Analysis-Boeing 737 MAX crisis adds to high demand for older planes

By Allison Lampert, Conor Humphries and Tim Hepher

MONTREAL/DUBLIN (Reuters) – The second-hand market for airplanes is booming due to a chronic shortage that has persisted since the pandemic – and fears are growing that Boeing (NYSE:)’s latest crisis could tighten the squeeze in coming months.

The industry is already some 3,000 planes short of what it planned pre-COVID due to pandemic disruption and other bottlenecks at Boeing and Airbus, leasing firm Avolon says.

Now, curbs on Boeing production in the wake of a mid-air blowout add to pressures forcing airlines to fly older planes for longer – from engine shortages to supply chains and an abrupt snapback in travel in many parts of the world.

“It just compounds the supply shortage and it pushes back the date when we may return to a balanced market,” said analyst George Dimitroff of the aviation analytics company Cirium, who sees strains until at least 2027.

Carriers are paying higher prices to ensure they have a big enough fleet to keep up with demand, which airlines group IATA expects to reach a record 4.7 billion passengers in 2024.

The supply crunch has been a hot topic at a major meeting in Dublin, home to many of the top lessors, this week.

“We’ve seen a strong increase in values because of the shortage of new kit,” Aengus Kelly, said CEO of AerCap, the world’s largest trader and lessor of aircraft.

In a break from usual patterns, some airlines are buying the planes they had been renting rather than negotiating lease extensions, he said on the sidelines of the Airline Economics conference.

That’s a sign that “airlines know that the issues that we have are not going to get solved anytime soon,” he added.

More than half of the global passenger fleet is lessor-owned. Rental prices for those jets were rising well before the Jan. 5 panel blowout that led to a curb on Boeing’s production.

Typical lease rates for a 10-year-old Boeing 737-800, which preceded the MAX, were around $220,000 per month in January 2024, up from $183,000 in January 2023 and $156,000 in 2022, Cirium said.

Current 737-800 leasing bills are still 5% below January 2020 levels, but Cirium said that should change by end of March.

Boeing hoped to increase production for its MAX family of aircraft after a years-long crisis stemming from crashes in 2018 and 2019. But the panel blowout on an Alaska Airlines flight has added regulatory oversight expected to slow production growth.

MAINTENANCE EFFORTS

The average age of an airline-owned passenger plane was 16 years in 2024, up from 14 in 2019, Cirium said. Planes are typically used for 25 years, but can fly longer and are just as safe as new aircraft if properly maintained, experts say.

“Airlines, lessors (are) making the decision to invest in the maintenance of older aircraft to keep these older aircraft going for another four or five years,” Avolon CEO Andy Cronin said.

“We’re seeing much more of that activity in the sort of older part of our portfolio than we would have expected.”

While delays in new plane deliveries have hurt airlines and lessors waiting for new planes, the demand for older equipment opens a potentially lucrative path for those with older fleets.

Meanwhile, maintenance firms stand to benefit from the greater use of older planes which notch up more shop visits. But labor shortages mean the queue for those repairs is longer.

Engines are in especially short supply because of repair capacity problems at RTX’s Pratt & Whitney. Manufacturers have raised prices on new engines, reducing the incentive to switch to newer equipment as soon as possible.

The squeeze on passengers jets is a headache for air cargo, which transports a third of the world’s trade by value.

Typically, passenger jets are eventually converted to freight transport or broken up for parts. But Robert Convey, senior vice president at Florida-based Aeronautical Engineers, said firms expect to find fewer passenger planes to convert.

Extending the life of older, less fuel-efficient planes may also increase environmental pressure on an industry that has touted its efforts to generate net zero emissions by 2050.

Industry officials said production setbacks won’t derail those goals, but environmentalists disagree.

“There is an over-reliance on new so-called ‘more efficient’ aircraft technology but no plans to stop adding more polluting planes to the sky,” said Jo Dardenne, aviation director at Brussels-based Transport & Environment.