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Getting Ready For The Aircraft Decommissioning Decision

Smart retirement aircraft policy must take many factors into account.

In the last two years, only about 600 aircraft have been decommissioned annually, versus about 900 in 2012 and 2013. Boeing forecasts an average of about 930 retirements a year over the next 20 years. The industry has been in a decommissioning trough for a couple years, and troughs do not last forever.  

Total retirements are highly cyclical, depending on traffic, fuel prices, fleet age and other industry-wide conditions. But individual retirements are also important airline decisions, and IATA’s first guide to “Best Industry Practices In Aircraft Decommissioning,” begins with that decision, when to retire an aircraft.

Many aircraft are retired for economic rather than technical reasons. For even technical limits on life can be lengthened by investing in life-extension programs. For example, 47% of Boeing 737 Classics in service have exceeded their life-limiting design service objectives. So the real choice comes down to whether the aircraft can earn more in continued flying than it costs to maintain and upgrade, or is worth more if decommissioned.

The gain from decommissioning hinges partly on the value of the aircraft’s parts, which in turn depends on the number still flying. Waiting too long to retire a type risks a much reduced gain from selling the parts because there are few of the type still flying. So managers must keep their eyes on the world fleet, not just their own aircraft. The introduction of new types is the most important determinant of when an older type will start to disappear.

Fuel prices and economic growth are the most important environmental conditions affecting overall fleet needs. But it matters whether movements in these two variables are short-term or enduring, because pulling passenger aircraft out of a fleet yields three choices: storing, converting to freighters or disassembly for parts. Storing is the smart move to counter short-term demand problems, conversion or disassembly the best counters to continuing trends.

If disassembly is chosen, the IATA guide notes it can be done in five ways. In ascending order of gain, but also work required, they are: selling the aircraft to a broker, “as is;” selling it after doing some repair work; selling parts on consignment; selling major components to brokers; or storing and removing parts for the airline’s own use or outside sale. A major airline with substantial in-house MRO resources is in a much better position to choose the higher-value, but work-intensive, alternatives.

The IATA guide goes on to note other considerations apply to decommissioning aircraft: airline accounting conventions that determine book value, regulations and age limits on importation of aircraft in some nations. The key is to keep an eye on all these variables now and in the near future when judging when to retire an aircraft.

If past retirement cycles repeat themselves, many airline managers will increasingly be facing these kinds of choices over the next five years. Given the complexity of the decisions, both decision-support models and thorough data preparation are necessary.   

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