Market balance: gradual resolution May 2002

The jet aircraft global imbalance is gradually being resolved, mostly through the supply rather than the demand side. Traffic figures remain depressed. In the first quarter of this year the US majors showed a traffic decline of 10% domestically and 12% internationally while AEA RPKs were down 10% intra- Europe and 9% intercontinentally. (The European figures do not reflect the impact of Europe’s low cost carriers — intra–Europe traffic would have been marginally positive if their RPKs had been included.)

The positive indicator is load factor, which is consistently strong in all markets, indeed at record levels for March on transatlantic and transpacific routes. At these levels it should be possible to push up yields again, and that is of course what most airlines are trying to do. The counter–effect for business travel orientated carriers is that the yield mix is continuing to deteriorate as passengers downgrade from business class.

There are reports that some airlines have now decided to accept deliveries postponed from last year — Iberia is taking its A320s for example — but aircraft orders are limited to those from the low costs and Asian carriers, which are showing signs of renewed confidence.

Boeing has now confirmed that deliveries this year will be about 380 units, down almost a third from 2001; 2003 deliveries are estimated at less than 300. Airbus is on target for about 280 units this year, down 14% from 2001.

Even more important for market balance is the number of aircraft now parked which are never likely to return to passenger service. Our calculations show the theoretical surplus (see Aviation Strategy, February 2002) at just over 2,300 units.

Lo and behold there are at present 2,300 aircraft parked according to ACAS. The age/type profile is detailed below: it suggests that about half the parked aircraft are permanently out of commercial service. The peak of the storage trend has now been reached and aircraft are starting to be de–parked (as Lufthansa describes it).

Finally, we present opposite a summary of some of the key values of new and second–hand jets as assessed by the Aircraft Value Analysis Company (AVAC). The significance of AVAC’s values is that they actually represent market values, estimates of the prices that aircraft might be traded at. Other appraisers tend to rely on concepts like base or fair market value that depends on assumptions of theoretical market balance.