Listening to Cirium customer feedback, we have reviewed our valuation methodology. This resulted
in an enhancement that applies interpolation to our underlying values to spread out the age-related
depreciation from annual granularity to monthly granularity. This change in methodology has the
1. Aircraft are treated equally for age-related depreciation based on their age in months
regardless of when they are built during the year
2. Current and Future Values depreciate more smoothly by considering the month at the point
3. Improved estimates of the value of each aircraft in the market, that make sense in the
context of the exact age of the aircraft at the point of valuation
Our previous methodology provided only one underlying value for all aircraft
built in the same calendar year at the same year of valuation. This resulted in a very “chunky” value
depreciation that caused challenges for users conducting “Loan to Value” or other financial analysis.
For example, consider a new widebody aircraft financed on delivery with amortizing debt. The chart
below reflects our previous valuation methodology, the red line shows the aircraft value assuming it
is built in December and the amber line shows the aircraft value assuming the aircraft was built in
January. The horizontal axis reflects the age of each aircraft in months. As the monthly principal
payments are made on the debt, the loan balance (grey line) decreases smoothly, but due to our
previous methodology’s limitation to calendar year age buckets, the values for the aircraft exhibit a
shape like steps of a staircase.
The value retention of the December build (relative to its age in months) is noticeably poorer, resulting
in the LTV of the December build (red dotted line) spiking up higher than the LTV of the January build
(yellow dotted line). Therefore the previous valuation methodology could mislead finance participants
to think that the January build is a better investment than the December build, though the aircraft are
The new monthly interpolation methodology solves these issues by spreading age depreciation
smoothly through the year in monthly buckets. For the same new widebody aircraft finance example,
the future value profile (green line) is a smooth curve unaffected by the build month within the year,
and thus the LTV ratio (green dotted line) is also smoother and unbiased by build month.
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