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