“Delta is Correct, Used B777s are Worth $10M, Expect Major Delta Purchases”

During an earnings call back in October, Delta CEO Richard Anderson unsurprisingly revealed that Delta was once again interested in acquiring used aircraft. However, what did surprise everyone was the price that he quoted to purchase a 10 year-old 777-200ER – a relatively cheap $10M. The list price for a new 777-200ER is $277.3M, though after discounts and other considerations given to airlines, the price more likely falls to around $193-$196M. CNBC quoted one expert as saying that an 8 year old 777-200ER was listed for $68M at the time of Anderson’s comment, it was also listed for $200M in 2007.

Anderson’s comments drove Boeing (and Airbus) shares down more than 4 percent that day. Interestingly, it appears that Anderson isn’t backing down, in a report by Bloomberg he said the following in a voicemail to Delta employees last week:

“We got that value from Boeing executives who had offered us those airplanes at that price,” Anderson said on the recording. He went on to say, “We were pleased that Boeing offered Delta used 777s for $10 million.”

Boeing’s CEO didn’t respond to the the voicemail comments, but he did say back in October that Anderson’s pricing was completely out of the ballpark

“I’ll say just based on our understanding of the marketplace and what we understand from our customers, that number is the wrong order of magnitude, and, frankly, the value of the 777 is holding up very well in the marketplace. It is a unique airplane. In that 365-seat category, there is no competing aircraft out there. It’s a unique value proposition for our customers.”

Leeham News which covers Airbus and Boeing related news and who had previously reported that Delta’s numbers were off according to appraisal firms, is now saying that Anderson is actually correct.

Actual market values for 10-year old Boeing 777-200ERs are around $10m, not the $50m-ish suggested by Boeing and professional appraisal firms. This is the conclusion of our Market Intelligence of real-world demand for these airplanes, not some theoretical book appraisal. Furthermore, used 777-300ERs are in little demand. The costs involved in reconfiguration and maintenance, repair and overhaul (MRO) simply upend traditional expectations.

  • 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 77-300ERs upend these values.

Their conclusion, expect Delta to seriously look into used B777-200ERs and likely get them at a price much closer to the $10M that Anderson quoted.

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Comments

  1. Yes, you can get a used 772 for $10mm, But it will not fly again with out major overhaul.
    Likely the $10mm jet will be due for a D check.

  2. Any news on the cost estimate of 777-200LRs? Their range, and relative paucity, would seem to make them more valuable for airlines that want to fly extra long routes. IE: if AA wanted to open MIA-JNB, and with something larger than a 788.

  3. On my NRT-JFK flight the other day, the pursuer told me Delta is getting new 777s soon. Whether he meant “new” as is in new or preowned is beyond me.

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