Despite Higher Passenger Loads, Airlines Are Being Careful

Airlines in the US are putting off purchases of new aircraft that are aging just like their passengers.

Northwest Airlines, flies 109 of the oldest jetliners in the United States, DC-9s, with an average age of 35 years. Just out of bankruptcy, Northwest has yet to decide how to replace the DC-9s, which could remain in service another five years or more, according to the International Herald Tribune.

American Airlines operates a fleet of 300 older MD80s, a model with higher fuel consumption than those with newer fan-jets and lacks the latest in passenger comforts. American Airline has only a handful of replacement planes coming in the next few years.

The fleet of jumbo jets operated by nine major US airlines has aged steadily since 2002, according to Airline Monitor, an aviation research firm.

The average aircraft age was 10.6 years at the end of 2002, and it has risen each year, hitting 12.2 years at the end of 2006. US airlines quit ordering new planes after September 11, 2001... shrinking their fleets to adjust to a drop in demand. In the meantime travel has rebounded strongly, but airlines are, for the most part, years away from taking delivery on large numbers of new planes.

Boeing and Airbus are concentrating on production capacity in coming years to carriers in Europe and Asia, according to the report.

Only 43 of the 710 Boeing 787s on order have been identified as going to US airlines; 25 to Continental Airlines and 18 to Northwest Airlines. None of the 165 giant Airbus A380s on order are destined for US carriers. In essence a new generation of jetliners - bigger, more comfortable, more fuel-efficient - is largely bypassing US airlines and their customers.

"The fleet is aging almost one-for-one with the calendar," said Roger King, an analyst at CreditSights, who predicts that trend will continue for about five years.

"I feel like I'm in a tuna can," Said Scott Carr, a technology executive in Tulsa, OK when he flies on one of Northwest's DC-9's.

"I've grown to know enough about the various kinds of airplanes," Carr said. "I try to avoid Northwest now whenever possible. If I'm flying Southwest, they're flying newer planes and I can tell the difference."

Passengers are complaining about older aircraft as dirty, with worn out upholstery, dingy toilets, that are smelly and louder. Newer planes are generally roomier and some offer conveniences like seat-back television screens and outlets to recharge a laptop computer.

Cabin upgrades by the major airlines are announced as a big deal, but they can take two to three years to complete throughout the fleet, because they are typically done when planes are brought in for periodic heavy maintenance.

Analysts, estimate the US industry needs to spend about $280 billion over the next 20 years to replace aging fleets. Even if they had the financial wherewithal, planes are getting hard to come by.

Asian airlines have big orders. Lion Air of Indonesia has 95 Boeing 737s on order. Qantas Group of Australia has signed up for 65 Boeing 787s.

Discount airlines in Europe are also buying lots of new planes. Wizz Air, based in Hungary, ordered 50 Airbus A320s earlier this month. And Air Berlin has about 85 737s on order.

With the exception of Southwest Airlines, the major US carriers have either been through bankruptcy or narrowly avoided it. While airlines returned to profit in 2006, profit margins are still anemic -- "amongst the worst industries in the country," said Scott Kirby, president of US Airways. "The whole industry is hardly the poster child for strong credit."

Airlines are being cautious with $3 billion now on hand, "anything we'd do with cash would be related to strengthening the balance sheet - paying down debt," said Kirby.

US Airways recently placed a huge order for jets, but most of the deliveries are years off, according to Kirby.

A credit analyst at Standard & Poor’s said that keeping a large cash reserve is, for some airlines, the best safeguard against another bankruptcy in the event of a recession or labor dispute.

Also at play are airline workers, who made wage and pension concessions during the past six years, want raises and better benefits that could eat into fledgling profits.

The airlines carry big debt loads, and investors would like to see some money go to stock buybacks.

FMI: www.usairways.com, www.nwa.com, www.boeing.com/commercial/other_services.html