The US airline fleet – where are the opportunities for fleet refreshing?

In our previous story, we looked at the big picture of relative fleet size and age. Now we dig deeper into the age issue and see where there are opportunities for the OEMs to refresh fleets. This is again becoming a concern as fuel prices have doubled over the past 12 months. Older aircraft are prime targets for replacement. First the mainline airlines. the X-axis shows three age groups, under 10 years, 11-15 years and then over 16 years. It is clear that the outlier here is Delta, with 311 aircraft over 16 years. But United also has a good-sized chunk of its fleet in this category. Older aircraft not only burn more fuel, they also need more MRO care. Next, let's look at the same data from a fleet percent breakdown. We again see Delta and United showing a substantial proportion of fleet aging. Allegiant also spikes, but this is a niche player and deliberately has been buying older aircraft, though of late it has taken new Airbus aircraft. Overall the US fleet looks relatively young and there do not appear to be many opportunities for the OEMs. How about the regionals? We grouped the regionals by their major airline affiliations. This is because increasingly we are seeing the major buys the new fleet and distributes it among the regionals. US regionals have been consolidating and this has allowed the fleet to drop its older aircraft, especially the 50-seaters. Once again we can see the tremendous impact SkyWest has on the market. Given the nature of regional flying one expects these aircraft to age faster. Which is why we see so few aircraft over 15 years old. Next, if we break out the mainline and regionals into the oldest category as of 2Q18 by aircraft type we see the following. Airbus and Boeing will no doubt fight tooth and nail to replace the aging Douglas fleet. The advantage usually rests with the incumbent for the replacement because of items like pilot training costs. Replacing the 737-700s is a good race to watch since the MAX7 has clearly not got any real traction in relation to the replacement market. Can Boeing get its current customers to consider the Embraer E2 range? Can Airbus shoehorn in their new A220 range? This is a disruptive opportunity for Airbus. We have seen Airbus pull off a switch at JetBlue recently. The 737-800s and A320s are most likely to move to the MAX8 and A320neo respectively. We don't expect to see United replace its Airbus fleet with Airbus neos though. The 757 replacements so far have been Airbus' playground with the A321. But when the NMA is available for sale, can Boeing make this work? Or it is too late? Judging by the supply chain, there are legitimate concerns that Boeing is too late and the market size is not as big as Boeing projects. There are several 767s that need replacing and this might favor the NMA because had these airlines bought into the Airbus MoM approach (A321neo & A330neo) we would see a lot more A330neo orders. Only Delta has made that choice so far. American swung to the 787 as has United. In doing so, have the big three stymied the NMA opportunity for Boeing? Next, note the chunk of 29 777s that are aging. The A330neo is a size equivalent replacement at low cost. The 787-9 also is an equivalent size but costs a lot more than the A330neo. Yet the 787-9 is the best selling 787, so it's still an open fight. US airlines are, surprisingly, not being driven by price. One would expect the advantage to lie with Boeing though. Next, let's look at the regional market. The US regional market is impacted by a critical force known as Scope Clause. This one item, arguably, is the most influential decision driver. What the table shows is the 16+-year-old fleet. The replacement market is small with only 52 aircraft. These 52 will almost certainly be replaced by Bombardier or Embraer aircraft and most likely on less than one for one because they will be larger aircraft. The turboprop has not been as popular in the US as might have been. The recent decision at Silver Airways to deploy ATRs is noteworthy. Might this idea be copied? The future of the US regional market seems to be jet oriented. The models with the greatest traction are the E-175 and CRJ900, respectively. This two bump up against the bottom of the Scope Clause. The US will remain the most influential regional jet market, forcing the other markets around the world to basically work with whatever the US regionals buy. In conclusion, there are pockets of opportunities for the OEMs in this market for fleet refreshing. Each pocket offers the OEMs a chance to make a win - but the competition will be brutal.

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