Jefferies counts 64 Boeing 757s among the parked fleet Nigel Howarth/AWST
Jefferies counts 64 Boeing 757s among the parked fleet, including these with Delta livery parked in Marana, Arizona, in 2016.

Analysts Say It Is Down To The Bones In The Aerospace Boneyards

Airliner retirements were reduced greatly in 2018; new analyst reports suggest the upsides/downsides from fewer aircraft parked in desert holding stations.

Printed headline: No Parking Zone

 

Retirements of large commercial aircraft slowed dramatically in 2018, leaving fewer units parked in desert holding stations and triggering both positive side effects and issues of concern, financial analysts observe in recent reports.

On the plus side, manufacturers who have emphasized aftermarket work in their business portfolios continue to enjoy an updraft, the analysts note. On the other hand, with airlines retaining aircraft longer than before, the potential for new-order deferrals could rise this year.

A Feb. 3 report from Morgan Stanley analysts says the percentage of the active fleet of Airbus, Boeing, Bombardier, Embraer and other OEMs’ airliners that were retired in 2018 dropped to around 1.75%, compared with almost 2.5% in 2017. The retirement rate had been above 2% since 2008, peaking at nearly 3.5% in 2013.

In a Feb. 22 report, Jefferies analysts point to just 505 retirements last year. Vertical Research Partners (VRP), in a Feb. 26 paper, calls it “an unusually low level of old aircraft retirements” for one year.

At the end of January 2019, there were 1,186 parked aircraft, about 5.5% of the total fleet, according to Jefferies. “This is down from 6.7% a year ago, and well below the average for the parked stock for the past 20 years,” they said.

While 1,186 may sound like a lot of unused aircraft, that number is deceiving for a few reasons. For one, 16% of the parked fleet is lessor-owned, up from 9% a decade ago, according to Jefferies.

Another important factor is that “the majority of the parked fleet is unlikely to be brought back into service,” they suggest. The parked fleet is 69% narrowbody and 31% widebody. This accounts for 5% and 8% of the active fleet for narrowbody and widebody aircraft, Jefferies says. 

“One of the reasons for minimal availability of narrowbody aircraft may be timing on the [ramp-up] of the [Boeing] 737 MAX and [Airbus] A320neo, as airlines may extend leases for a short while as their aircraft are delivered,” Jefferies explains.

Of the parked fleet, Jefferies counts 250 Boeing 737 classics, 158 McDonnell Douglas MD-80s, 64 Boeing 757s and 66 Airbus A340s. Only 501 aircraft from the parked fleet are in-production models, including 166 widebodies. What is more, Jefferies counted 67 Boeing 777s.

As to why airlines are keeping more of their older airliners, results of a UBS survey issued Jan. 30 said it was due to above-average commercial air passenger traffic growth, which is not expected to drop off significantly.

“Retirement planning is generally unchanged,” UBS notes, citing survey results in which 59% of airline executives asked said they did not plan to accelerate retirement of older aircraft over the next 6-12 months, about the same percentage of respondents in a survey last August. “While oil prices modestly climbed through the first nine months of 2018, strong traffic helped keep planes in the fleet, and the year-end fall in oil prices is also likely contributing to the lack of change,” UBS  points out.

Jefferies analysts say retirements will average 2.3% over the next five years.

However, one knock-on effect worth watching this year is a potential change in airline thinking about the deferral of deliveries. According to the UBS survey, 51% of respondents are looking to defer deliveries of ordered aircraft, up from 34% in the August survey.

While manufacturers certainly would prefer not to see an unusual degree of deferrals arise, they may be satiated by better aftermarket sales that stem from supporting all the older aircraft still flying. The projected aerospace OEM and defense aftermarket growth is 4-6%, according to VRP.

“Age continues to rise for narrowbody, widebody and regional jets, while for turboprops it is declining,” says Stuart Hatcher, chief operating officer at independent aviation advisor IBA. “Demand for parts to maintain this aging fleet will grow, particularly engines which remain in very high demand. Operators will find more cost-effective solutions to maintain their fleets and refrain from taking on the operational risk and higher ownership costs of new technology.”

Others concur: “We do expect retirements to increase, but as long as fuel remains low, and traffic holds up, we believe the use of mature assets will hold up, which is a positive for aftermarket growth,” Canaccord Genuity analysts said Jan. 1. 

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