Younger jets retirement putting pressure on industry

Another aviation related post,
     The age of an aircraft isn't measured in years but hours of use or cycles, a cycle is basically 1 takeoff and landing.  That completes a cycle.  When an aircraft takes off, there is pressure exerted on the fuselage by the flexing of the metal or composites and the fasteners involved.  Metal or composites expands at different rates depending on the composition of the material and the weather.  An aircraft working the tropics will tend to age faster due to moisture which can present a corrosion factor.  Also many of the airplanes working the tropics also do a lot of island hopping, this adds cycles to the airframe.

June 22, 2012

The decline in the average and median age of commercial jets that are being retired is having an impact on aircraft valuations and financing, as well as spare parts suppliers, aviation industry observers and participants say.
“I would expect to see useful economic life and residual values reduced on certain aircraft types, primarily Boeing and Airbus narrowbodies,” says Owen Geach, commercial director for the International Bureau of Aviation, a global, U.K.-based aviation consultancy and aircraft appraisal company.
It probably will take another year, however, before the main appraisers have a more conclusive idea on where those values will end up, he adds.
That also affects who is willing to finance the acquisition of the younger used jets.
Export credit agencies have an incentive to help with financing if it helps sales of new aircraft made by a home country manufacturer, but no such motivation exists for used aircraft. Sellers of used aircraft may need to step up their efforts even more to find airlines that are cash-rich enough to buy them because fewer banks and leasing companies will be willing to finance or acquire them, Geach says.
Lessors also could be impacted. Geach says lease rates for Airbus A319s have fallen to less than $150,000 per month for some of the older aircraft, with pre-2005 aircraft under the most pricing pressure. Lease rates for A340-300s, he says, have dropped as low as $160,000 per month.
“The great evolution is getting the ownership of aging used jets to somebody else’s balance sheet,” says Fairfax, Va.-based Teal Group aviation analyst Richard Aboulafia, citing a conflict between “uninspiring” airline traffic numbers and high production rates for new aircraft by manufacturers such as Airbus and Boeing.
Conversely, Aboulafia notes, there is a school of thought that warns a reversal of the trend could cause problems for Airbus and Boeing.
“The real danger here is if you don’t accelerate retirements of what used to be called a middle-aged jet, you’re going to have a hard time justifying record-high production rates with the traffic numbers we’re seeing,” Aboulafia says
    

One of the chief espousers of this scenario is Adam Pilarski, senior VP for Avitas, a Chantilly, Va.-based aviation consulting company. At an International Society of Transport Aircraft Trading conference in March, he said it is possible that higher retirements and shorter economic life for aircraft are making enough room for new aircraft if oil prices remain high. But he believes oil prices are going to drop significantly.
For parts suppliers, the retirement of younger jets has “changed the face of the business completely,” says Boris Wolstenholme, CEO of U.K.-based A J Walter Aviation, a major, global spare parts supplier. Previously, parts suppliers paid a premium to get parts from an aircraft as young as the ones being retired now, he says. But now that more of those aircraft are being parted out, the prices have come down, leaving the companies that paid a premium in a difficult spot because most airlines today are ordering the parts only as needed, rather than to store for later use.
That development has not affected A J Walter, he says, because it already adjusted to airlines’ just-in-time delivery demands.
David Bridges, VP for sales and marketing at Boca Raton, Fla.-based global parts supplier VAS Aero Services, says the fast-changing market demands more attention and his company is now updating its forecast every quarter.
“I think the rules of the game have changed,” he says. Because of changes in the aircraft being parted out, “you’re not allowed to sit back and wait and see how things work out. You’re constantly managing the program.”