The Wall Street Journal
By Mike Cherney
June 4, 2021 5:30 am ET
SYDNEY — After the coronavirus pandemic grounded air travel, many of the thousands of aircraft that were parked at storage facilities around the globe seemed destined for the scrap heap.
That hasn’t happened. Instead, aircraft owners are junking fewer planes than just before the pandemic.
About 440 large commercial jetliners were scrapped in 2020, a roughly 15% decline compared with 2019, according to aviation-analytics firm Cirium. This year, the number of aircraft being junked is currently some 30% below last year’s volumes, said Rob Morris, Cirium’s global head of consultancy.
The slow pace highlights the challenge airlines face as they navigate out of the coronavirus pandemic. Domestic travel is returning faster than international in some markets, but the pace of the recovery will differ from region to region, and airlines must retain the ability to ramp up quickly. Airlines struggling to afford new aircraft may also need to keep older models for longer.
Another factor: prices for spare parts are low because many planes are grounded and don’t need extra components. Aircraft owners generate revenue from parts taken out of scrapped planes, so they may wait until demand for spares rises before junking their planes.
“Storing aircraft is cost-effective for airlines during a time when it’s uncertain how quickly passenger traffic will recover,” said Richard Brown, managing director at aviation firm Naveo Consultancy. “It makes more sense to park aircraft on the ground, and wait and see how the pandemic plays out.”
The biggest airline in Australia, Qantas Airways Ltd. , plans to keep its 12 A380 jumbo jets in storage for years, and aims to start flying some of them again at the end of 2023 when it expects the recovery in international travel to be under way. In the U.S., United Airlines Holdings Inc. decided to keep its older Boeing 767 wide-body fleet, with Chief Commercial Officer Andrew Nocella saying in April that “every data point we see confirms that demand will recover.”
To be sure, retirements are expected to rise when airlines get a better handle on post-pandemic travel, and many airlines have already announced plans to streamline their fleets, such as removing the A380, which needs long-haul travel to be economically viable. Deutsche Lufthansa AG Chief Executive Carsten Spohr, for example, said in March that the airline had decided to phase out 115 aircraft over the past year and was considering removing all aircraft older than 25 years from its fleet.
Cirium’s Mr. Morris said aircraft need to have started the process of being dismantled for them to appear in Cirium’s retirement database. Airlines frequently sell their old planes or return them to leasing companies, in which case the planes don’t appear in the database unless the new owners or lessors dismantle them.
Before the pandemic, an aging A320 aircraft could be sold for between $6 million and $7 million, compared with about $2 million now, said Phil Seymour, president of aviation data and advisory firm IBA. In contrast, storing the aircraft could cost as little as $50,000 a year in a remote location with basic maintenance, Mr. Seymour said. But costs can add up if dozens of planes need to be stored with little revenue coming in.
“The decisions being made in those boardrooms right now are really quite difficult,” he said.
The leasing companies that now own about half of the global jetliner fleet could be even less inclined to rush to dismantle planes, particularly at low prices, said Mr. Seymour, whose clients include lessors and financial institutions. Mr. Seymour said lessors could arrange more flexible, short-term leases for their airline customers so the airlines don’t switch to a competitor when the market recovers.
AELS, a company in the Netherlands that buys old aircraft and disassembles them for parts, isn’t looking to buy right now because it has an existing inventory of spare components, Chief Executive Derk-Jan van Heerden said.
“Why buy stuff if you have inventory and it’s not selling?” he said. “Conserving cash to sit out this crisis is a logical strategy.”
Before the pandemic, AELS usually acquired six to eight planes to take apart each year. Last year, the company acquired just one.
Engineers typically remove between 800 and 1,200 parts per aircraft, with the most valuable being the landing gear, engines and the auxiliary power unit, Mr. van Heerden said. The metal in the airframe is recycled, but that accounts for just 1% to 3% of revenue from a disassembly.
Asia Pacific Aircraft Storage, which stores planes in the Australian Outback, used a temporary overflow facility to handle the surge in demand for post-pandemic aircraft storage and expanded its main location, managing director Tom Vincent said.
Travel bubbles keep getting delayed, making it difficult for airlines to make long-term plans for their fleets, he said. In some cases, leased planes are being taken out of storage to return to the lessor, only to have the lessor put the plane back into storage.
“The net movement is more inbound aircraft,” he said. “There just continues to be issues with international travel.”
"The biggest airline in Australia, Qantas Airways Ltd., plans to keep its 12 A380 jumbo jets in storage for years, and aims to start flying some of them again at the end of 2023 when it expects the recovery in international travel to be under way."
ReplyDeleteThat's optimistic at best. I don't see the A380 ever resuming regular service for long term. With the volatile price nature of oil from regional politics (see the US canceling domestic oil production/transport capacity as exhibit A) to incessant Middle East instability to social/political carbon neutral demands, there is a dire need in the airline industry for more fuel efficient and "green" aircraft. On top of that, some industry analysts predict post-pandemic demand for international travel will be around 225-325 passengers at a time, and not 350-400+. The 787 and the A350 are right in that niche and easily capable of the longest international routes for over half the cost. Costs including less expensive landing fees and gate servicing costs.
Boeing was right when they said that the market for the A380 was very limited - which puts it at risk of being on a cull from the herd list. Well, that list is growing: Air France, Lufthansa, Etihad Airways, Malaysia Airlines, and slowly Qatar with retiring half its fleet. Meanwhile British Airways and Quantas say they'll hold on to them and Emirates is stuck with 114 of them. Once again Boeing has been correct on history. They were just as correct when making the 747 instead of continuing the SST program to go against the Concorde which never was a moneymaker. Once again history repeats itself: Boeing relinquished bragging rights to Europe for functionality over prestige pride (having the fastest & largest airliners for Concorde & A380). Worse for the A380's fate and airlines is that they cannot be sold and converted to freighters like the 747 can. Why? Their two deck floor structures cant take the loads nor can be strengthened to do so. My prediction: all 380s will be scrapped at a fraction of their worth before 2030.
We will need all these planes and more with the Biden Airline stimulus plan. Here is what I heard that stimulus plan would include:
ReplyDeleteUnder that plan, people from all over the world will be flying into the United States three times per year, (aligned with each election being held). This will be a benefit the airlines, hotel and general travel industry because these destination locations will provide the enjoyment of being able to vote in our elections. These passengers can pay to learn to say that they are identifying as Nancy P. or Chuck S. that day and wish to cast their votes. They can then go to the banks and withdraw some money from their accounts from whoever they are identifying themselves to be too! While I am not sure how foreign people taking money from American people's bank accounts while they are here on Election Voting vacations would benefit American citizens, it does seem that that is the plan from what I am seeing from this administration.
Who would have thought HR1 and SR1 would be so beneficial?