Aviation: Retirement plan

Every aeroplane has a limited lifespan. From the day it rolls out of the gigantic manufacturing facility to its last day of active service a plane is under scrutiny, constantly being tested and reviewed by mechanics, technicians and airline managers to ensure that it has not outlived its ability to serve. When Singapore Airlines (SIA) took delivery of its first two Boeing 747-200s in 1973, they became the crown jewels of its fleet, as subsequently did the B747-400 in 1989. A much-vaunted flagship of its long-haul operations, the “Queen of the Skies” served the airline well but was eventually retired from service following the introduction of SIA’s new long-haul aircraft, the Airbus A380. That brand-new “superjumbo” – of which SIA was the launch customer in 2007 – proved to be the final nail in the coffin for the B747. With a superior range of 8,500 nautical miles (compared to 7,260 nautical miles for the Boeing jumbo), increased passenger capacity and, most importantly, 20 per cent less fuel burn per passenger, the A380 was simply more profitable for SIA. As with the B747, most retirement decisions today are triggered by simple economics, when airlines realise that the maintenance and operating costs of an aircraft exceed its financial return for the company. This is most often linked to the age of a plane as well as industry trends. FLEET FACTS According to the Aircraft Retirement and Storage Trends study published by aircraft leasing company Avolon in March 2015, globally the average age for all commercial jetliners is 25.7 years. However, this figure is substantially higher than that for most Asian airlines, which boast some of the youngest fleets in the world. Regional heavyweights such as SIA and Cathay Pacific currently operate fleets that are on average a mere 7.3 years and 8.5 years old respectively. At the other end of the scale, the airline that currently operates the world’s oldest fleet is Allegiant Air (21.9 years). The US low-cost carrier maintains a fleet of 84 aircraft, the bulk of those being the McDonnell Douglas MD-80, which ceased production in 1999. The airline’s continued support for older aircraft goes against industry trends, but the purchase price of the MD-80 is low – given that its narrow body does not make it a feasible choice for cargo carriers and it has a reputation as a gas guzzler – and commercial airlines therefore sell it at extremely depressed prices in order to get it off their books. By purchasing them cheaply, therefore, Allegiant still sees the ageing aircraft as an economically viable option. (The airline can even park the planes during periods when fuel prices spike faster than their ability to raise fares in response.) For most of the industry however, standard practice for airlines is to renew their fleet over time, in order to ensure continued fuel efficiency. Older aircraft also require more time to maintain, while parts can be hard to come by and are therefore expensive. “Airlines generally buy aircraft with the intention of operating them for between ten and 20 years. They may keep them longer, but they purchase and amortise them over that ten- or 20-year schedule,” said Maxwell Leitschuh, a transportation analyst at iJet International, in an interview with the International Business Times. “Once the plane is depreciated, the ownership costs become much lower. What you’re paying for is the operating cost: fuel and maintenance.” Once you get to that stage, when an aircraft is close to or has already reached the end of its operational service from an airline’s point of view, a decision must be made about what to do with it. There are in fact a few options, and aircraft operators often differ in their approach to offloading unwanted planes. THE ADVANTAGES OF LEASING  According to Nicholas Ionides, vice president of public affairs for SIA, there are a few factors the carrier takes into account when deciding to retire a particular aircraft line, or work out the extended life of planes beyond commercial service with SIA. “We have always maintained a policy of having a young, modern and fuel-efficient fleet,” he says. “Our aircraft are often not at the end of their operating life when we stop operating them, and we can dispose of them in a number of ways. They may be returned to the owner if on lease, bought back by a manufacturer as part of a trade-in agreement, or either sold or leased to other parties.” Ionides notes that SIA is in the process of decommissioning its fleet of A330s, which were acquired through leasing. While many of these aircraft are still relatively young, the medium-haul Airbus aircraft was never a long-term option for the airline. “All our A330s are on lease, as they were brought into service on an interim basis while Airbus developed its new A350,” he says. There are inherent advantages in leasing aircraft rather than purchasing them outright. “We lease a portion of our fleet as a hedge on the residual value risk,” says Ionides. “We aim to maintain a prudent hedge ratio while taking into consideration the costs of hedging, as it is generally not cost-effective to have a fully leased operating fleet. We do not have a fixed target for aircraft leases but review the percentage on a regular basis. It is currently a little over 40 per cent of our total fleet.” Such strategic planning is particularly useful in times when the introduction of modern, fuel-efficient aircraft has incentivised many airlines to aggressively retire their older aircraft in order to lower operational costs. Airbus touts the new A350-900 as being 16 per cent lighter than the B777-200ER, and capable of consuming 30 per cent less fuel – and the importance of fuel management cannot be understated. According to Nick Naung Naung, country sales manager of Finnair, improving fuel efficiency was one of the largest factors behind the airline’s decision to retire its four-engine Airbus A340s and replace them with the modern A350. “Fuel economy remains a priority,” notes Naung Naung. “The entire transition over to the A350 fleet will enable us to achieve a 25 per cent step change in fuel efficiency – and this translates to millions of euros of savings per aircraft, per year.” REPLACE, RECYCLE, REUSE  Cathay Pacific Airways has another approach to the problem of replacing older aircraft with newer models: recycling. In the year of its 70th anniversary, Cathay Pacific Airways will take delivery of its first A350, and in accordance with its fleet modernisation programme, the Oneworld member has already retired 18 B747-400s and four A340-300s (with a further three B747-400s and seven A340-300s to follow by 2017). To that end, Cathay has unveiled its biggest recycling project to date – the environmentally responsible dismantling of its A340s. The four-engine aircraft will be completely disassembled in order to recover materials for reuse and recycling. Interestingly, more than a third of the A340 is built from aluminium, which is easy to recycle, while the tyres, textiles and carpets can also be recovered and reused. “Through working with our partners, we are endeavouring to adopt a more environmentally responsible and systematic approach to dismantling retired aircraft,” says James Tong, Cathay Pacific’s director of corporate affairs. “We are very pleased with the results so far, with up to 90 per cent of the weight of an aircraft being recycled and less than 10 per cent going into landfills as waste.” Cathay Pacific’s strategy complements that of the Aircraft Fleet Recycling Association (AFRA), an international non-profit association that promotes safe and sustainable management of end-of-life aircraft and components. According to Boeing, some 8,500 commercial aircraft will be retired by 2025, and the US manufacturer has worked with AFRA to simplify the recycling process. The introduction of its new B787 Dreamliner, for instance, presents new opportunities for composite recycling. In particular, the recycling of carbon fibre from the Dreamliner can now be done at approximately 70 per cent of the cost previously incurred for other aircraft, while using less than 5 per cent of the electricity required to produce new carbon fibre. In practice, recycling two million pounds of carbon fibre scrap would save enough electricity to power some 175,000 typical homes a year. FOR SALE: SECOND-HAND AIRCRAFT  Of course, while Cathay Pacific can use its financial muscle and resources to reduce energy consumption and wastage through a commendable recycling project, this is simply not possible for most other carriers, who must look to recoup money directly from selling their planes on. The sale of second-hand aircraft that are still in full working order can be a profitable business. Speed News, an online news source that targets aerospace executives, has a dedicated “Aircraft Listing” section where carriers and leasing companies publicly list old jet aircraft for sale at cut-down rates. The ages of the aircraft vary – some models remain on the books that first entered service in the late 1980s. However, it’s not only old models that are for sale – a significant number of available aircraft are still in production today. At time of press, KLM was listing two of its A330-200s from 2005 for sale, while PricewaterhouseCoopers’ B747-400, built in 2002, is also under the hammer. Of course a number of considerations must be made prior to purchasing used aircraft, perhaps most importantly the number of engine hours and cycles that the aircraft has under its belt. A second-hand plane also has to comply with any and all airworthiness directives issued by the relevant aviation authorities. Other areas that determine an aircraft’s value include the equipment installed (seats, air purification systems, avionics, etc), and of course the damage history. WHERE PLANES GO TO DIE Perhaps the quickest way for an airline to get rid of its aircraft is simply to store them at aircraft graveyards. Parking an aircraft within an airport incurs significant costs for operators, as was the case last December when Malaysia Airports Holding Berhad (MAHB) took out ads in the classified sections of The Star and Sin Chew Daily newspapers, requesting that the owners of three abandoned B747-200Fs step forward and deal with their aircraft. According to MAHB, the owners were liable for hefty airport-parking fees, given that the jumbos had been parked at Kuala Lumpur International Airport for more than a year. As no one claimed the aircraft, MAHB is now looking to auction off the B747s in order to offset the relevant expenses and debts incurred. Irresponsible aircraft owners aside, the majority of airlines dispose of unwanted planes at aircraft graveyards or “boneyards”. These spaces, predominantly based in the US, first emerged in the years following World War II, when hundreds of military aircraft were put out of commission; the lack of storage space eventually led to them being stored in deserts. Today, the largest of these is the 309th Aerospace Maintenance and Regeneration Group at Davis-Monthan Air Force Boneyard in Tuscon, Arizona. The 2,600-acre (1,052-hectare) site is now home to more than 4,000 military and government aircraft. According to airplaneboneyards.com, what makes the area so appealing is its low humidity (10-20 per cent) and low rainfall, which prevents corrosion of the aircraft and preserves them for cannibalisation or possible reuse in the future. The same holds true for the Pinal Airpark Airport, also in Arizona, which serves as a graveyard for civilian aircraft. Last July, having sustained a smashed nose cone as well as damage to its wings and engines after flying through a hailstorm en route from Detroit to Seoul, a Delta Air Lines B747-400 was flown to Pinal Airpark, where it will be parked indefinitely alongside a hundred other hulking aircraft. It is not known if Delta intends to get the aircraft fixed before returning it to active service. However, speaking to the Los Angeles Times, Pinal Airpark’s economic development director Jim Petty revealed that many aircraft that land on this desert runway are here to die. “A lot of these [aircraft], they’ll never fly again,” he says. “And the amount of planes that are soon going to be taken out of service and recycled is probably more than ever before in the history of aviation.” A prophetic statement, and one that makes one wonder if, in the not too distant future, Asia-Pacific’s desert regions will, too, begin hosting scores of old and obsolete aircraft…