What will 737 MAX be worth once it returns to service?
While the grounded Boeing 737 MAX jets are already a headache for airlines, their ungrounding will likely to bring a new range of confusion for aircraft lessors, investors and financiers. What will be the price of the 737 MAX and what factors will affect its value once the planes are given the green light to fly again is one of the main topics concerning the industry right now.
In a panel discussion at AIR Convention Europe 2019, Marian Pistik, the head of asset management at International Airfinance Corporation, Michael Rurik Halaby, the head of aviation debt origination/EMEA at Deutsche Bank, and Rob Watts, the CEO of Aerotask have exchanged views on the problems surrounding the 737 MAX return to service from a financial aspect.
One issue in estimating the MAX value once the worldwide grounding is lifted will be related to the age of the plane, Michael Rurik Halaby pointed out. "Take, for instance, a plane built in March 2019, which has never flown. Supposing the aircraft, for sake of argument, is cleared to fly again in March 2020. At that point, would you have an aircraft that has no flying hours, no cycles, but is one year old?"
Looking at the aircraft maintenance aspect after the restrictions are lifted, the majority of work is going to be hourly or cyclically driven, Rob Watts states. But even in that case, there are going to be certain calendar-driven elements. As some checks on the aircraft are going to be needed, its value will be reduced by the required maintenance. Before MAX can return to skies, some refresher check ups will be needed for the planes.
But for Watts, an even bigger issue is related to estimating the pricing of the 737 MAX post-grounding. Current price of an aircraft is based on the history of aircraft transactions. The problem is that there are no MAXs being transacted at the moment.
“From the point of view of investor that aircraft is permanently impaired from the value that is would have had otherwise, if it was a new aircraft that went into service,” Marian Pistik adds.
Currently, as MAXs are staying put, their certain components are deteriorating. As they will be returning to service, the quality of storage, weather conditions in which they were preserved will play a role in determining their value as well.
Therefore, in addition to the fact that one year of the aircraft’s life will be wasted, there will be “significant expense” to bring the aircraft back to life. It is not clear who will face this significant expense, Pistik argues.
The global Boeing 737 MAX fleet was grounded in mid-March 2019, following two crashes of the MAX-8 version aircraft that claimed a total of 346 lives. Lion Air flight JT610 went down in October 2018, followed by Ethiopian Airlines ET302 crash in March 2019.
For an airline the cost of one grounded 737 MAX plane is estimated to be around $150 thousand per day. MAX-family aircraft list prices vary from $99.7 million to $134.9 million according to Boeing pricing list.
Finishing up on MAX systems (including the notoriously famous MCAS) and training programs updates, Boeing now expects restrictions to be lifted by the end of 2019. However, as foreign aviation authorities have several times expressed their scepticism on the Federal Aviation Administration’s credibility to determine the safety of an aircraft, MAX is likely to be assessed by several different regulations before it is up and flying again.
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