DVB Bank SE, the German lender planning to make $2.3 billion of aircraft loans this year, may shun Airbus SAS’s re-engined A320 because of concerns about resale values.
The value of A320 NEOs may drop “significantly” once next-generation single-aisle aircraft begin entering the market, which could happen within a decade, Bertrand Grabowski, the board member responsible for aviation at the Frankfurt-based bank, said today in an interview in Singapore.
“Why do you propose to the market an aircraft which is going to be an interim arrangement?” Grabowski said. “That’s bizarre.”
More than half of the $65 billion of aircraft deliveries made last year were funded by commercial loans or capital markets, Grabowski said, which makes support from lenders important for new planes. Airbus has developed the A320 NEO, or new engine option, to extend the life of its bestselling model while it works on a successor.
“Banks or leasing companies are going to be exposed,” said Andrew Miller, chief executive officer of Sydney-based CAPA Consulting, which advises airlines and industry investors. “When a new model is announced, the depreciation of the existing model grows.”
Individual lessors and banks also have more clout since the global financial crisis, which forced a number of players out of the market, he said.
A320 NEO Orders
Airbus this week announced an order for 30 A320 NEOs from Virgin America. The Toulouse, France-based planemaker has also agreed a preliminary deal to supply 150 NEOs to New Delhi-based IndiGo. Customers will have a choice of new engines from United Technologies Corp.’s Pratt & Whitney and CFM International Inc., a venture between General Electric Co. and Safran SA.
“The A320 NEO will strengthen even further the market- leading position of the A320 family as a sound long-term investment both for airlines and the financing community,” said Sean Lee, an Airbus spokesman. “This is already being borne out by the overwhelmingly positive reaction from the market.”
Boeing Co. has had a difficult time making a “compelling business case” for fitting its 737 with new engines, Jim Albaugh, president of its commercial airplane operations, said this month. The Chicago-based company has said it will decide by midyear between offering new powerplants or waiting to develop a replacement aircraft.
Airbus, the world’s biggest commercial airplane maker, plans to begin deliveries of the A320 NEO in early 2016 and it last month predicted market potential of as many as 4,000 aircraft over 15 years. A successor to the A320 won’t come before the middle of next decade because materials won’t be advanced enough before then to justify the development expense, the company has said.
The A320 NEO will also likely depress the value of existing A320s already owned by lessors and airlines, said Shukor Yusof, Standard & Poor’s Singapore-based editorial director. Financing deals for single-aisle planes typically run as long as 12 years, he said.
“I’m not surprised by bankers’ apprehension about the A320 NEO,” he said. “The impact will probably be felt most in the late second half of this decade.”
Airbus and Boeing have both struggled to focus on new single-aisle models as they wrestle with the development of larger planes. Boeing yesterday announced a seventh delay for its new 787 Dreamliner, while Airbus’s A380s also ran behind schedule.
Success in the single-aisle market determines the pecking order in the industry because both Airbus and Boeing derive the bulk of their earnings and orders from these aircraft. The twin- engine 737 and A320s both seat about 125 to 185 people. List prices range from about $65 million to almost $100 million, depending on the version.
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