MROAM: Airline refleeting to impact MRO outlook

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Fleet retirements will increase over the next decade due to several converging trends, says Kevin Michaels, leader of ICF SH&E's aerospace and MRO practice at the MRO Americas conference in Atlanta.

Rising fuel prices, lower interest rates, new technology and a vast amount of aircraft that will be retired regardless of fuel cost or cost of capital will cause the phenomenon.

"These forces are actually shaping the decision in favour of buying new aircraft and retiring mid-range or mid-life aircraft," says Michaels.

The consultancy forecasts that about 6,560 aircraft will be retired between 2013 and 2022, or about 47% of the deliveries forecasted during the period. Historically, these retirements have driven 20% of deliveries.

About 600 to 700 retirements are expected per year between 2013 and 2022, which is an "unprecedented" number, says Michaels. These retirements will make up about 2% of the total fleet, which is about average. But the magnitude of retirements is significant, he explains.

The retirement of younger aircraft and the parting out of their parts is a trend that is likely to continue in the MRO sector as airlines continue to face high fuel prices, says Nicholas Pastushan, chief investment officer of CIT Transportation Finance at the conference.

He says the trend is particularly strong in the narrowbody market. Pointing to 2012 aircraft retirement data, Pastushan notes that were some "anomalies". Besides the retirement of 40-year-old aircraft like McDonnell Douglas DC-9s, there were also substantial numbers of 10-15 year-old aircraft that were retired, says Pastushan.

This is partly due to airlines choosing to upgauge to bigger aircraft in the face of high fuel prices. For example, airlines would rather operate Airbus A320s or A321s instead of the smaller A319s.

"The young airplanes being parted out is a big trend," he adds, saying that he expects the trend to accelerate as demand for younger aircraft for part-outs continues. As a result, manufacturers are likely to see competition from these young aircraft parts with their original equipment manufacturer aftermarket sales, he adds.

The forecast for MRO value in North America will decline over the next five to ten years because of lower maintenance costs overall caused by newer aircraft with longer maintenance intervals and airlines re-fleeting with newer aircraft.

"North America MRO is shrinking over the same 10 year period by about $1 billion due almost entirely to the re-fleeting phenomena and the fact that there is essentially zero growth in the North American fleet," says David Marcontell, president of consultancy Team SAI.

However, MRO value continues to grow globally because of increases in material prices, utilisation increases and slightly more man-hours for C and heavy maintenance checks on older Boeing 747-400 and A320 aircraft, he says.