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Another Bubble Pops: Used Boeing 777 Sells For 97% Off List Price
While the US economy may have unofficially entered an industrial recession in recent months with the dip in the manufacturing ISM below the critical 50 level, one sector has continued to do surprisingly well: automotive manufacturing, as a result of vibrant car sales. The reason for this, as we have repeatedly demonstrated, has been the record surge in auto loans, which have long surpassed both total credit card debt (and the $1 trillion mark), and continue to fund an unprecedented auto buying spree as they rush to catch up to the $1.2 trillion in total student loans.
Furthermore, recent Experian data confirms what most have known: the only reason auto sales are as strong as they are is because for the second time in under a decade, there is a substantial car loan bubble. As noted pbefore, here are some of its key characteristics:
- Average loan term for new cars is now 67 months — a record.
- Average loan term for used cars is now 62 months — a record.
- Loans with terms from 74 to 84 months made up 30% of all new vehicle financing — a record.
- Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
- The average amount financed for a new vehicle was $28,711 — a record.
- The average payment for new vehicles was $488 — a record.
- The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.
Still, despite persistently record easy credit terms, the final days of the car loan bubble appear to be at hand: with US auto inventories already at their highest levels relative to sales since 2009 - suggesting US consumers can hardly absorb any incremental auto production - all it would take to pop the bubble, is a small exogenous event: like a rate hike by the Fed.
But while the car loan bubble has been extensively documented there is another mode of transportation where the bubble in prices may have easily eclipsed anything seen in the auto space, and which, pardon the pun, has flown right below the radar.
Airplanes.
According to Air Transport World, Delta recently signed a letter of intent to buy a used Boeing 777 for $7.7 million, according to CEO Richard Anderson.
The Delta CEO raised some eyebrows in October when he said there was a “huge bubble” in used widebody aircraft, pricing a 10-year-old 777-200 at $10 million. Anderson said that the market would be “ripe” for Delta to buy used 777s.
To be sure, Boeing president and CEO Dennis Muilenburg was among those who pushed back against Anderson, saying the Delta CEO was valuing used 777’s much too low.
It wasn't. Although, as it turns out, Anderson was indeed wrong when he said used 777s were on the market for $10 million. "It was actually $7.7 million. We just signed a letter of intent to buy one.”
Anderson’s comments came during Delta’s investor day and, for added emphasis, were posted on Twitter by Delta. Just as happened when Anderson made the original remark about used 777 values, Boeing’s stock price immediately dropped.
CEO: I was wrong when I said used 777s were on market for $10M. It was actually $7.7M. We just signed a letter of intent to buy one.
— Delta News Hub (@DeltaNewsHub) December 17, 2015
Here is the punchline: Boeing’s list price for a new 777-200ER is $277.3 million, meaning Delta is buying a used 777 at a price 97.2% lower than the value of a new 777.
Delta did not give details on the 777 for which it signed the LOI, such as who the seller is and which airline previously operated the aircraft.
This stunning "price discovery" leaves a few key questions wide open:
- Was this just a one off transaction in which Delta found a very "motivated" seller and took advantage of what was beyond a firesale price? If so, who was the seller and why liquidate in such a hurry?
- Alternatively, if this deal is indicative of prevailing "used plane" market prices, and judging by Anderson's comment one can find more 777-200ERs for the low price of $10 million, this means that either the market for new plane widebody airplanes is indeed an unprecedented bubble funded by such government vehicles as the Ex-Im bank, or the used plane market is a ticking time bomb for all those billions in EETFs and various aircraft-backed pass through securities which are collateralized by planes such as the the Boeing 777. It explains the stink Boeing made when Ex-Im bank's charter was temporarily revoked by Congress.
- At the micro level, if new plane prices are just a "huge bubble" as the Delta CEO alleges, that means that the valuation of Boeing is about as "credible" and sustainable as that of New Century just a few days before the subprime bubble burst.
- Finally, if there is such a dramatic cliff between new and used airplanes, what does that mean for bank amortization assumptions on billions in airplane inventory which is still carried by banks on their books, and just how massive would be the valuation deficit once loans collateralized by airplane "assets" are marked to market.
Granted, while it is becoming increasingly difficult to track all of the bubbles and capital misallocations that have resulted from 7 years of ZIRP, NIRP and QE, we hope to present readers with some answers to these questions ideally before the serial, or parallel, and long overdue bursting of said bubbles takes place.
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Now it makes sense about these three 747s at Kuala Lumpur.
Shit I get me one of those.
You might see the same pricing dynamics when the Air Farce tries to offload some air inferiority F-22’s, maybe to Admiral General Aladeen in the Republic of Wadiya.
As opposed to the F-35's which are totally unsaleable?
Not totally. Should get a few thousand Dollars in terms of their scrap value.
Seats Can be used ina church. The entertainment system will came in handy during Sunday mass
Seats Can be used ina church. The entertainment system will came in handy during Sunday mass
Condition is everything. That $7 million plane may need a pair of $25 million (each) engines...
As well as an expensive "D" maintenance check that can run into several million more. Add a new interior with in-seat entertainment, upgraded avionics and equipment and suddenly this 'cheap' aircraft is cheap for a reason.
I can show you a five year old Camry that goes for less than $3,000....which is $18,000 off the list price of a new one. It only has 250,000 miles on the odometer and has been in two accidents. Instead of a little old lady as the owner it is a traveling salesman.
Yea, but the real question is...
Is it old enough to be free of Zakhiem's RC?
May be a method to the "used" madness, eh?
Even if it needs 2 new engines and another $10 million in repairs, that is still only $67 million vs $277 million for a new plane. That's a 76% discount.
The age in years of a plane is much less important than the number of cycles, meaning pressurization cycles, it has experienced. A plane that does two short hops a day rather than one long haul is gonna wear out quicker. There are some components of an airplane, including its basic air-frame, that have a 'do-not-exceed' cycle lifetime that when reached effectively ends its useful life...at least as a commercial transport.
I do not doubt there is a glut in new and used planes. Boeing and Airbus have been pumping out new planes at a mad pace and recently Airbus has said it will increase production of its A320 series to 60 per MONTH. This must be driving down the cost of used aircraft, particularly those nearing their useful life.
Just trying to clear up some misconceptions about how to value used commercial aircraft. We will know the new auto business is rolling over when used car prices crater. It appears to be happening in the commercial aircraft market.
The plane is probably at max cycles, will be barely restored and then used for passengers reclaiming flyer miles.
The planes also have limited cycle-life. If an airframe has been through 40,000 take-offs and 40,000 landings, and is only useful through 60,000, it is clearly not worth much.
If it starts there are a lot of 3rd world airlines that will take it.
South America, Africa, Indonesia, The former CIS....
If you really don't care much, a $10 Million near junker would probably make money
in kazakhistan or ethiopia.
If you Get it for 7 and spend 3 million doing minimum repairs, seat 250 at $100/head do two hops
a day, earn $150K per week or $7 million a year....Have a big sign that says "All Flights at passengers risk"...
Have pilots used to Soviet operations, as long as it can hold together a year and a half it can be profitable
The real money is in air cargo. Fuck all the expensive maintenance and regulations related to passenger traffic. Move lettuce and tomatoes from mexico, and don't forget to include the cocaine, heroin and cash on the return flight.
Yes yes yes, at this point however we know nothing about what maintenance was foregone or what other conditions are that might warrant additional money to make improvements.
What we do know is the price of a new one and the price of this used one Delta purchased. And I would find it hard to believe that Delta would purchase a plane needing the D maintenance service or anything significant for that matter. I think they could just walk away if it wasn't what they wanted.
Although I would like some more color on the plane they purchased and who sold it I think we can safely say that 1) Delta didn't 'need' to purchase this plane in a hurry and 2) that Delta checked it over to make sure that they knew what they were getting and it was what they wanted.
It's not as though Delta bought it on Ebay....come on people.
Even if a lot of work is needed to make that plane ready, you still end up getting it for less than a quarter of his price. That's very un-bullish for certain stocks (starting with A and B)...
Engines rarely need to be fully replaced (although an overhaul with clearances restored and LLPs replaced is likely). Documentation might be an issue (bad documents = the parts can't be reused as nobody has a full history on them). Agree that it probably isn't being bought to ever fly again, but rather, for parts.
Cost of an engine for a 200ER
http://www.deagel.com/Turbofan-Engines/GE90-94B_a001376001.aspx
You don't "buy" the engines. You "lease" the engines. Not for sure on this deal, but, often with this type of a/c the engines are "leased" you pay a flat hourly rate and give them back to Pegasus, or Trent, or GE or Pratt (& his old buddy Whitney), etc.
Does it come with wings?
With oil prices at such lows, one would expect more air travel and higher plane prices. How can planes be getting so cheap?
i used to be a regular airline customer. Since the 'war on terror' and all the airport bullshit to remind me i am jusg a tax chattel /surf i avoid it at all costs. often manage to go years at a time without commercial air travel. i only nedd it if travelling outside europe / scandinavia. We are on the downwave from peak airlines! its a business with no pricing power on many routes.
My daughter is a flight attendant so I can fly standby for free. In eight years I have only done it a couple of times for the same reasons.
I'd rather drive anyplace in the continental USA than take a plane. When they take down the body scanners and the TSA goes away, then I consider flying again. Pretty soon they will be doing the same thing to the trains with sniffer dogs every where. Reminds me a little of all the WWII movies about the 3rd Reich.
Indeed. The TSA won't go away, it will get bigger so people can't avoid it.There will also be a law prohibiting the reporting of a TSA checkpoint induced traffic jam.
Not so sure....I fly cross country quite a bit, flights are usually packed. (of course, I avoid the premium airlines and go for no-nonsense....southwest all the time.)
You fly ShitWorst Airlines?? My condolences to you.
I would not fly those assholes unless I was absolutely desperate.
True. Further, oil at $150/barrel, which seemed plausible just a few years ago, would end universally affordable commercial air travel in its current form, as would any significant restriction on consumer revolving credit.
People need disposable income in order to take vacations. Wages are stagnant while expenses keep marching north. Any "savings" I had from lower gas prices is eaten up by insurance, ZeroCare, taxes etc.
Just returned to Costa Rica today, plane was Full, San Jose airport was crazy full of tourist. No one in the citizen line.
It's a measure of the true recovery... /s
slackening passenger demand.
even if gas is free if 30% of the passengers are sick of the TSA, and driving or taking the train.
Hey in DC, as sucky as the bus is it's cheap to get around the east coast on Mega-Bus,
and get an Uber around a lot of cities.
The global economy is slowing and unemployment is rising In those corcumstances it does not matter how cheap if people have reducing disposable income. Paradox of a contracting economy - deflation and cheaper products and services but also flatlining and declining incomes.
Flights are crowded because of fewer flights, therefore fewer planes needed, therefore prices of used planes goes down.
You get any kind or warranty or "road" side assistance with that?
Well they all come with transponders, which interestingly, can be disabled by someone who knows how to while in flight, but yet, if I try to remove the OnStar unit from my Chevy, the car won't start. (I tried).
It's called pulling two ATC circuit breakers.
Yeah, when GM integrated onstar the disabling method also changed. Just unplug the antenna and that will leave it unable to communicate and thus unable to tattle on you or take commands.
2016 is going to be the year of panic & fear, if nothing else.
I wouldn't mind a new-ish 1 ton diesel long bed truck for 97% off new price. It's always the rich guys that get the deals.
I checked eBay, no such deals ahappening. /s
check tampa bay; you can buy a football team
I had the same thought. But if the price is being sustained by an auto-loan bubble, new and used, when that bubble pops cash will be king, and you and me are going to be riding in style.
Try this.
www.govplanet.com
Anybody have an aprox scrap value??
MAX KEISER IS A TERRORIST THAT HAD SEX WITH BARACK OBAMA............YOUTUBE MAX KEISER LE FRIC AND YOU CAN SEE THE TRAILER THEY SHOWED ME THE WHOLE PORN WHEN I WAS A TEENAGER AND THEN MAX HIRED JEFF DENTIN TO MURDER ME WITH DIRECTED ENERGY WEAPONS BECAUSE I AM AGAINST THE BANKS...............MAX IS ONE SICK FAGGOT
Never smoke crack, kids.
I thought Lawrence Taylor stopped posting on ZH a while ago...
Well, that's another reason not to fly Delta. That thing is probably being "recertified" in Malaysia, by some guy making making 2 bucks a day. Do you feel lucky?
All of the airlines have outsourced their R&M to third world countries.
10 years old. remind me not to fly delta.
Do you realize almost all of the planes in the sky are 20-30 years old?
"Do you realize almost all of the planes in the sky are 20-30 years old?"
<font.sarc/on> certainly NOT those wonderful MD-80's I have had the pleasure of flying on when using American or Delta!<font/off>
THEY JUST NEED TO GO GET THE BOEING 777 IN MALASIA!
http://www.redstate.com/uploads/2014/07/mh17-wreckage-2.png
NEAR MINT CONDITION!
Would've been great to see some auto price inflation charts as an auto listing new for $40K 10 years ago is now $60K+ in many cases. The average consumer is a monthly payment buyer or lessor and has little (as in none) clue about residual values or depreciation. Buying an $80K Escalade and financing for 72 months is a poor consumer decision and a socially pressured one. The economy is getting better, everything is great, right??? Psyops for autos. These are truly amazing times we live in.
yep. I saved about $34k buying a 10 year old, top of the line Jeep with all the bells and whistles. By the time I feel like getting something else I'll probably put 100k miles on it with 15k put on it already after playing the chase-a-job game in a couple of states in our 'robust' economy.
Yes, yes, we know from ZH how fucked up is the US economy, but what of Russia. All we have been told is how superior their weapons are. Are they the dominant economy? Will they rule the world
no, russia will not rule the world but dumbasses like you will pollute the earth for as long as man is around.
You are not permitted to question the validity of any Russian propaganda posted here at Zhukov Hedge.
It is all true and you are in serious need of intellectual adjustment.
"Will they rule the world" ... no, they just want to avoid WWIII for some reason
No Russia will not rule the world. They have lots of their own problems.
Russia has a serious disadvantage. They cannot print magic paper or its digital representation, for which the entitre planet send them real goods and services.
FLY Leasing Acquires New Boeing 777-200LRF
FLY Leasing Limited October 26, 2015 7:00 AM
DUBLIN, Oct. 26, 2015 /PRNewswire/ -- FLY Leasing Limited (FLY) ("FLY"), a global leader in aircraft leasing, today announced that it has acquired a new Boeing 777-200LRF aircraft in a sale and 12-year leaseback transaction with a leading flag carrier.
View photo
.
"This is our second B777-200LRF acquisition in the past month as we continue to grow our portfolio with the most in-demand commercial aircraft," said Colm Barrington, CEO of FLY. "With a strong cash reserve, FLY is in an excellent position to take advantage of attractive growth opportunities. We continue to focus on deploying capital prudently, adding attractively-priced aircraft to improve our fleet metrics and increase FLY's earnings and ROE. In 2015, FLY has already invested $594 million in nine aircraft with an average age of approximately one year."
maybe they were just desperate to get a couple flying around so the mechanics and the baggage people know what they look like.
it makes sense for poor prople to invest in a nice big van or suv. you can't drive a house but you can always live in your car.
people are living in planes these days:
http://inhabitat.com/photo-update-completed-747-house-made-of-an-old-pla...
I just love the wings as the roof. The right wind from the right direction and...LIFTOFF.
Deflation you can believe in.
And ride in!
Jeesh, a Boeing 7 something-200. For a short instant, I thought Air Force I had been auctioned by a repo man.
Arent there 747s just lying around unused? I recall a very recent story saying an airport in Malaysia was trying to kick three of them off of parking spaces.
http://edition.cnn.com/2015/12/08/aviation/malaysia-aviation-airport-aba...
Pretty sure the owners will sell them cheap.
I guess it doesn't work according to 'the plan' when you pay people 10 cents an hour raising them up into the 'middle class™'
fl-center See other items Item Information Item condition: New Time left: Time left: 26d 05h 1/22, 10:30PM Was: US $39.95 You save: $4.00 (10% off) Price: US $35.95 Buy It Now
Add to cart Add to watch list Add to collection Located in United States New condition
And of course this dumbass thinks he's gona continue to be able to charge the same amount of money to fly on his bargain jet and keep the same amount of customers once this economy starts to really shit all over itself.
During deep recessions reletively new narrow-body and wide-body passenger jet and large cargo jet pricing typically becomes greatly depressed because of a supply glut and lack of demand. This bargain basement priced 777 could be a leading indicator that we are entering a deep recession.
Specialist aircraft trade publications indicate that the cost of the 777er would be around 115 million in the year 2000. Apparently airlines like Emirates, Singapore and China Southern are getting rid of older aircraft and upgrading to new models. Seems cost of reconfiguration would run between 10-15 million per plane.
So this is another indication of the rise of Asia and the decline of the US, when US carriers buy second hand from Asian carriers. Any ZH reader who has traveled internationally in recent years will note the very poor condition of US aircraft versus those of the Middle East and Asia.
never mind the missing fasteners inside the wing section in an aircraft (just the area joining the wing to the fuselage) from asia a field service guy told me about earlier this year ... hey but it looks great.
Used slightly banged up 777 for sale cheap. may need a new flaperon and some electrical work.
Snakes selling planes.
You know of one? Feel free to tell us all about your experience and how you know so much about it.
Keep making MOAR airplanes you hungry ghosts who walk the earth devouring every mineral and element you can shove in your mouths/spreadsheets!
http://youtu.be/vb4SMpQ-Oj0
The demonic new agers are wrong.
The buddhists and others who talk of the afterlife are correct!
Most humans walking the earth are from the lower astral realms.
You see, if devils werent inhabiting the earth, things would be getting better!
They are not! Things get worse every day!
airplanes are like inkjet printers. it's not the CAPEX that kills you, it's the OPEX
Straight up trade with my 172,
but
it's gotta land on a 3,000 ft. grass strip.
A 172 needs what...an annual and some oil added and spark plugs changed?
It doesn't have 1 million miles of wiring to go through, even the new Garmen is plug and play.
I remember when a cessna 172 cost cost 60k.
Now its 300k.
Talk about corruption.
I'll turn it into a diner.
http://dinerhunter.com/2012/04/08/the-airplane-diner-penndel-pa/
I sold good condition C-172s for $45k and C-210s for 100. I screwed up and passed a deal on a super-low time Piper Turbo Dakota for $40k and am still kicking myself for not grabbing it.
The best Smithsonian session I did was a visit to the air and space museum. The volunteer guide was an ex Vietnam fighter pilot and then commercial pilot. I got more of an education in that two hour session than a whole semester at college.
Comes own to 10 grand i'm gonna get one and live in it. Fuck yeah!
We saw this in the mining equipment auction in Australia a week or so ago on ZH. Good-to-go cap equipment selling for 97% off new list price. Prices are going to get ugly for long-lived cap equipment.
Bulldozers need longer runways.
And dozing Bulls
Back in the early '90's I brokered aircraft including jets. There are lots of things that can dramatically affect the value of a used airplane. Accident history, corrosion, total time on the engines or airframe (very expensive maintenance programs) and maintenance history. Some units may have title problems as well. So yes, it is a market driven pricing system, but the particular aircraft may have a lot of deferred maintenance needs, and the price needs to reflect that.
It would be helpful if they identified the 777 by tail number or registration number (assuming the numbers can't be changed). I'd stay away from it. Fortunately, I stopped flying Delta some ten years ago.
It would be interesting to track the previous owners and whether Delta really puts this jet into service, and where, after acquisition.
I also have to wonder -- what was this jet exposed to? Ebola, nuclear radiation, something equally as attractive? Perhaps Delta will hire Christine Todd Whitman to give the jet a clean bill of health, as she did for the air around lower Manhattan immediately after 911.
"Does it come with wings?"
Yes sir it has wings. The engines are missing, its out of inspection and the Malaysian paint will need to go.
Life Imitates Aerobiz Super NES
Amazing the amount of critical info that the author of this article left out. Oh, right, can't let facts get in the way of the narrative. And ZH talks aboout how faux news, cnn and the rest of the msm tell lies and hide the truth. and then publishes this piece of crap story.
Delta adds another junker, to their aging fleet. Not much a news story, really.
7.7 mil for a triple 7.....yeah, there are a few major issues.
Delta's fleet is pretty new. 120 737-900s (about 40 delivered, 80 on order) Jets so new that the wheel wells are clean, 80 73-700's & 800s, tons of Scarebus stuff. Including the new 350.
The MadDogs are seriously dated and of course the 75 76's are getting long of tooth. On the other hand, the 75 is still one of the most stunning jets in the world and had it not been for SouthWest's love of the 73, the 75 would still be in production.
The 76 is a truly amazing machine. At 375,000lbs on one engine, it can climb faster then a copilot can think.
So your statment that Delta's fleet is aging is not really accurate. And the 777 is one of the most capable planes ever built.
Still, this price is stunning and the article is right, a lot of people are banking on planes being worth a lot more then they are actually selling for.
Its Malaysia flight 370 barn find.
Still a better resale value then a 10 year old Tesla
First Boeing then Tesla?