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The Evolution Of Appraisals

As more investors enter the engine leasing market, demands placed on appraisers have changed.

Existing engine owners and prospective investors have become better educated in the technology, reliability and costs of an engine, while the growth in spare engine leasing and trading provides a better picture of true market value.

Historically, engine appraisals have been performed in tandem with the evolution of engine lessors and their portfolio growth and are based on assumptions about base and market value, adjusted for maintenance condition. Here, the appraiser is assessing factors such as the time between overhauls and the value left in life-limited parts.

However, with an influx of external investors and their increasing involvement in commercial engine asset management, appraisals have become more rigorously scrutinised, particularly if there have been efforts to acquire or sell within the market.

Today, the information that appraisers receive from the onset of any appraisal is generally more detailed than in the past. This additional information means, for example, that identical engine models with equal utilisation are not necessarily ascribed the same value. Reasons for this are varied but could include regional operating profiles, a component configuration impact or the incorporation of specific repairs.

Companies and investors are increasingly interested in future engine value, too. This future value might be determined by a return condition, a cash position or an engine in a specific condition.

The larger the investment, the more scrutiny or ways of testing engine value there needs to be. In addition to this, it is important to consider which airline the engine is leased to and whether there are any trends in data for this operator, such as average times between overhaul. Of lesser importance, but still relevant, is the length of time engines spend in maintenance.

Kane Ray, head analyst for commercial engines at consultancy IBA, provides an in-depth look at the engine appraisal process in the forthcoming Engine Yearbook 2019.

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