The current backlog for aircraft is well known. There are some, AirInsight included, who believe that there is an emerging bubble in the single aisle market. The OEMs argue strongly that this is not the case, and that the large backlog will be delivered. One of the factors in that equation is what will retirements look like, and when existing aircraft reach the point of economic obsolescence.
There are a number of factors that drive aircraft obsolescence, fuel burn being the most notable. As engines increased in efficiency, newer aircraft have significantly lower operating costs than predecessors. However, capital costs and interest rates also play a role in the equation, as does the supply-demand balance and pricing of older aircraft. Those trade-offs are carefully evaluated by airlines as they project potential revenue and cost differentials and their retirement decisions.
Historic Perspective
What does history tell us about single aisle fleets and retirements? Aircraft have a limited economic life, but this varies among the OEMs. This is primarily due to the age of the fleets, with Boeing and Douglas having produced narrow bodies since 1958 while Airbus didn’t enter the market until 1989. The oldest Airbus narrow-bodies are now turning 28 years old, while the oldest Boeing and Douglas aircraft are senior citizens.
The age at which aircraft retire has been growing over the last few decades, as new models replace old ones and economic conditions for the industry change with recessions, 9-11, SARS and other exogenous factors.
It is notable that after 2000, and higher fuel prices, the retirement pattern changed. Today, most airframes can easily last for 30-40 years, but aircraft tend to become economically obsolete prior to their physical obsolescence. The four-engine A340 is an example, particularly compared to its A330 sibling. One is economically obsolete, with many retired or converted to VIP use, while the other remains a mainstay of airline operations.
The following chart shows the percentage of the fleet of a given age when retired, based on the year the aircraft was delivered and the year the aircraft got retired. As would be expected, the vast majority of the oldest aircraft have retired, while the youngest remain active in service.
From this analysis, it appears that A320 retirements occur sooner than for the 737-300, with the MD-80 retiring coming even later. The 737-800 is also shown on the chart, but has not yet reached the age at which retirements typically begin in volume.
It is no surprise to see the Douglas aircraft last so long – the company was renowned for building very strong aircraft. There is a gap in retirement ages between the current big two OEMs. One contrast between Boeing and Airbus single aisles is that Boeing offers a second life after retirement from passenger service via freighter conversions. Several hundred aircraft already converted. Airbus is only now getting into the market as its A320 family gets to the “right” age for the conversion market.
In addition, fuel price spikes and economic recessions also impact aircraft retirements, or keeping them in the fleet longer. Conditions aren’t always uniform when comparing models.
The Bottom Line
AirInsight does not want jump to the conclusion that Douglas aircraft last longer than Boeing aircraft, which in turn last longer than Airbus aircraft, based on this data – even if that’s what the graphic appears to show. While looking at overall data is fun, other variables involved in the economic equation could sway a retirement decision. Including fuel prices, maintenance costs, the differential in pricing between new and used aircraft, interest rates, inflation, and other economic conditions.
While an aircraft can have a virtually unlimited physical life (look at the number of DC-3s still flying) they do not have an unlimited economic life. A downward change in fuel prices can result in older aircraft remaining in the fleet, as the economic incentives to replace an aircraft with a newer model with lower fuel burn becomes less important.
But a fuel spike can spark new orders, as happened between 2010-2014 with record order levels. But now that it is time for those deliveries to begin, some airlines are delaying deliveries. Their old aircraft are once again profitable in a low fuel cost environment, and economically not ready for retirement.
Will that, of itself, cause a market bubble? Perhaps not, but when combined with a global economic downturn, the existing single aisle order book may not be as robust as it seems.
Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.
Another interesting chart would compare the actual number of single aisle retirements per year versus the number of new aircraft produced. The difference between the two would be the level of fleet growth per year.
The usual conclusions arrived at through analysis posed in this particular case is limited in regards to the MD-80. When one type aircraft examined in the data set is majority owned and operated by a single operator, analysis must focus on those operator specific practices, procedures, philosophies and fleet use/route structure.