Larger installed fleet will support smooth Max and Neo transition

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The transition impact of the Boeing 737 Max and Airbus A320neo on the current generation of aircraft will be diluted by the "significantly larger" installed fleet compared with earlier shifts in aircraft, says operating lessor Avolon.

"The very large installed base of current generation aircraft, more than double the cushion in place when the last fleet transition took place, provides a natural protection from mass premature retirements," says the lessor in a new research report, Transitioning to Neo and Max. "[It] will support a smoother transition for the A320 current generation and 737 Next Generation than was the case for earlier aircraft types."

When the 737 Classic entered service, 1,100 737-100 and -200s had been ordered, of which 1000 had delivered. But when the 737 Next Generation entered service 13 years later, 1,800 Classics had been delivered out of 2,000 orders, "almost double the size of the 737-200 fleet at the same point," notes Avolon.

The lessor anticipates more than 6,000 737 Next Generation aircraft will have been delivered when the Max enters the market, and some 6,000 A320 current generations family aircraft will be also in service out of a likely total order book of 6,700 units.

"These levels are three times larger than the installed base at the start of current generation fleet operations," says Avolon.

According to the lessor, it took five years for the 737 Classic fleet to achieve a 35% share of the 737 market, "or the point at which values of the previous generation begin to be impacted", and seven years for 737 Next Generation aircraft to do the same.

Avolon anticipates a period of eight years, or until 2025, for the 737 Max to account for 35% of the 737 operating fleet and also eight years, until 2023, for Neos to make up 35% of the installed A320 fleet.

These fleet shares will be built up through a combination of new deliveries and retirements with more aircraft withdrawing from service through the rest of this decade "than ever before" as these units reach "an appropriate age", says Avolon.

"There are currently more than 3,000 single-aisle aircraft that will be over 22-years old by 2016 and thus at the forefront of the replacement process. This number will grow to more than 4,000 by the beginning of the next decade."

The lessor believes as the new Neo and Max models start to deliver in greater numbers, more than 60% of them on average will be required to meet market growth requirements.

The pool of eligible retirement candidates will therefore "remain deep enough" to absorb the remaining 30-40% of new deliveries and, as greater quantities of A320s and 737 Next Generation units start to hit 25 years of age in the first half of the next decade, "the pipeline of suitably aged feedstock will be further replenished, avoiding the cannibalisation of younger aircraft fleets."