How will these heavy-iron bizliners compare in the market...
In this month’s Aircraft Comparative Analysis, Mike Chase provides information on two popular bizliners for the purpose of valuing Boeing’s BBJ2.
How does the Boeing BBJ2 compare in the bizliner market today? Over the following paragraphs, we’ll consider productivity parameters (payload, range, speed and cabin size) and cover current market values. The field in this study includes the Airbus ACJ320.
The market for large executive cabin class aircraft (bizliners) began long ago in 1959 with the introduction of the Boeing 707. Indeed, aftermarket conversions of Boeing, McDonnell Douglas, Airbus and BAC airliners for corporate use have been occurring for decades.
Then in the late 1990s, Airbus and Boeing saw a market to build derivatives of their aircraft specifically for corporate or business use – thus, the BBJ (Boeing Business Jet) and ACJ (Airbus Corporate Jet) product lines were launched.
In 1998, Boeing delivered the first Boeing Business Jet - an ultra-long-range twin-turbofan jet using the fuselage of the 737-700 with the strengthened wings and landing gear of the larger 737-800. Airbus followed with the Airbus Corporate Jet (ACJ) a year later.
Today, there are three narrow-body Boeing Business Jet aircraft, the BBJ, BBJ2 and BBJ3. The BBJ2 is greater in length than the original BBJ, and its fuselage is from the 737-800 commercial airline model. The BBJ3 model meanwhile is even larger utilizing the fuselage of the 737-900. These spacious jets are commonly used by sports teams, governments and a variety of global corporations worldwide.
There are 22 wholly-owned BBJ2 business jets in operation worldwide. The percentage for sale is 13.6% (3 units) with all of those under an exclusive broker agreement. The average time on the market is 598 days. Two BBJ2s are leased, according to JETNET.
Asia and the Middle East account for the largest BBJ2 fleet percentage (68%, or 15 units), followed by Europe (18%, 4 units) and North America (9%, 2 units) accounting for a combined fleet total of 95%. As many as 32% of the BBJ2 business jets operating worldwide are under fleet ownership, the largest fleet being three BBJ2 aircraft owned by Dubai Air Wing (UAE).
Status of ADS-B Out Equipage
Of the 22 BBJ2 business jets based worldwide, 13 (59%) have ADS-B Out installed, leaving 41% of the fleet yet to comply. The FAA has mandated that all US-operated business jets must comply with this new requirement by January 1, 2020. ADS-B is also becoming mandatory in vast areas of the rest of the world.
Payload & Range
As we have mentioned in past articles, a potential operator should focus on payload capability as a key factor. Table A shows the BBJ2s ‘Available Payload with Maximum Fuel’ (939 lbs) is very significantly less than that offered by the ACJ320 (15,700 lbs).
Cabin Cross-Section Views
Chart A, meanwhile, offers a cabin cross-section comparison and shows the BBJ2 has less width (11.50ft. vs 12.08ft.) and height (7.00ft. vs 7.33ft.) than the ACJ320. However, not depicted is that the BBJ2 has greater cabin length (98.5ft. vs 91.0ft.) compared to the ACJ320. Overall, the BBJ2 cabin volume (6,525cu. ft.) is less than the ACJ320 (6,825cu. ft.).
BBJ2 cabin design by Edese Doret
As depicted by Chart B using Riyadh, Saudi Arabia as the origin point, the BBJ2 (5,622nm) shows greater range coverage than the ACJ320 (4,330nm). Each jet’s range covers all of Europe (including Russia), Africa and Asia (including China).
Note: For jets and turboprops, ‘four passengers with available fuel’ represents the maximum IFR range of the aircraft at Long-Range Cruise with four passenger seats occupied. NBAA IFR fuel reserve calculation for a 200nm alternate is assumed. The lines depicted do not include winds aloft or any other weather-related obstacles.
The BBJ2 is powered by two CFM International CFM56-7B turbofan engines each with 27,300 lbst. The ACJ320 is also powered by two CFM International CFM56-5B4 turbofan engines each of which offer slightly less thrust at 27,000 lbst.
Total Variable Cost
The ‘Total Variable Cost’, illustrated in Chart C and sourced from Conklin & de Decker, is defined as the Cost of Fuel Expense, Maintenance Labor Expense, Scheduled Parts Expense and Miscellaneous Trip Expense. The Total Variable Cost for the BBJ2 computes at $6,062 per hour, which is less by 3.9% than the ACJ320 at $6,307 per hour.
Aircraft Comparison Table
Table B contains the 2010 used prices from B&CA. Additionally, the ranges are from B&CA, while the average speeds are from Conklin & de Decker and the number of aircraft in-operation, percentage ‘For Sale’ and average sold are as reported by JETNET.
The BBJ2 fleet has three units (13.6% of the fleet) currently ‘For Sale’ and the ACJ320 has no used aircraft ‘For Sale’. Neither aircraft has transacted on the used market in the past 12 months.
Maximum Scheduled Maintenance Equity
Chart D, courtesy of Asset Insight, displays the BBJ2 and depicts the Maximum Maintenance Equity available based on an aircraft’s age.
The Maximum Maintenance Equity figure was achieved the day the aircraft came off the production line – since it had not accumulated any utilization toward any maintenance events.
Note: The percent of the Maximum Maintenance Equity that an average aircraft will have available based on its age, assumes 1) average annual utilization of 400 Flight Hours; and 2) all maintenance is completed when due.
Aircraft that are owned and operated by businesses are often depreciable for income tax purposes under the Modified Accelerated Cost Recovery System (MACRS). Under MACRS, taxpayers are allowed to accelerate the depreciation of assets by taking a greater percentage of the deductions during the first few years of the applicable recovery period (see Table C).
In certain cases, aircraft may not qualify under the MACRS system and must be depreciated under the less favorable Alternative Depreciation System (ADS) where depreciation is based on a straight-line method, meaning that equal deductions are taken during each year of the applicable recovery period. In most cases, recovery periods under ADS are longer than recovery periods available under MACRS.
There are a variety of factors that taxpayers must consider in determining if an aircraft may be depreciated, and if so, the correct depreciation method and recovery period that should be utilized. For example, aircraft used in charter service (i.e. Part 135) are normally depreciated under MACRS over a seven-year recovery period or under ADS using a twelve-year recovery period.
Aircraft used for qualified business purposes, such as Part 91 business use flights, are generally depreciated under MACRS over a period of five years or by using ADS with a six-year recovery period. There are certain uses of the aircraft, such as non-business flights, that may have an impact on the allowable depreciation deduction available in a given year.
Table D depicts an example of using the MACRS schedule for a 2010 BBJ2 business aircraft in private (Part 91) and charter (Part 135) operations over five- and seven-year periods, assuming a 2010 list price for a BBJ2 at $80.5m, per B&CA magazine.
The points in our productivity chart (below) are centered on the same aircraft. Pricing used in the vertical axis is as published in the B&CA. The productivity index requires further discussion in that the factors used can be somewhat arbitrary. Productivity can be defined (and it is here) as the multiple of three factors:
Others may choose different parameters, but serious business aircraft buyers are usually impressed with Price, Range, Speed and Cabin Size. After consideration of the Price, Range, Speed and Cabin Size, we can conclude that the BBJ2 displays a high level of productivity.
The BBJ2 has greater range and a lower variable cost but it is priced higher than the ACJ320. Also, it has significantly less ‘Available Payload with Maximum Fuel’ compared to the ACJ320 business jet. Operators should weigh up their mission requirements precisely when picking which option is the best for them.
Within the preceding paragraphs we have touched upon several of the attributes that business aircraft operators value. There are other qualities such as airport performance, terminal area performance, and time-to-climb that might factor in a buying decision.
Operators in the market should find the preceding comparison useful. Our expectations are that the BBJ2 will continue to be competitive in the market for the foreseeable future. Of course, if the BBJ2 is not outfitted with ADS-B Out it cannot be placed in-operation after December 31, 2019 as mandated by the FAA.