Relaxation of Age Issue Offers Prospect of High Values for Older Freighters

The potential relaxation of the 15-year age limit on the importation of aircraft by China should increase demand for converted freighters, thereby underpinning residual values. While a few operators can afford new freighters, the nature of airfreight dictates that the majority have to operate older, and less...

For immediate service; more information; and multi-user access (site license), non-profit organization, educational institute pricing, contact Karen Garner kgarner@accessintel.com at (301) 354-1612.

This story is only available to paid subscribers. Please login below with your username and password if you are a subscriber.

Username:
Password:
	What is my password?

Subscribe     Trial

The potential relaxation of the 15-year age limit on the importation of aircraft by China should increase demand for converted freighters, thereby underpinning residual values.

While a few operators can afford new freighters, the nature of airfreight dictates that the majority have to operate older, and less capital intensive aircraft. Despite the current strength of the cargo market, illustrated by the absence of short-term conversion slots rather than the competition being proffered by surface transportation, margins can be slim. Operators still need to operate cost effective aircraft and in terms of direct operating costs, expensive new aircraft can pose an obstacle to profitability, particularly if utilization is low. A key market for the air cargo market is China and such has been the flow of goods from the country that values of cargo aircraft have performed well in recent years. However, China currently excludes the importation of aircraft older than 15 years of age. The use of an age limit, employed in a number of countries, seeks either to protect indigenous aerospace industries or limit the potential impact of lesser maintenance status. Such controls however, offer the prospect of non-Chinese operators being able to compete more fiercely through the operation of older equipment.

While this age restriction may be boon to airframe manufacturers, the economics of conversion dictates the use of mostly older aircraft. The long-haul Chinese export market, whereby high value goods are transported, may allow the use of more modern freighters but on a domestic and regional basis, lesser freight value requires the use of less expensive aircraft. The distances involved and nature of the terrain offers considerable potential for airfreight, particularly as the country experiences further urbanization through sustained economic growth. The Chinese regional and domestic markets therefore offer considerable potential for the large number of older widebodies that will need to be converted as new types are delivered.

There now exists the possibility that the 15-year rule will be extended to an as yet undetermined level. China has long been conscious of the need to maintain aviation safety and has periodically introduced restrictions on aviation as a means of allowing infrastructure to catch up with demand. Any extension to the 15-year limit will therefore involve older aircraft with a greater potential for maintenance deficiency. Aircraft being imported older than 15 years will likely involve more rigorous maintenance standards. Operators of such aircraft will also be subject to more stringent controls.

While any change to Chinese government policy will take time, the impetus for a change in policy goes beyond the needs of the cargo market. China is already undertaking the conversion of aircraft under the auspices of Boeing, for example. The relaxation of the 15-year rule would allow further conversion work to be undertaken in China. Such modification may have to performed by a Chinese company in order to permit importation. With lower conversion costs and the prospect of greater demand from domestic carriers, the potential for lower availability of passenger units in the coming years will likely benefit residual values.