Engine values during fleet upgrades

With new engines such as CFM’s LEAP and Pratt & Whitney’s PW1000 about to enter service, asset managers continue to tweak their engine value forecasts.

Lines to be superseded include the CFM56-5B, -7B and V2500, which power current-generation 737 and A320 narrowbodies.

Although the first A320neo is due to enter service in December, it and the 737MAX will be dwarfed by the volume of in-service ‘old’ technology for several years.

For instance, the CFM56-7B started revenue flying in 1997, but values of its predecessor, the CFM56-3, didn’t peak until two years later, show data from consultancy IBA.

And even when the -7 fleet overtook that of the -3, in 2005, the older engine’s market value held firm for another couple of years.

By this analysis the most popular iterations of the CFM56-5 and -7 may not see their values peak until 2020, though IBA also predicts that some versions, such as the -7B26/2 and -5B1/2P, could see fairly immediate declines.

History, however, isn’t necessarily a reliable guide, and much will depend on LEAP and PW1000 production rates, aircraft retirements and oil prices.

At present Boeing and Airbus are committed to new narrowbody production rates of close to 50 aircraft per month by 2017, which will entail a huge volume of new engines hitting the market from then.

“We can scrutinise previous cases as much as we want but despite all the similarities the scale of this change is unprecedented, trends may occur more rapidly due to high production rates or slower due to the quantity of previous generation aircraft currently in service,” comments David Archer, an analyst at IBA.

For an in-depth look at the effect of new technology on engine values, subscribe to the forthcoming issue of The Engine Yearbook.

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