January 20, 2015

50% drop in oil prices sees older aircraft given extended lease of life

It was only eighteen months ago aviation news was reporting that Airbus and Boeing airframes were being retired after only 15 years in service. The reason – high fuel prices. This meant that demand for air travel remained relatively static and few expanded routes or new airlines were appearing. At the time, the UK’s Air Service International, based at Kembal, had become the world’s largest recycler of retired airplanes and business was booming.
A year later and oil prices began to drop to the point where since June 2014 they have fallen by 50%. This has meant that the thirstier older planes can still be run profitably while helping airlines cope with the increased demand owing to such competitive prices for seats. Older planes, such as Airbus A340s, Boeing 747s and 757s, are once again being leased out by AerCap, the world’s largest independent leasing company, extending their life by what is anticipated to be three or four years. “We are seeing a big pick-up in demand for aircraft we thought we would scrap,” Aengus Kelly, chief executive of AerCap, revealed at the Airline Economics conference in Dublin.
“Unscheduled or repossessed aircraft are not coming in as frequently as when oil prices were sky high,” said Mark Gregory, Europe’s leading aircraft dismantling operation founder. However the company is still recycling aircraft scheduled to be taken out of service due to their age or upcoming heavy maintenance deadlines.
Considerable demand has been put on major manufacturers like Airbus and Boeing to produce their next generation of more economic aircraft as the current drop in oil prices is seen as only temporary. Planning for the future is still very prevalent with regard to future plane orders, so while some airlines are waiting for delivery, they are bringing older planes out of mothballing as a pro-tem measure.
The 50% drop in oil prices has additionally made it easier for airlines that cannot afford the cost of a new fleet, or those facing lengthy waits for new jets, to turn to vintage aircraft. “At the new price of fuel, (the A340) does become a great aircraft to those who are looking for interim lift,” Bill Cumberlidge, Executive Director of KV Aviation, an investor and Manager of aviation lease transactions, made clear.



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