Why A Boeing 777 Only Costs $10 Million

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Delta Air Lines  Inc. (NYSE: DAL) CEO Richard Anderson said in mid-October that his airline may be interested in acquiring used rather than new airplanes, sending shares of both The Boeing Co. (NYSE: BA) and Airbus NV down by around 4%. The more striking part of Anderson’s comment was that a 10 year-old 777-200ER could be purchased for $10 million, compared with a new 777-200ER carrying a list price of $277.3 million and a likely purchase price of about $194 million, assuming a 30% discount.

At the time, an 8-year old 777-200ER was listed for sale at an asking price of $68 million. In 2007 that plane’s list price was a tidy $200 million.

Delta’s Anderson said recently that his company had been offered used 777’s for a mere $10 million, and that the offer was made by Boeing itself. According to a report at Bloomberg News, Anderson included the following statements in a voicemail sent to Delta employees last week:

We got that value from Boeing executives who had offered us those airplanes at that price. … We were pleased that Boeing offered Delta used 777s for $10 million.

Boeing CEO Dennis Muilenburg had no comment on Anderson’s recent statements, but did say in October that $10 million for a used 777-200ER “is the wrong order of magnitude.”

Industry news site Leeham News reported last week that “Richard Anderson is right.” The company’s survey of actual market values for a 10-year old 777-200ER are, in fact, around $10 million, not $68 million or the $56 million that is cited as the professional appraisal price.

Leeham summarizes the 777 resale and lease values this way:

  • Used 777-200ERs can’t be “given away,” reducing values to scrap regardless of book values carried by owners or appraisers.
  • Rolls-Royce-powered -200ERs, caught up in RR maintenance programs, make traditional engine valuations irrelevant.
  • A sudden glut of late-model 777-300ERs upend these values.
  • Ten year old -300ER lease renewal rates demanded by airlines drop to $325,000 in negotiations.

Worse news for Boeing is that “used 777-300ERs are in little demand.” What that means is that demand for new versions of the plane is likely to be slight, and Boeing may have more trouble keeping production up as it transitions from current model 777s to the new 777X models due to begin production in 2018. The impact on Boeing’s revenues and profits could be significant if that happens.

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