Holes Start to Appear In Delivery Schedules Contributing to Value Decline

The flurry of casualties in the last few weeks, combined with changes in delivery schedules, is allowing holes to appear in delivery schedules, only partially easing supply issues. While Frontier continue to operate, some aircraft are set to be sold. Other operators have not been so fortunate. ATA Airlines...

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The flurry of casualties in the last few weeks, combined with changes in delivery schedules, is allowing holes to appear in delivery schedules, only partially easing supply issues.

While Frontier continue to operate, some aircraft are set to be sold. Other operators have not been so fortunate. ATA Airlines had a fleet of B737-800s, B757s, DC10-30s and L1011s. The DC10-30 and L1011s have lost much of their value in recent years such that remarketing was never an issue. The six to seven year old B737-800s are all leased from ILFC. With the lessor having to turn away operators due to limited supply, there should be no difficulty in placing the 12 aircraft with eager lessees. With the ATA leases having been secured during the depths of the previous recession in 2001 and 2002, ILFC may now welcome the opportunity to place the aircraft at perhaps higher levels. Any accumulated maintenance reserves will not be unwelcome. ATA also operated 10 B757s leased from a variety of lessors including Rolls-Royce and Partners and GECAS. The B757 continues to remain in demand such that values approximating $40 million are sometimes applied to the youngest examples, though a figure of $30 million is perhaps more appropriate. The disposal of some 10 B757s should not be an issue given demand and as such values and lease rentals remain unaffected.

Skybus was operating a fleet of A319s but had a large number on order. A significant number were due for delivery in 2009 and in the years thereafter. With both Airbus and Boeing previously advising that production had been sold out for the next few years, the availability of a number of A319 slots will not be an issue. Airbus will be pocketing deposit and progress payments already made by Skybus and will not even need to discount the freed slots, contrasting sharply with the experience of 2001-2003.

Such is the severity of the problem in the U.S. that Southwest has found it necessary to delay the expansion of the fleet. Only 14 instead of 28 new aircraft will be delivered in 2009 and plans to retire 22 older aircraft may be revived. In addition, deliveries that were due to be made in 2010 have been deferred for some three to five years. At the same time, Southwest exercised options for 12 aircraft which suggests that it has plans to retire existing equipment as the years progress. Oasis Airlines, flying out of Hong Kong, had been operating four B747-400s. Such is the demand for the type, both in a passenger and freighter configuration, that disposal will not be an issue. The merger of Delta and Northwest may see a number of regional jets enter the market as regional alliances are changed. For the rest of the fleet, there is little overlap though if there are to be no fleet reductions, it must be wondered where the cost savings of the merger are to be derived. Ryanair is to ground some 40 B737-800s during the forthcoming winter period to mitigate the cost of higher fuel bills. Such grounding should at least allow utilization levels to fall towards the industry average, providing some solace for asset values.