Flight International 09Mar2020

NEWS FOCUS

18 | Flight International | 3-9 March 2020 flightglobal.com

ANALYSIS ROB MORRIS LONDON

A changing environment in retirement

Max grounding altered market in 2019 as airlines maintained capacity; narrowbody will exert similar influence this year

I

n the past decade 6,208 com-

mercial jet aircraft were perma-

nently retired from service and

either parted out or scrapped –

82% more than the 3,418 retired

in the previous 10-year period

between 2000 and 2009.

Perhaps this is not surprising,

as deliveries in the period 1980-

1989 were almost 40% higher

than in 1970-1979.

With finite economic lives,

retirement volumes should be di-

rectly proportionate to historical

delivery volumes. Yet we saw

80% more retirements on deliv-

eries that were only 40% higher.

The conclusion is that over the

past 10 years, average economic

life must have declined. Data

backs this up: the average age of

retirements in 2008 at 31.6 years

fell throughout the decade just

passed to 23.8 years in 2019.

The average age at economic

retirement – the retirement age

adjusted for the last in-service

date before the aircraft was

placed into storage before final

part-out – was 22.3 years.

In addition, the number of air-

craft retiring before their 15th an-

niversary has largely ticked up,

with some 400 sub 15-year-old

aircraft parted out in the past 10

years, including 55 in 2019.

The pattern in annual retire-

ments through the decade has in-

itially been of annual increases

reaching a peak at almost 800

aircraft in 2013, before a mix of

annual declines or increases,

with an overall downward trend.

From the 632 retirements in

2017, we saw 498 in 2018.

MITIGATING FACTORS

With traffic demand strong and

OEMs struggling to establish in-

creased production rates, it is

logical that annual retirements

declined in 2018.

In 2019, we were expecting

much of the same. And then of

course in March last year the Boe-

ing 737 Max was grounded and

deliveries temporarily ceased.

Through the early months of

the grounding, global traffic

growth slowed somewhat but

still remained in the 4-5% range,

as airlines sought to maintain ca-

pacity growth by retaining older

aircraft in service or wet-leasing

extra capacity. However, more re-

cently, demand has slowed to-

wards the 3-4% range while ca-

pacity growth has fallen to 2-3%,

as airlines have seen weakening

demand fundamentals and recog-

nised the logic in allowing capac-

ity growth to slow, even in the

absence of Max deliveries.

In light of this, it seems credible

that in 2019 we could have ex-

pected to see retirements tick up

again as they did in 2017. At pre-

sent, the figure for last year stands

at 546 retirements, although this

is  likely to rise slightly as more

data becomes available, probably

settling somewhere in the

600-650 region.

However, what actually was

retired in 2019? At the summary

level, there were 87 regional jets,

321 single-aisles and 138 twin-

aisles withdrawn from use.

Single-aisle retirements were

dominated by the Boeing MD-80/

MD-90, where American Airlines

removed the former from its fleet

completely and Delta Air Lines

made strides towards doing the

same for both types. However, it

is also notable that more than 120

Airbus A320-family aircraft were

retired; the relatively short period

between the average and effective

age of retirement indicates that

these aircraft moved rapidly to

part-out to feed continued de-

mand for spares.

COMPELLING ECONOMICS

Of course, 44 of these were the

less popular A318/A319 variants,

but we still saw 63 A320s and 14

A321s parted out last year.

Even more remarkable is that

there were 55 737NGs parted out,

including 18 737-800s. Given the

Max situation, it is surprising to

see even this level of 737-800 re-

tirement in 2019.

But bear in mind that all these

aircraft are pre-2001 vintage ex-

amples, which command lower

lease rates – around $165,000 per

month – compared with a part-

out value of $16.9 million.

For now, given the continued

absence of the Max in the market,

we are seeing still further

strengthening of 737-800 lease

rates, with pricing for A320ceos

similarly strong.

With this in mind, should we

expect fewer part-outs of 737NG-

and A320-family aircraft in 2020?

That really depends on when in

2020 the Max returns to service

and new aircraft deliveries resume.

However, the respective family

survivor curves at the end of 2019

indicate that if we were in a “nor-

mal” scenario today, we might

expect to see some 162 A320ceo-

and 90 737NG- family aircraft

retired in 2020.

The reality, though, is that the

volume of retirements this year

will be inextricably linked to the

Max return to service. Once that

is achieved, Boeing will immedi-

ately move to deliver as many of

the 400-plus Max jets already

built but not yet delivered as rap-

idly as airlines can accommodate

them. And following the tempo-

rary production pause, deliveries

from the line will also restart. As-

cend currently estimates 280-

Max deliveries in 2020.

Once the new normal is estab-

lished, we expect the single-aisle

market to begin to move to a sur-

plus (if demand remains weak, as

IATA predicts in 2020) and the

2,450 A320ceo/737NG aircraft

that are older than 15 years but

still in passenger airline service

today become exposed to earlier

retirement as airlines winnow

out less efficient models. ■

Rob Morris is head of

consultancy at Ascend

by Cirium

Reduced economic lifespan for commercial aircraft is driving scrappage rate as jets come out of service

Shutterstock