Allegiant takes a $43.2 million write-down on the value of its Boeing 757-200 aircraft fleet, likely to be replaced sooner

Allegiant Travel Company (Allegiant Air) (Las Vegas) reported that it is taking a $43.2 million write-down on the value of its Boeing 757-200 aircraft fleet. The write down on the balance sheet came after a review of the value of the six Boeing 757-200s. For now, the company will continue to operate the type, mainly to Hawaii, in the near term. However the type is not expected to be operated through the full life of each aircraft. Allegiant is now likely to find a replacement aircraft (Airbus A321?) for the 757s earlier than what was previously planned. The charge will occur in the fourth quarter of 2014.

The company issued this statement:

“This non-cash impairment charge resulted from a recent review of the value of the Company’s Boeing 757 assets,” stated Maurice J. Gallagher Jr., Chairman and CEO of Allegiant Travel Company. “We evaluate factors such as our ability or intent to operate fleet types through their estimated useful lives, potential changes to fleet residual values based on changes in market conditions for used aircraft, spare engines and parts and potential changes to our scheduled revenue network based on competition trends and operational performance. Based on our review the Company concluded that the estimated future cash flows for its six 757-200 series aircraft, spare engine and parts pool did not support the net book values on our balance sheet. This decision reflects the Company’s view that our 757 fleet will be held for a period less than their current expected useful lives, which is currently seven years or through 2021. In addition, residual values for 757 aircraft will be reduced from $6 million to $3 million based what we believe is a permanent decline in the used 757 market. The Company will continue to operate 757 aircraft on longer-haul routes, including Hawaii, in the near term.”

With this write down, the Company expects fourth quarter CASM ex fuel to increase between 40 and 41 percent versus last year. Prior to the charge, the fourth quarter was trending towards the lower end of the range provided on October 22, 2014.

Copyright Photo: Bruce Drum/ Formerly operated by Britannia Airways/Thomsonfly/Thomson Airways, Boeing 757-204 N903NV (msn 26966, ex G-BYAH) arrives from Hawaii in Las Vegas. The jetliner was originally delivered on February 5, 1993.

Allegiant aircraft slide show: