It has been a full year since AVINTEL have done its previous lease & aircraft valuation analysis.

The
analysis was also a bitter appetizer in providing a few reality checks and analysis on how the industry
wishes to bounce back and reconcile in the post-pandemic environment.

There has been significant news & movements in the last year that has AVINTEL prompted to
recognize that the industry has passed the worst of it, with:

 The testing, expedited approval, launch of multiple vacancies

 Vast distribution of vaccine rollout in the western world & targeted distribution of vaccines
in emerging economies

 A peaking in virtual commuter, business and MICE traffic; as face-to-face demand &
interaction makes a rebound

 Better intra-governmental collaboration on travel agreements, restrictions, quarantine and

policies

 Signs of better inter-governmental collaborations and agreements for travel-bubbles

 New wave of investment in AOCs, airlines, routes & capacity increases incoming; in a bid to
catch the "bottomed out" recovery

 Governments supporting airlines to help retain domestic workers, capability & passenger /
cargo connectivity in a post-lockdown environment and return to normality

 Industry initiatives & PPP collaborations for ease of transit & demand-generation activities

 Airlines getting the hint that current skeleton networks (as previously mentioned), are back
in the black with high cargo & passenger volumes with increasing yields

Airlines are now looking at how it plans to set itself for a matured & market-oriented recovery, with
plenty of slack and resilience for business continuity. Airlines have had to transform themselves &
undertake drastic cost-cutting activities to ensure it places itself firmly in the new post-COVID reality.
And more critically; airlines now know too vividly that the way they have gone about operating
previously, is now well & truly over. The entire airline organizational architecture, market placement,
businesses model, and vision for the future needed a revisit in order to line up with new realities.

In context of this article; airlines have had a full calendar year on how they wish to see itself survive,
and are not holding back on its implementation. This is especially in the context of fleet & product
makeup in order to reflect their business sustainability objectives, which includes at the least (and
mentioned in AVINTEL’s previous article on Hard-Product & Fleet Management during COVID19):

 Expedited retirements of aircraft in droves

 Return to lessor

 Re-negotiation of lease terms with lessor

 Parking of aircraft where possible

  Re-configuration of aircraft

 Order deferrals

 Order conversions

 Orders NTU or cancelled

COVID’s total impact on values & lease rates

With the above realities, the following data in regards to numerical aircraft valuations & lease rates
for RPT & cargo aircraft family types for June 2021, in comparison to Pre-Covid spot rates reported
on JAN20 (reporting periods 18-21 months apart).

Some observations from the total impact on aircraft values & lease rates over the past 18 months
were as follows:
  While previous devaluations 6 months into the pandemic were segment-centric (especially
in the widebody segment), the 18 month retrospect provides insight on further adjustments
incrementally smoothening out across the board of aircraft portfolios.

 Asset & lease minimums values have seen an extraordinarily larger dip in the overall
market, as oppose to maximum values. This is naturally seen where mass retirements &
returned lease on lower-valued assets, have resulted in lessors undertaking mass asset
devaluation, under-writings, fire-sales and absurdly unheard of lease agreements &
placements with new clients. Old assets are currently on a race to the bottom.

 The above case also suggests that while OEMs have significantly increased pricing &
demand pressures from clients; that OEMs have ensured significantly reduced production
for a prolonged period in order to retain value of newer assets. OEMs have also ensured &
secured their pressure on phasing out older used aircraft out of the market entirely,
subsequently ensuring a reduction of average fleet ages globally.

 Maximum lease rates & values of aircraft families have been particularly impacting aircraft
families that are newer or newly delivered previous generation aircraft. This includes the
A320ceo, A330ceo, A380, 737NG, 767 and 777 families.

The 10 most impacted aircrafts by sum of losses of value & lease rates across the life-cycle
during the entirety of the pandemic in order is:

1. A380-800

2. 737-700

3. 777-200/ER/LR

4. A330-300

5. A330-200

6. 787-8

7. 777-300ER

8. 737-900/ER

9. A319

10. 737-800

Vice-versa for the 10 least impacted aircraft by cumulative losses in value & lease rates are. The
ranks are excluding freighters of which some have abnormally done well such as the 747-400F, 767-
300F. The rank also misses families with incomplete data such as the 737MAX9/10, A330neo, and
787-10 aircrafts:

1. ATR 72-600

2. A320
 3. A320neo

4. A220-100

5. 737MAX 8/200

6. Dash-8 Q400

7. A220-300

8. CRJ700

9. A350-900/LR

10. CRJ900

Please note that most of the reduction in values of the above listed aircraft has been done during
the past 12 months of recovery rather than the first 6 months of the pandemic. We will go into
greater depth of analysis as we compare YOY data with spot comparisons to pre-COVID values.

Laser Focusing on the past 12 months

While impacts above are clearly shown, it is very interesting to see the trajectories of values & lease
rates in an environment of recovery & improved travel sentiments across the globe in the past 12
months. In this visible resurgence of travel, there is interesting pointers to be made on how values of
aircraft have moved over the past 12 months of resurgence.
The key takeaway of the above data is a large-scale normalization exercise to smoothen out and
smoothening out of COVID impact across aircraft family types. Our previous lease & aircraft
valuation analysis mentioned distinct collapse in the widebody sector, tinkering regional aircraft
sector and a stronger-than usual large narrowbody sector. This distinction is less so apparent in the
results & gradual changes over the past 12 months,

Older narrowbodies, regional aircraft and efficient widebodies that seemed to have previously been
resilient to the COVID shock have now seen significant adjustments in minimum value & minimum
lease rates.

Top 10 aircraft have had the biggest gain of cumulative minimum & maximum lease & value rates
over the past 12 months are as follows (excluding freighters):

1. A220-100

2. A220-300

3. 737 MAX8/200

4. CRJ900
 5. A321neo/LR/XLR

6. A350-900/LR

7. E190

8. A320neo

9. Dash-8 Q400

10. E175/LR

Top 10 aircraft have had the biggest drop of cumulative minimum & maximum lease & value rates
over the past 12 months are as follows (excluding freighters):

1. A380-800

2. 737-700

3. 767-300ER (previously one of the best performing widebodies)

4. A319

5. 787-8

6. A321

7. A330-200

8. 737-800

9. 737-900/ER

10. 777-200/ER/LR

Aircrafts that have the most positive rate of change in trajectory of cumulative minimum &
maximum lease & value rates over the past 12 months are as follows (in order):

1. 777-200/ER/LR

2. A330-300

3. 777-300ER

4. E190

5. CRJ900
 6. A220-300

7. A220-100

8. A380-800

9. E175/LR

10. 737 MAX8/200

Aircrafts that have negative rate of change in trajectory of worsening cumulative minimum &
maximum lease & value rates over the past 12 months through the recovery are as follows (in
order):

1. 767-300/ER

2. A320

3. CRJ700

4. A321

5. A320neo

6. Dash-8 Q400

7. 737-700

Aircraft Programs of Concern

There are a few aircraft families that continue to disappoint throughout the COVID19 recovery
process, that OEMs can no longer glance at as one-off setbacks. These manufacturers must take
cautious steps in ensuring the sustainability of the organization, and take action to ensure these
programs continue to be present & bring in cash in this demand recovery stage of the industry.

The first program is the A380. It is very clear that there is no market for this airplane, and incredible
capital & leasing concessions are needed to make operating this aircraft type feasible. Airbus has
made the crude decision to axe the program, and any development. AVINTEL believes that this is
unfortunately the correct decision to make.

Lessors will have to continue to write-off and scrap 772s, as 777-300ERs become a massive
widebody glut in the market. Lease rates & values have come crashing down, and there will certainly
be challenges to find other leasing opportunities for these types. The current-engine 777 (200/300
family) program is looking to also wrap up its current workhorses as Boeing reduces its delivery
rates. The manufacturer is now entirely dependent on deliveries of the 777-200LRF to bridge the
program over to the 777X family. And if customers are eager (as the numbers show) for expedited
deliveries, Boeing will have to forego previously held hopes of bridging production prior to delivery
of the -9 & -8 And with market sentiments on large widebodies, alongside concerns over the 777X
testing regime; it would be interesting to see how the program will be kept alive by its few
customers. Even in a strong recovery scenario, it will be difficult to see how the 777X (especially the
-8) will retain its value & attract customers (airlines & lessors).

Another program of concern is the A330 family. The primary concerns are for the lessors, with a
sharp reduction in the lease & asset values for both types. There have been droves of return to
lessors & mass scrapping of the jet. AVINTEL is also yet to see any ramped up & mature A330ceo
conversion line under its sub-optimal P2F program. That said, the A330-300 has made significant
inroads in new placement opportunities, and hence seen a very sharp trajectory rebound in regards
to fleet reactivations, value & lease rates over the past few months. The OEMs are not off the hook
either, with dwindling order security of the A330neo program. We have previously discussed here
regarding the new ICAO-emissions certification and operational efficiency of the A330neo family.
Airbus continues to pitch the A330-800 as the aircraft of choice for the long-haul travel recovery, but
marketing activity has not materialized to orders. But given limited & paid off R&D and production
line, it should not give Airbus executives sleepless nights going forward in this recovery.

In light of the A330neo, Boeing continues to struggle to recover from ballooned costs in deferred
production costs, unamortized tooling and large scale non-recurring costs from the 787 production
debacle. While Boeing has made significant progress in using proceeds from other aircraft programs
in order to reducing this charge, the consolidated deferred costs still stands at USD 16,660m. This is
a deferred cost of an aircraft program going head to head (and with little to nothing fuel-burn edge)
with the A330neo. The 787-8 has gone into a value & lease rate nosedive which has not changed
trajectory during the COVID19 recovery. The 787-9 on the other hand, being the bread and butter of
the program, has also not fared up too well, and has seen significant lease pricing & aircraft value
pressure for the older jets. The 787 sees higher than average asset depreciation (despite reliability
promises & being newer in nature), further questioning whether the program will ever be profitable
prior to the next iteration or R&D injection for the family. Also, given the 787-10 has a shorter range
and is payload restricted, it will not surprise AVINTEL that the subsequent depreciation of a 78J
(which should be quicker than the 789’s current trajectory & success of the A350-900 campaign),
does NOT make the 78J the “price-premium” aircraft Boeing was hoping for.

Finally; Boeing & Airbus’ end of line A320ceo & 737NG fleets are also aircraft that are of significant
concern of order volatility. This is especially the case for the 737-700, 737-800, and A319, but also to
a lesser extent applies for the A320, 737-900ER and A321 jets. It seems both OEMs have successfully
managed to tackle this issue of ensuring delivery of these jets. But lessors will be left with an
extremely large glut of these aircraft, with these assets (valued at hundreds of billions of dollars),
having severe loss in value & will need to offer extremely cheap lease rates for operators to even
consider these very capable aircraft in the market. The following official backlogs for these types are
as follows (the higher the backlog, the greater the exposure):

 737-700 – 0

 737-800 – 2

 737-900/ER - 0

 Total 737NG military – 39

 Total 737NG BBJ – 2

  A318 – 0

 A319 – 3

 A320 – 18

 A321 – 15

Dedicated Freighter Market Outlook

Dedicated freighters continue to rally in regards to lease rates & market values. These aircraft have
been critical & of high utilization during the COVID19 period due to multiple reasons:

 Expedited shipping & dedicated logistics for e-commerce & global supply chain
requirements have not been as severely impacted by the COVID19 pandemic, as passenger
travel

 They have been making up for belly-hold cargo demand that was lost in the consolidation of
the RPT operations environment

 Disrupted supply chains, on-shoring and maritime operations concerns due to lockdowns &
COVID19 constraints, have spilled much traffic to air cargo

Not surprisingly, the market has been very strong for large cargo aircraft. The best performing
aircraft during this period was the:

1. 747-400F

2. 767-300F

3. 777-200LRF

4. A330-200F

5. 747-8F

The 747-400F has come off from a low base & incredibly cheap capital requirement costs pre-
pandemic. And 767-300F has done well & with high feedstock, we can presume this trend to
continue for the next few months. But the other aircraft (especially newly delivered 777Fs, 748Fs
and A332Fs), we have seen diminishing of value & lease rates in line with the passenger division, but
still continue to be more valuable than their RPT counterparts. So long as this value gap is present, a
market opportunity for cargo conversions of 777s, A330s, 767s etc., will continue to exist until the
gap is diminished & values/leases return to normal asset depreciation rates.