At the 2011 AFRA Conference, Stuart Rubin discussed some of the economic factors affecting the current aviation marketplace, and affecting the future of certain aircraft types. For PMA part producers, this information provides valuable insights into the markets for PMAs – illustrating both diminishing markets for certain older aircraft types, as well as increased competition from surplus spares.
- After a rebound in passenger traffic in 2010, he is expecting a drop in passenger traffic in 2011. This drop will affect both traffic (revenue passenger miles) and load factor.
- Rubin explained that in 2010, the average load factor for US passenger aircraft was 81.6% while the first four months of 2011 have yielded an average load factor of only 78.2%.
Rubin concluded that increases in fuel costs are causing the discontinuation of use of smaller transport category aircraft (like 50 seat jets). He feels that it is just too expensive to operate these smaller aircraft relative to the potential revenue that can be realized from their operation.
Rubin examined a series of cacts about “parked” aircraft (those tha tare “parked” in the desert).
- There has been a huge growth of parked single aisle aircraft over the past decade. After 2001, the number of parked single aisle aircraft spiked from under 700 to over 1500. Today there are over 2500 parked single aisle aircraft. Many of these aircraft will never come back into service.
- American’s announcement of orders for 460 aircraft make it clear that we will be seeing more MD-80s parked as those aircraft are replaced in the American Airlines fleet.
- The majority of the parked Airbus narrow bodies (86 of 119) are A320s with older engines that are at risk of not returning to the market no regardless of market rebound.
Rubin used these data points to examine some aircraft valuations. He noted that larger aircraft tend to be more successful in holding their value for longer periods, as compared to smaller aircraft.
- 737-300 aircraft reflect an example of an aircraft model that may not come back from the desert, once the aircraft is parked. The part-out value for these aircraft tends to range between $2.3-$4.8 million with much of that value coming from the engines (range tends to depend on age of the aircraft). Monthly lease rates for this aircraft have been falling dramatically which is another sign of lack of interest in operation of these aircraft.
- Among A320-200 aircraft, the younger aircraft appear to be holding their value better than their older corollaries. For example, comparing values of aircraft from 1Q2008 to 1Q 2011, you can see the following diminutions in value: $13.2 to $6.8 million (1990 vintage – 48% decrease in value) $19.4 $11.9 million (1995 vintage – 39% decrease in value) $27.0 $18.4 million (2000 vintage – 32% decrease in value).