Independent aviation consultancy, IBA, is optimistic about the resilience of regional jet and turboprop aircraft values, but expects value and lease performance to vary based on secondary market supply for specific models.
The supply of new regional jet and turboprop aircraft over the next one to two years is likely to be low, as OEMs are faced with diminishing backlogs, entry into service/delivery issues or significant deferrals.
However, an oversupply of used aircraft, resulting in part from airline failures and fleet renewal programmes, will put pressure on the market value and lease rate performance of some regional aircraft models, with mid-life (12 years old) and older aircraft feeling the greatest impact.
We have concerns around the potential oversupply of some Embraer E-Jet models. The collapse of Flybe in March released 14 Embraer E-Jet aircraft, predominantly E175 models, into the secondary market, and data from IBA.iQ shows that Embraer E190 aircraft feature regularly in operator exit strategies, including those of Air Canada, American Airlines and JetBlue.
In the turboprop category, around 10% of the global fleet of DHC8-400Q aircraft was operated by Flybe. German Airways has filed for insolvency after Eurowings terminated its wet-lease agreement with German Airways, affecting 15 DHC8-400Q aircraft, and Air Baltic and Austrian Airlines both plan to retire their DHC8-400Q aircraft over the next two years.
Covid-19 is likely to delay operators’ fleet renewal programmes in many cases, but market values and lease rates for mid-life E190 and DHC8 aircraft are likely to suffer if market availability increases.
IBA expects young (three years old) regional jet and turboprop aircraft to remain part of operators’ near-term fleet plans, and negative movements in market values for these aircraft to be consequently limited, but this could change rapidly in the event of an airline failure or Chapter 11 event.
In the USA, limits placed by the Scope Clause on the number of aircraft that can be operated by regional feeder carriers may put smaller regional jets at risk as airlines contract their fleets. IBA expects 50-seat aircraft such as ERJ-140/-145 and CRJ-200 to be most vulnerable.
However, the shortage of pilots in the USA has eased since the outbreak of Covid-19, which may create an opportunity for carriers to re-negotiate the Scope Clause. It is also possible that airlines will deploy regional jets in place of larger aircraft in the near-term while air traffic demand recovers.
Any aircraft being sold on today’s market will be deemed ‘distressed’, especially if a quick sale is required in a liquidation scenario. We expect regional jet and turboprop aircraft values to remain relatively resilient to the effects of Covid-19, especially in the longer-term. However, the devil is in the detail, and values for specific regional jet models will be vulnerable if availability increases in the secondary market through airline failures, Chapter 11 events or fleet replacement programmes.”
In the regional engine market, IBA expects the CF34-8C (CRJ-700-1000) to benefit from having no direct replacement and to weather Covid-19 well in the long term, with some short term softening in values. Similarly, the CF34-8E (E-170/175) may experience a temporary decline in market value, but this will largely be concentrated in the airframe as opposed to the engine.
The CF34-10E (E-190/195) was facing competition from the A220 and E2 prior to Covid-19, and is at risk from upcoming retirements by Air Canada and American Airlines. However, European operators seem more confident in the fleet. IBA expects the PW100 Family (ATR42/72 Q400) to hold relatively stable as the values are largely driven by OEM/MRO cost rather than market rates.