Airline Maintenance Choices

AIrline Maintenance Options

Maintenance is ~10% of airline operating costs, and airlines are in cost-conservation mode.

Airlines have several options to reduce MRO spend. Whether to perform the MRO or not may depend upon MRO type and MRO alternatives (e.g., leasing in an engine or part, burning greentime, USM, etc.).

They may have options regarding material to use, which may avoid new parts (critical to OEM profits).

Options depend upon airline and, if relevant, lessor policies. Also, there may not be any alternatives to the OEM part. The point is, however, that they may well have options.

It’s also vital to consider if the MRO is a relatively high cost (e.g., engine shop visit)? The higher the cost, the more likely for deferral or alternatives. Is the maintenance discretionary (e.g., cabin upgrade) that could be deferred? Is the aircraft owned or leased? What requirements does that place upon the operator (and is an end-of-lease check due)?

It’s worth considering the type of MRO contract that the airline has with its supplier. If they have paid by the hour, the operator may send the engine or component for overhaul/repair.

Finally, does the airline have the in-house capability, or is the MRO outsourced? That may also impact whether they perform the maintenance or delay it.

Aircraft Retirements up to September 2020

Aircraft retirement is typically a financial decision driven by a desire not to invest in maintenance due to newer or existing technology aircraft being available to substitute.

The graphic below explores the retirements since 2001 and shows what these are as a % of the active fleet. We can see that retirements, as a % of the active fleet, have hovered between 1.8% and 3.4%. The average was ~2.5%.

There have been ~12,585 aircraft retirements since 2001. Retirements peaked in 2012 with ~890 aircraft retiring. On average, there have been ~620 aircraft retirements per year over the last decade.

So far, ~465 aircraft have been officially retired in 2020. There’s a lag in the data, and we expect that by the end of 2020, more aircraft will retire, including some aircraft that are currently parked that ultimately won’t return to flying.

Also, many aircraft retired so far in 2020 were already planned to retire before COVID hit.

However, this doesn’t mean they will be parted-out straightaway. In recent years, approximately 400-500 aircraft have been parted-out per year. 2020 part-outs might be lower given the delay/work stoppage due to COVID and concern over prices to pay for assets at a time when buyers don’t want to overpay, and sellers don’t want to sell too cheaply.