$110 billion Fleet Upgrade Cost Facing Major US Carriers in Next Decade
(Source: Ascend; issued April 11, 2008)
LONDON --- Over the next decade the major US airlines are facing a potentially crippling bill running to over one hundred billion dollars to upgrade their ageing fleets, according to industry experts.

Analysis by Ascend, the world’s leading provider of information and consultancy to the global aerospace industry, reveals that the airlines face being stuck with old aircraft for years to come because they currently do not have enough firm orders to replace them. Order backlogs at both Boeing and Airbus means there is unlikely to be any quick fix.

A $20bn+ problem

The problems are particularly acute for major US carriers American Airlines, Northwest Airlines and United Airlines. All have significant numbers of ageing aircraft in service that will need to be replaced in the next few years. However, order backlogs and delays to new aircraft, such as that for the 787 announced by Boeing on Wednesday [9th April 2008] mean that even if those replacements were ordered today, they would not be delivered until around 2012-2015.

If American Airlines and United Airlines fail to place those orders soon Ascend’s data shows that in 2015 American Airlines’ fleet of:
-- 15 Boeing 767-200ER will be on average 28 years old
-- 58 Boeing 767-300ER will be on average 21 years old
-- 126 Boeing 757-200 will be on average 19 years old

And for United Airlines, in 2015 its fleet of:
-- 64 Boeing 737-300 will be on average 26 years old
-- 30 Boeing 737-500 will be on average 23 years old
-- 97 Boeing 757-200 will be on average 23 years old
-- 35 Boeing 767-300ER will be on average 20 years old

The bill for replacing these aircraft alone is likely to come to around $20bn for each airline.

In the case of Northwest its warhorse fleet of around 100 DC9’s is approaching 40 years in service.

“It is far from exaggerating to say we really are at crisis point for these airlines,” says Gehan Talwatte, Managing Director, Ascend. “American, Northwest and United will need huge numbers of new aircraft in the next decade. The difficulty is that without already having the orders in place those aircraft are not going to be delivered any time soon. But this challenge pales next to the issue of where the financing is going come from. All of the major US carriers, apart from American Airlines, have recently been through Chapter 11 bankruptcy.

“But the tightening of the credit markets we have seen this year means lenders are much more risk averse. If a lack of financing delays these orders then American, Northwest and United are likely to be facing their toughest challenges yet. It is difficult to see how consolidation of the US market will help to solve this problem, unless there is wholesale rationalisation of services and aircraft.’”

More to come

American Airlines, Northwest Airlines and United Airlines may have short term fleet issues to address, but according to Ascend’s analysis all six of the US majors (American Airlines, United Airlines, Delta Air Lines, Northwest Airlines, Continental Airlines and US Airways) will need to place substantial orders for replacement aircraft in the next 5 to 10 years.

Ascend estimates that combined, the six airlines have the following aircraft in service that over the next 15 years will be coming to the end of their working life:

-- 34 Airbus A300-600
-- 435 MD-80
-- 400 Boeing 757-200
-- 145 Boeing 767
-- 289 Boeing 737 “Classic”
-- 25 Boeing 747-400
-- 92 DC-9

In total, the bill for replacing these 1420 aircraft will, at today’s prices, come to over $110bn.

Some orders and options for replacements have already been made by the six airlines, but Ascend’s data shows there are still many more orders necessary.

Asia ahead

Ascend also compared the current situation of the US majors with their global rivals in Asia and the Middle East. The data reveals that these carriers already have substantial orders in place for the next generation of aircraft scheduled for delivery in the next few years:

-- Emirates Airlines – has 193 new aircraft on order, more than its current fleet of 115. Current average fleet age is just 5 years.
-- Qatar Airways – has 145 new aircraft on order. It currently has a fleet of 61 aircraft, with an average age of 4 years.
-- Singapore Airlines – has 82 new aircraft on order. Its existing fleet of 97 aircraft has an average age of 6 years.
-- China – more than 800 new aircraft are scheduled for delivery to various airlines by 2016.

“What this means for the US majors,” continues Talwatte, “is that without radical change they will continue to fall further and further behind. Carriers like Singapore Airlines and Emirates are already flying younger more fuel efficient aircraft and have more on the way. Newer aircraft are substantially more fuel efficient and require less maintenance. Add in the soaring price of fuel and it is clear there are big savings for carriers with fleets of the newest, most up to date aircraft. US majors with their ageing fleets simply will not be able to compete.”

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