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Fuel Taxes Impact On The Aftermarket

A leaked European Commission report includes a proposed jet fuel tax that could impact airlines' fleet planning strategies--and hence, the aftermarket.

Following last week’s emissions roadmap from the UK’s Committee on Climate Change (CCC), which envisaged demand-side measures to curb passenger growth, a leaked report for the European Commission has proposed a jet fuel tax to achieve a similar aim.

A tax of €330 ($370) per 1,000 liters (about 35% of current spot price) of fuel would cut passenger numbers by 11% and raise ticket prices by a similar amount, the report suggests.

A fuel levy probably is overdue in Europe, one of the last regions not to apply any fuel taxes on domestic flights, but even if the report’s proposals are not implemented in full, they show that governments are focusing minds on the issue.

Worth considering then, is what impact such measures might have on the aftermarket.

Higher fuel costs improve the business case for investing in the newest aircraft and engines, but with production sold-out for many years to come (at least on the narrowbody side) a quick switch-over isn’t feasible.

A more likely scenario if that more airlines go bust and those that remain are consolidated into larger entities. The latter process is well underway anyway, while the probability of the former is high given that many airlines have struggled to digest even the modest fuel price increases of recent years.

Bankruptcies, the rationalization of larger fleets and the phasing out of less fuel-efficient aircraft at an earlier age, could push more aircraft into storage and increase opportunities for the part-out market, pushing down prices of used serviceable material.

Airlines would welcome this, although not as much as they would hate higher fuel costs.

MRO providers, however, would be concerned if the repair and overhaul market contracts for mid-life and mature equipment that was no longer economically viable.

 

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