Will Fleet Upgrades Slow?

AFI KLM E&M noted the positive long-term trend of airlines increasing the proportion of next-generation aircraft.
Credit: AFI KLM E&M

A major question for MRO planners is how quickly to invest in capabilities for new-technology airframes and engines, maintenance demand for which will only materialize at scale some years after entry into service.

In its recent results, AFI KLM E&M noted the positive long-term trend of airlines increasing the proportion of next-generation aircraft, out of which the Franco-Dutch MRO provider expected to benefit from around 2024.

During the pandemic, many observers anticipated a quicker transition to new technology as sustainability concerns climbed up the agenda and older aircraft remained in storage.

However, several factors are now at work that may delay fleet upgrades longer than previously anticipated.

The most obvious are delays to new-generation aircraft programs such as the 787 and 777X, as well as the supply chain squeeze that is also hitting production of other types.

This means airlines will have to turn to lessors, who are now seeking some recompense for the largesse they extended during the crisis in the form of deferred or cancelled lease payment.

Higher lease rates will result, especially since the competitive pressure from new Chinese lessors eager to grab market share has receded in the face of consolidation and airline overcapacity and in their home market.

Other forms of financing will also become more expensive as interest rates climb.

So, in a bid to meet surging passenger demand, airlines will have to negotiate a path between higher lease rates – or loan interest payments – and their still-fragile balance sheets. The compromise may be to extend leases and service-lives of current-generation aircraft rather than make a quick transition to new.
Pushing them the other way are high fuel prices, which may rise further still due to the Ukraine conflict, but many airlines may still opt for the cheaper capital costs of midlife aircraft – at least for a few years.

Alex Derber

Alex Derber, a UK-based aviation journalist, is editor of the Engine Yearbook and a contributor to Aviation Week and Inside MRO.