Valuing an Aircraft with a Lease Attached: An Appraiser’s Perspective

Operating leases of commercial aircraft make up approximately 40% of the world’s fleet.

The need for Lease-Encumbered Valuations is increasing as more and more aircraft are sold or financed with leases attached.

Because a Lease-Encumbered Value (“LEV”) opinion requires access to lease contract details, providing this type of value opinion will only be possible with the cooperation from the client and lessor or lessee.

The level of cooperation will vary, therefore, the approach to determining a Lease-Encumbered Value may range from a simple analysis of calculating the present value of the rents and residual to the more complex modeling of cash flows which involve forecasting maintenance events, reserve balances, return compensation, and interpreting lease language.  Either approach is acceptable if the assumptions and methodology are clearly explained in the valuation report and the appraiser has the required skills to complete the analysis.

The purpose of this paper is to examine the methodology of valuing aircraft with a lease attached from the perspective of an aircraft appraiser using a real-world example.

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Also, check out the Special Edition BlueBook of Jet Aircraft Values 2020 and Special Edition Scenario Analysis & Value Index (SAVI) publications that cover the aircraft market changes since the COVID-19 pandemic.