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Master Appraisers Consider Inflationary Pressures on Used Values

April 17, 2017

The introduction of a 2.2 percent rise in Boeing’s list prices may seem to be something of an irrelevance due to the seemingly abstract nature of list prices when compared to market values but the rate at which net prices being paid for new aircraft play an important role in determining used values. There are a multitude of factors that play a role in determining both current and future market values. These encompass such macro factors as GDP, RPK, ASK, fuel, inflation, interest, yields, and load factors but then there are micro variables which can include orders, operators, in-service, backlog, geographical distribution, operator concentration, product life cycle, storage, level of availability, replacement proximity, replacement productivity, production rates, engine type, ETOPs, environmental compliance, MTOW, aircraft age, total hours and cycles, registration, specification, lease rentals, number of lessors and retirement profile. But inflation alone can influence the behavior of not only new prices but also values of new and used aircraft. In the 1970s and 1980s, higher inflation caused the price of new aircraft to rise ever higher as manufacturers had to charge more for their products to keep pace. As the price of new aircraft rose by substantial amounts, then the values of used aircraft also enjoyed a fillip. By the end of the 1980s, list prices and net prices of new aircraft were virtually the same but since then, they have diverged such that today there is not only a chasm between list and new net prices, but also values of more modern aircraft have experienced a far steeper depreciation curve than those of earlier generations.

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