A fleet of salvage-priced planes

As United Airlines looks to secure a $3 billion loan on the open market, using hundreds of planes as part of the collateral, we’re given a spectacular view into the aircraft valuation process and some of the quirks of how the numbers vary. For several of the aircraft, the appraised valuation hit the floor. The planes are, according to outsiders, worth more as scrap than they are as functional aircraft. Which is not to say that they’re garbage, but other airlines might treat them that way.

The appraisal process starts with a base value, derived from the aircraft model and age. From there a number of adjustments are applied. Increased maximum takeoff weight (MTOW) can add $200,000 in value to a 757-200, for example, or remove $100,000 from a 777-200ER if the MTOW is impaired. Engine selection is another factor, trimming $300,000 from each of the carrier’s A320-200s in the collateral collection.

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Adding winglets can be worth a half million on the 757-200 or $600,000 on a 767-300ER. In-seat IFE screens are worth about $350,000 on a single-aisle aircraft but expected on a twin-aisle. The United 777s without those screens take a $600,000 penalty for only offering streaming IFE on board.

Current market conditions matter, too. The 777-200/ER fleet is off about 35% from the theoretical average base value simply because the market is soft. The 767-300ERs are down 7-10% while the 737-700s are pricing above average by 7-10% before the adjustments kick in. The A319 fleet is considered similarly valuable.

But the major factor moving the value of the planes is what the appraisal company calls the “maintenance adjustment.” In looking at the aircraft and maintenance history mba Aviation calculated an 8-year forecast of “Future Maintenance Adjusted Values” for the 352 aircraft United submitted as collateral for the financing. After comparing the estimated market value from a trio of appraisers the maintenance adjustment is applied. And for several of the aircraft this pushed the value below that of offloading the frame to a salvage company.

The planes are still plenty safe to fly, and some feature the company’s newest interiors. But a new owner might still find it more financially suitable to scrap the frame.

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Four of the 767-300ERs show a maintenance adjustment in excess of $10 million, offsetting their current market value below the $1.4 million salvage floor. Another 13 of the 777-200s suffer a similar fate, valued below the salvage floor of $1.5 million because of the maintenance forecast. And two dozen 777-200ERs drop similarly, valued at $1.5 million when future maintenance costs are considered.

Presumably a large portion of this maintenance adjustment is tied to timing of future heavy maintenance checks. Those are intensive and expensive and a new aircraft owner may not wish to undertake that effort, especially for planes that might not operate very long after the service. Some of the aircraft with more recent heavy checks show a positive value for the maintenance adjustment, supporting this theory.

As an aside, the interior seating configuration does not appear to affect the valuation significantly. United’s 767-300ER fleet flies in two different layouts, for example, and there is no consistent difference between appraisal values of the two setups.