Understanding the Factors Driving Engine Valuation

Discover factors that can make or break aircraft engine value, aircraft’s most capital-intensive asset

Engines, often the most valuable part of an aircraft, held a market value of US$80.09 billion in 2022 and are projected to reach US$123.88 billion by 20281. Given this, understanding the factors that affect engine valuation is crucial for aviation stakeholders like lessors and operators.

Age

Like cars, aircraft depreciate with age, increasing maintenance costs from wear over flight hours and cycles. However, engines typically retain value due to restorable Life Limit Parts (LLPs)2. LLPs are components restricted to a certain number of flight cycles and would need replacing after reaching their OEM-prescribed limits. Owing to differences in technology present in the aircraft, newer models also typically sell higher than older models.

Maintenance Status

Engine valuation is often described by whether it's in full-life or half-life condition, indicating their maintenance status, namely their position in the mean time between overhauls (MTBO) and LLP life. Market value tends to be higher for full-life engines, accounting for maintenance and LLP replacement costs. While proper maintenance can restore an engine to near-new value and condition (Memon, 2023), the key consideration is the economic viability of restoration versus parting out the engine.

Technical Records

Aircraft records are vital for demonstrating compliance with maintenance and operational standards. These records reflect maintenance status and confirm adherence to regulations, such as airworthiness directives (ADs). Non-compliance can lead to an aircraft being not airworthy, reducing its value as the cost to restore airworthy conditions is considered (Latitude 33 Aviation, 2022). 

For lessors, inadequate record-keeping can decrease the value of an aircraft or engine during resale or lease renewal, as potential buyers or operators require comprehensive information to assess the asset’s maintenance history and condition. For operators or lessees, maintaining complete technical records is often a leasing agreement requirement, necessary to avoid disputes and potential penalties (TGIS Aviation, 2023).

Market Demands

Engine valuation is also influenced by market demand and macroeconomic factors. The value of specific engine types is heavily influenced by their demand and the operational status of the aircraft they power. For example, the CFM56-5B4/3 engine, fitted to the A320ceo, experienced a decline in value as more airlines phased out their older A320ceo fleets (IBA, 2018). Overall market condition also plays a role. In strong demand periods, engines above half-life status attract a higher premium; in weaker markets, this additional value decreases. Conversely, engines below half-life status see greater discounts in weak markets and smaller ones when demand is strong (Ackert, 2011).

Need Expert Support?

If you're looking to take the next step in protecting your asset value, our team is ready to help. We work with owners, operators, and lessors to provide tailored technical solutions based on your operational goals and budget.

Contact us at info@tbmaviation.com to start the conversation.

References

Ackert, S. (2011). The Relationship between an Aircraft's Value and its Maintenance Status. Acesso em, 20.

Ackert, S. (2018). Aircraft Maintenance Handbook for Financiers. Aircraft Monitor.

IBA (2018). What to Look for When Valuing an Engine, March 2018. [online] IBA. Available at: https://www.iba.aero/insight/what-to-look-for-when-valuing-an-engine-march-2018/ [Accessed 19 Jan. 2024].

Latitude 33 Aviation (2022). What’s Involved in an Aircraft Appraisal? | L33. [online] Latitude 33 Aviation. Available at: https://l33jets.com/resources/blog/whats-involved-in-an-aircraft-appraisal/ [Accessed 19 Jan. 2024].

Memon, D.O. (2023). Examined: The Extent To Which Aircraft Values & Engine Values Are Intertwined. [online] Simple Flying. Available at: https://simpleflying.com/aircraft-engine-values-relationship-analysis/ [Accessed 19 Jan. 2024].

Research and Markets (2023). Global Aircraft Engine Market: Analysis By Technology, By Platform, By Engine Type, By Component, By End User, By Region Size and Trends with Impact of COVID-19 and Forecast up to 2028. [online] Available at: https://www.researchandmarkets.com/report/aircraft-engine?utm_source=BW&utm_medium=PressRelease&utm_code=stwfql&utm_campaign=1869948+-+Global+Aircraft+Engine+Market+Report+2023-2028%3a+Digitalization%2c+IoT+Integration%2c+and+Advanced+Materials+Transforming+the+Aircraft+Engine+Market+in+the+Era+of+Smart+and+Sustainable+Aviation&utm_exec=chdo54prd [Accessed 19 Jan. 2024].

TGIS Aviation (2023). The Critical Importance of Technical Record Keeping for Aircraft and Engine Lessors. [online] TGIS Aviation. Available at: https://www.tgis.aero/2023/06/23/the-critical-importance-of-technical-record-keeping-for-aircraft-and-engine-lessors/ [Accessed 19 Jan. 2024].