The takeaway: A 50% jump in returns from storage in 2016 suggests that lower fuel prices are keeping older aircraft in service longer, leading to strategic shifts in airline fleet usage.
Low fuel prices and strong demand have led to an uptick in aircraft retuning from storage, boosting MRO demand and creating a longer economic-viability shelf life for older models, a new Oliver Wyman analysis shows.
While about 1,200 aircraft were sent to storage in 2016, airlines returned 630 aircraft from storage, said Dave Marcontell, general manager of Oliver Wyman’s Cavok Group consultancy. That figure is about 200 aircraft higher than the rolling average from 2011-2015, Marcontell told attendees at the 2017 Aeronautical Repair Station Association (ARSA) annual symposium March 16. A total of about 1,500 aircraft were removed from the fleet, including 300 that were retired, lost in accidents or incidents, converted to freighters, or transferred to non-commercial roles.
The rising number of returns to service is boosting MRO prospects, he noted, because most aircraft placed in storage are up against a heavy airframe check or engine overhaul. It is also driving cabin-services demand, as aircraft often need at least a refresh, if not a complete interior reconfiguration, when they return from storage.
Fuel costs and healthy global traffic demand are driving the trend. While fuel prices have rebounded in the last year, they remain about half of what they were less than three years ago. Many analysts believe prices will top out at about $60/barrel and stay there for some time, as OPEC struggles to maintain production caps and U.S. shale oil producers, motivated by higher margins, are motivated to ramp up production.
The low oil-price range has meant a lower all-in cost of owning and operating older aircraft vs newer models, Marcontell said—one reason for the uptick in returns from the desert. Oliver Wyman now calculates that most current-generation narrowbodies, such as the Airbus A320ceo, will remain at least as cost-effective than their next-generation replacements, such as the A320neo, until the 2023-2025 timeframe. For widebodies, the comparable window is 2021-2023.
For MRO providers, this is all positive news—yet there are cautionary notes. A major one: capacity trends in North America, which remains the largest market in terms of both fleet size and MRO demand.
Oliver Wyman’s latest forecast has the region’s fleet growing by a net 600 aircraft, including 4,600 deliveries and about 4,000 retirements. MRO demand will rise only 1% during the decade, and is projected to fall slightly through 2022 before bouncing back again—the result of newer aircraft replacing their more maintenance-hungry predecessors.
But one change in key macro-economic factors, such as rising fuel prices or a sputtering economy, could alter these figures.
“If airlines pull back capacity a little, [MRO providers] will feel this,” Marcontell said.
Empirical evidence shows the near-term trend going in the other direction. Both United Airlines and American Airlines have been boosting capacity at major hubs.