Reported Availability Fails To Reflect Real Surplus

World Airline News, Nov 16, 2001

Just as during the recession of the 1990s, reported availability levels fail to accurately reflect the actual number of idle aircraft.

BACK Aviation reports that by early October 2001, availability levels had jumped nearly 10 percent compared to the beginning of September and 50 percent from October 2000. 908 aircraft are now being advertised for sale or lease. The increase represents only the tip of the iceberg. Hundreds of aircraft, both new and old, are being merely parked or placed into storage with little effort yet being made to seek disposal. Over 500 aircraft have been earmarked for withdrawal from active service since September 11th by world airlines.

The magnitude of the increase in real availability is self evident with a plethora of announcements being made in the last month. Delta announced it was to park 60 aircraft; US Airways is to retire 41 B737-200s, 40 Fokker 100s, 30 MD80s; Air Canada is parking 17 CD-9s, 38 B737-200s, 19 F28s, 10 BAe146s; SAS is parking 15 including two B767-300ERs; Alitalia is to retire seven B747-200s; Varig is to retire 13 B737-200s; Lufthansa is to park 46. The collapse of Swissair and Ansett Australia has also quickly swelled the ranks of unwanted newer aircraft.

The real level of availability, in terms of parked aircraft, those in storage and those actually being marketed but still in service, is expected to increase to nearer 2,000 within the next six months. The 2,000 aircraft represent over 13 percent of the worlds current fleet. For a measure of equilibrium to exist between supply and demand, availability should be no more than four percent for modern aircraft and six percent for older equipment. The 13 percent therefore represents a significant excess, one that will take months if not years to mitigate unless drastic action is taken.

Expectations of any return to service for the older aircraft are misplaced and scrapping is the only option for older aircraft. If the 1990s recession is any guide, the newer aircraft types will be reabsorbed back into the fleet the quickest. The emergence of whitetails, a development that seemed to have disappeared with the recession of the early 1980s, has once more come to the fore. The inability of airlines to take equipment will see whitetails emerge. Pakistan International Airlines, enjoying the benefits of U.S. support, is reportedly interested in two B777 whitetails that are now available due to the inability of a U.S. customer to take the aircraft.

As there are more modern types on the market this time around, the re- absorption of surplus B737 Classics and MD80s into the fleet may take longer. This ability to draw upon a surfeit of more modern units will allow the manufacturers to once again gear up production to meet rising demand, leaving the original Stage 2 types stranded.

Just as in Japan, where the government provides an incentive for car owners to trade in older cars for newer models, the U.S. government could spend a $1 billion on buying and then scrapping some 1,000-1,500 older B737-200ADV, DC9s and B727s aircraft for between $500,000-1,000,000 each. The unit cost would be far in excess of expected auction prices of less than $300,000. With no improvement in demand expected for Stage 2 types, owners would be eager to accept such a cash offer. Such a move would have a real impact on the market in terms of reducing the surplus and restoring confidence and would represent only a fraction of the $5-15 billion currently being spent on simply maintaining airline cash flow. Demand for new aircraft would be revived that much sooner as operators would have little option but to acquire newer models rather than persist in utilizing ageing units. This demand for newer types would allow the government to recoup the initial outlay through reduced welfare payments and taxes on improving corporation profits and employee salaries. The permanent retirement of 1,000 aircraft could also prove an attractive environmental measure.

The rapid rise in the surplus is perhaps misleading as such disposals reflect a dramatic but temporary reduction in demand. Airlines, particularly in the U.S. have had to take instant action to cut capacity to more match demand. The UK airport owner, BAA, reported that traffic in the six weeks after September 11th, was much less affected than in the six weeks after the Gulf War. As passenger confidence has returned, some airlines are already placing parked aircraft back into service.

Jet Availability
Oct-00  634
Nov-00  651
Dec-00  637
1-Jan   676
1-Feb   653
1-Mar   651
1-Apr   700
1-May   701
1-Jun   782
1-Jul   802
1-Aug   740
1-Sep   828
1-Oct   908
Source: BACK

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