherently assumes
half-life maintenance condition or better take into account the following level
of detail.
The basis of the values is built on a Generic Market or Base Value for an
aircraft manufacturer, type and variant, year of build, and a generic (or
"baseline") specification which is comprised of one engine manufacturer, type,
variant and maximum take-off weight (MTOW) combination, this is considered to
be the standard configuration for the aircraft type / variant e.g. Boeing
737-300, Year of Build 1989, CFM56-3B2 engines and an MTOW of 124,500lb.
The values are then adjusted to reflect the actual configuration of the aircraft
as recorded in the Ascend Online Fleets® database at the time of valuation. If
carrying out a valuation as a 'Generic Aircraft', the user has the ability to
select the desired 'modifier' values (i.e. Type, Variant, engine manufacturer,
MTOW and other major specification options that in our opinion can influence
the value).
Further to the above, values are adjusted to take account of additional
specification adjustments (EFIS cockpit, forward airstairs, etc). The
specification data is defined in the Ascend Values Network (AVN) database.
Engines
For this asset class we present values on a predetermined configuration and
maintenance basis.
In Ascend's considered opinion the Market Value represents that which the
aircraft could best achieve under the market conditions existing at the point
in time and therefore takes into account, as part of our market valuation
procedure, a review of market activity and known transaction data involving the
subject aircraft type. It additionally considers the perceived demand for the
type; it's availability on the market, and further takes account of the
expressed views of informed industry sources. A Market Value is referred to as
a Current Market Value if it is effective as of today.
Market Values are the lifeblood of appraisal and analysis work. The market
value of an aircraft reflects the value that the aircraft could command as a
"real sale" between two parties given the macroeconomic conditions existing at
the point of time in question. Market Values are judgmental opinions, which
combine qualitative and quantitative data with the knowledge base and skills of
the Ascend appraisal team. Our Market Value opinions are provided to the
International Society of Transport Aircraft Trading (ISTAT) definition defined
as follows.
"Market Value is the Appraiser's opinion of the most likely trading price that
may be generated for an aircraft under the market circumstances that are
perceived to exist at the time in question. Market Value assumes that the
aircraft is valued for its highest, best use, that the parties to the
hypothetical sale transaction are willing, able, prudent and knowledgeable, and
under no unusual pressure for a prompt sale, and that the transaction would be
negotiated in an open and unrestricted market on an arm's-length basis, for
cash or equivalent consideration and given an adequate amount of time for
effective exposure to buyers."
Under this scenario the value is intended to reflect what might have been
expected from the reult of an 'arms length, single sale' transaction conducted
in an orderly manner (for which we consider a period of up to 12 months to come
to fruition to be reasonable) between a 'willing buyer and willing seller',
with the aircraft free of any lease or charge. We also assume that the aircraft
was free of any onerous restrictions in respect of its ownership and title
documentation.
Under the definition of Market Value, market circumstances are the variable
factor in the equation, or to be more precise the appraisers perception of
market circumstances is the variable factor.
The most important factor in our determination of Market Values/Lease Rates is
the prices/rates at which other aircraft are retailing, or being made
available. Through the Ascend CASE Aviation database we are aware of almost all
sales and leasing transactions involving commercial aircraft. Despite the lack
of transparency in the marketplace and the increase in confidentiality clauses
which restrict the supply of data into the public domain, our aim is to capture
pricing data for a minimum of 25% of transactions which occur during a year.
Once we are aware of the pricing associated with a single transaction, we
evaluate it with respect to the specifics of the deal (financing structures,
reasons for the transaction, specification of the particular aircraft etc.) In
the light of this information we will be constantly reassessing the
values/lease rates of aircraft on both a horizontal (competing types) and
vertical (different vintages) basis.
We also review our values and lease rates when we perceive that there are
changes in the supply of, and/or demand for, the aircraft even though no actual
transactions may have taken place. Our perceptions change due to a variety of
reasons which include airline announcements concerning fleet plans covering
both new additions and fleet roll-overs, changes in the regulatory environment,
macro economic developments and other factors affecting the transportation
sector. In most respects we try to reflect in our current value/lease rate
opinions the expectations of the marketplace.
We have an excellent relationship with informed and respected players in the
aviation marketplace including manufacturers, financiers, airlines and
regulatory authorities. These relationships as well as the diverse background
of our analysts enables us to decipher meaningful information from whatever
aviation related event arises, and thus re-evaluate our opinions accordingly.
When we discuss lease rates we refer to operating lease rates, in particular
"net dry operating lease" rates. One of the most useful definitions of an
operating lease is as follows.
"The Lease of an asset whereby the Lessor takes all of the risks and rewards of
ownership and the Lessee takes all of the risks and rewards of operation."
By a dry lease we mean that the Lessor provides the asset to the Lessee for the
Lessee to use. In return the Lessee pays the Lessor a contracted sum at
contracted intervals. When we discuss aircraft the most usual payment interval
is monthly and the term of the lease tends to be around five years duration. A
wet lease, also known as an ACMI lease, involves the provision of the aircraft,
crew, maintenance and insurance by the Lessor. These deals tend to be charged
by utilisation units, such as Block Hours, Flight Hours or Cycles, and can be
for a single flight or several years.
A net lease means that irrespective of other costs incurred, for example the
aircraft being grounded, withholding tax etc., the Lessee pays the contracted
amount to the Lessor. Our analysis concentrates on net dry operating leases.
Fundamentally the lease rate should be a payment, whereby a present value is
amortised to a residual value, at a certain discount rate over a certain term.
The discount rate should reflect the risks facing the lessor and the desired
return of the lessor. However the supply of and demand for the asset at the
point in time will also impact the rate. Most if not all of these factors will
vary with each lease and thus, like market values as mentioned earlier, we
provide an opinion of a normalised lease rate. This normalisation requires the
specifics of each deal and the market conditions at the point in time to be
considered before a standardised lease rate can be established. This lease rate
is intended to reflect what the "average" airline would pay to lease an
aircraft or engine for an "average" term, at the point of time in question. The
lease rate is paid monthly and does not change over the lease term.
The given lease rates do not include any provision for maintenance reserves.
ENGINE LEASE RATES
In addition to the long term leasing of engines, there is an active leasing
market involving the use of short term leases. These are normally instigated to
cover for engines subject to overhaul or perhaps to replace engines that need
to be repaired as a result of say, Foreign Object Damage (FOD). Such deals are
normally concluded on a PBHÔ on a daily basis.
Under the Soft Market forecast scenario, we endeavour to represent the values
which may be more appropriate should the world's principal traffic generating
regions be in the midst of recession or sustained period of economic
stagnation. Historically such events have depressed commercial aircraft values,
by varying degrees of magnitude.
The soft market forecast is driven off the Base Value model. It should be
remembered that Base Values are theoretical in nature. The model functions on
the basis that it would typically take the market three years to reach a soft
market situation from a 'Base' market starting point (i.e. a balanced, stable
market in equilibrium). After the first three years, the soft values will tend
to run at a discount, but in parallel to, the Base Value.
It should be noted that due to the severe industry downturn post Sept 11 2001
(which in our opinion could be characterised as a 3 standard deviation event),
some Market Values have fallen to levels below where the Soft Market Value was
forecast to be in the short term (next two years). The Soft forecast is derived
from the Base forecast and typically expects values to bottom out after the
third year following onset of a global recession. Because some Market Values
are currently at such depressed levels, we believe that in the short term, the
Current Market Value is the best guide to where the short-term future values
will lie, with the potential for further decreases. This is shown by the
[notes] in the future values table.
Base Values are perhaps the values, which most closely reflect the theory of
the current value of an aircraft or engine being a function of its future
earning potential. At Ascend we believe that historical market values reflect
the future expectations of an aircraft's or engine's earning potential and thus
these historical market values need to be incorporated into any analysis of an
aircraft's or engine's future value. However history should always be used as a
guide and not as a definitive rule, historical trends need to be combined with
the appraiser's perception of the current state of the market as well as
expected future earning power and market developments. Ascend follows the
definition of Base Value as outlined by ISTAT, which is defined below.
"Base Value is the appraiser's opinion of the underlying economic value of an
aircraft or engine in an open, unrestricted, stable market environment with a
reasonable balance of supply and demand, and assumes full consideration of its
"highest and best use". An aircraft's Base Value is founded on the historical
trend of values and in the projection of value trends and presumes an
arm's-length, cash transaction between willing, able and knowledgeable parties,
acting prudently, with an absence of duress and with a reasonable period of
time available for marketing."
A number of variables are involved in the determination of Lease rates namely
lease term, perceived creditworthiness of lessee, interest rates (fixed or
floating), residual value of the aircraft on termination of the lease and the
general market conditions.
The forecasting of lease rates is undertaken by a methodology developed by
Ascend called the lease rate factor (LRF) curve methodology. Ascend has
developed a series of lease rate factor curves, for all types where an
operating lease Market exists, which relates the ratio of market lease rates to
market values with the age of the aircraft. The LRF curves are developed by
splitting all the data into the following respective categories namely narrow
body, wide body, turboprops and freighters. The ratio of market to lease rates
is calculated devoid of interest rates i.e. the interest rate component is
taken out of the lease rate factors. We then use regression analysis to derive
generic lease rate factor curves.
The base lease forecast reflects a five year deal, with an assumed BBB rating
(The same assumption as our market lease rate). The forecast also assumes the
interest rates to be mid year five year swap rates, which for the base scenario
have assumed to be 5%
These curves are then used in conjunction with the forecasted base values as a
basis for our projected lease rates
We do not provide five year lease forecasts for the soft market scenario. When
the industry is in the midst of recession it is very unusual for lessors to
place aircraft on long term fixed term leases.
QEC Options (GEAE Definitions)
Bare: Little or no QEC hardware attached. Typically: An engine in a
configuration as delivered by the engine OEM.
Full: Ready for installation, including basic engine hardware, all Buyer
Furnished Equipment, Quick Engine Change Hardware and, depending on engine
model, exhaust nozzle and inlet cowl.
Neutral: A full QEC engine less several major Line Replaceable Units. Please
refer to the individual engine's configuration listing for the actual hardware
installed.
Left Hand: A full QEC engine less several major Line Replaceable Units. QEC is
configured for assembly of the engine to left side of an aircraft with tail
mounted engines.
Right Hand: A full QEC engine less several major Line Replaceable Units.QEC is
configured for assembly of the engine to the right side of an aircraft will
tail mounted engines.
Dressed (RR Definition)
Basic Engine plus Electrical System plus Fuel, Oil and Air Systems.
Engine Build Up Kit (IAE Definition)
Basic Engine, QEC, Inlet Cowl and CNA
One of the most important factors affecting an engine's value is the maintenance
status of the engine.
The "Full Life" condition means that the engine has just been completely
refurbished and that the Life Limited Parts have their full certificated limits
remaining. In practice this will not be the case, however if the engine is
fully funded by maintenance reserves the combination of the potential life
remaining on the Life Limited Parts and the time remaining to the next
refurbishment complete with the maintenance reserves previously received means
that the engine is effectively in a "Full Life" condition.
The "ZTSO" (Zero Timed Since Overhaul) condition means that the engine has been
completely refurbished, but the Life Limited Parts have the same limits
remaining as those before it entered the shop for refurbishment.
The "Run-Out" condition means that the engine has fallen outside its allowed
operational parameters and requires refurbishment before it can return to
commercial use. In addition, minimal life is usually left remaining on the Life
Limited Parts. The Run-Out value of an engine will closely correlate to the
cost of overhauling an engine, or for types that are being phased out, the
value of the engine core.
Current Market Values
1. Engines which have yet to reach their first Full Refurbishment.A “First Run” add-on is made
to the engine’s value. This reflects the longer time on wing that is expected of a new engine,
as well as the manufacturer warranty that is applicable over the first few years of an engine’s life.
2. Engines in Rework
We normally assume the engines are fresh from Full Refurbishment. Further
adjustments can be made to reflect the value embedded in the actual LLP status
(Life Limited Partns of all Group 'A' disks).
3. Engines which have accrued Time since Refurbishment. An appropriate
adjustment is made to reflect usage since Refurbishment. Further adjustments
can be made to reflect the value embedded in the actual LLP status (Life
Limited Parts of all Group 'A' disks).
The Current Market Value also assumes that each engine is under a maintenance
programme of international airworthiness standards approved by a civil aviation
authority, with all Airworthiness Directives (ADs) and manufacturers Service
Bulletins (SBs) performed in compliance with air carrier rules and regulations.
It also assumes a full and complete set of technical records and documentation,
in English.
|
