Written by Aircraft Commerce Issue no. 123 published May 2019
Technological developments generally diminish the economic appeal of older aircraft. Low cost of funds has enhanced the case for new aircraft. Are low financing costs sustainable beyond the short-term, and do new generation types have a big enough advantage over legacy aircraft? Depending on the point of view, there have been four or five generations of narrowbody and widebody jetliner aircraft. Original equipment manufacturers (OEMs) have focused on reducing aircraft fuel burn and the maintenance burden for each generation to provide airline operators with a reduction in total operating costs, and cost per available seatmile (ASM).
There is generally, however, a trade-off between the lower cash operating costs of new-generation aircraft and their purchase price and related monthly financing charges, which are higher than for older aircraft.
Financing accounts for a large portion of total aircraft-related costs, so it influences the decision between new and used aircraft. Aircraft lease rates have been relatively low for an extended period, while the past two generations of aircraft have also provided significant reductions in fuel burn and maintenance burdens. This has made the economic case for acquiring new aircraft more attractive than previously. This raises the issue of how the economic life cycle of aircraft has changed, and how the aircraft replacement cycle might be affected by an increase in interest rates and financing charges.
Click here to read about How the economic useful life of aircraft is changing
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Written by Aircraft Commerce Issue no. 123