October 03, 2012
The recent decline in aircraft retirement ages will not last, an international aircraft leasing company has concluded in a study designed to rebut reports that it says could unfairly lower the valuation of jets and drive up financing costs.
“Sound bites are not an appropriate source of information on which to base decisions about financing,” says Dick Forsberg, head of strategy for Dublin-based Avolon, which has 164 aircraft in its portfolio.
Questions about the retirement age trend have gone beyond sound bites. An Aviation Week Intelligence Network worldwide fleet analysis through the first half of this year found that the average and median age of commercial jets being retired each year is dropping to its lowest level in two decades (Aviation Daily, June 21). Parts suppliers tell Aviation Week they are keeping closer tabs on retirement rates by aircraft type to protect themselves against early retirements that are creating parts surpluses (Aviation Daily, June 22 and Sept. 25). Some businesses, such as Marana Aerospace Solutions, are increasing their part-out services to take advantage of higher demand.
Aviation Week’s Commercial Aviation MRO Forecast (CAMRO) foresees the average retirement age for widebody aircraft falling to 22.5 years in 2020—the lowest since 1993—based on historical trends, projected maintenance requirements and the expectation that an airline will not want to incur large costs for maintenance when it plans to retire an aircraft within a couple of years.
CAMRO, however, projects that narrowbody average retirement ages will stabilize between 26 and 29 years for the rest of the decade following a sharp drop to below 26 in 2011.
The apparent trend has led to calls for a shorter depreciation period than the current standard, under which aircraft are depreciated to 15% residual value over a 25-year period.
Avolon’s study looked at retirement trends over the past half century for more than 30,000 aircraft, finding an average age of nearly 26 years, with 60% of delivered aircraft still in service at 25 years. Avolon acknowledges some recent declines, especially for single-aisle aircraft, driven by high fuel prices, higher fuel-efficiency options and market demand for spare CFM56 engines that has made parting out the aircraft more valuable.
But Avolon contends this is a blip, not a trend. For example, the Airbus A320 family and Boeing 737 Classic fleets are relatively young, so airlines retiring the oldest and least efficient of those aircraft are driving down the average, it says; by the time the airlines get around to retiring the younger ones, it says, most will exceed 25 years.
The lower retirement age right now “is simply a consequence of the youthfulness of the current fleets,” Forsberg asserts. Even with Avolon’s projection that more than 350 aircraft under the age of 15 years will be retired over the next 10 years—more than double recent “premature retirement” trends—the average retirement age over the next decade will top 25, it says.