2018 review: transitions market commentary

The average age of the transitioned airplanes was just over 12 years old, consistent with the long-term industry average for first leases of 10-12 years. Although operating lessors were successful in placing a large number of P&W powered A330s (21 aircraft), the market leader (for the third year running) was the Rolls-Royce Trent 700 powered Airbus A330, taking a fifty percent market share with 24 aircraft transitioned. Many of these aircraft joined existing operators’ fleets of Trent powered A330s such as AirAsia X (5), Brussels Airlines (5), and Air Transat (3); however, Rolls-Royce also welcomed DHL (European Air Transport) as a new Trent 700 A330 operator, with 4 freighter aircraft joining the fleet during 2018.

Boeing 777s were the second highest aircraft type to be transitioned, continuing to buck the perception that mature, large widebody aircraft are difficult to place. Transition volumes grew 48% to 34 aircraft, with volume growth for all three engine OEMs; the clear market preference being Rolls-Royce Trent 800 powered 777s (18 aircraft / 53%). 2018 saw a good mix of both existing operators adding to their Rolls-Royce powered fleets such as Cathay Pacific, FlyGlobal Charter Sdn Bhd and Nordwind Airlines; and also new operators joining the Trent 800 fleet, including Privilege Style (Spain), and IrAero (Russia). We must also recognise that four aircraft were leased from Boeing Capital Corp. to support existing Rolls-Royce customers with interim lift during the Trent 1000 fleet issues.

Boeing 767 volumes remained consistent with 2017 at 34 aircraft, with General Electric (GE) losing some market share (down from 81% share to 62%) to P&W (up from 13% to 38%). However, transition volumes of other legacy aircraft types – Boeing 747, 757 and Airbus A340 – continued to decrease; with both 747 (16 aircraft) and 757 (15 aircraft) down over 55% compared to 2017.

The next few years will be very interesting as the early A380 aircraft reach 10-12 years old with the owners, both operator and lessor owned, looking at their options. Of the two engine choices on the A380 the Engine Alliance (EA) fleet has a far greater volume of leased aircraft – 42% compared with 15% for Rolls-Royce – there is therefore a higher probability that these aircraft will enter the secondary market in volume over the next few years.

Europe saw the highest volume of operators transitioning aircraft into their fleets (71 aircraft), particularly with mature product types – A330 (28 aircraft) and 777 (19 aircraft). Whilst North America saw a high volume of legacy aircraft transitions (44 aircraft), including 767 (22 aircraft) and 747 (13 aircraft). Asia Pacific operators added 37 used aircraft into their fleets, with a mixture of both mature (23 aircraft) and legacy aircraft types (14 aircraft). In the Middle East, only 3 aircraft transitioned in during 2018, continuing the clear focus from operators on maintaining a young and new fleet profile. In Africa and Latin America, only 10 used aircraft were added between them.

These aircraft were placed with a number of operators, including BB Airways (Nepal) and cargo company YTO Express Airlines (Chinas third-largest express delivery company).

P&W had a successful year with 50 aircraft transitions, an increase of 19 aircraft on 2017. Driven predominantly by the placement of 16 ex-airberlin PW4000 powered A330 over half of which were leased from AerCap, and 13 transitioned 767 to mainly freighter operators, with an average of over 20 years.

GE dropped to third position (by volume) with a similar performance to 2017 of 45 aircraft (down 5 aircraft). Nearly 70% of the volume came through Boeing aircraft including 777 transitions to Rossiya Airlines (5 aircraft) and Nordwind Airlines (3 aircraft), and 767 placements to Cargojet Airways (5 aircraft), again with an average age at transition of nearly 20 years.

Boeing 757s saw the largest overall reduction (-39 aircraft) from a year opening position of 100 stored aircraft to 61 in December, this includes 32 aircraft retirements (plus transitions and return to operation). Another legacy aircraft type, the 747, also had a significant reduction in stored volumes – from 82 aircraft to 49 at year end – driven by over 30 retirements.

Mature aircraft types e.g. A330, 777, continue to see low volumes of aircraft retirements, with those that are permanently withdrawn from use typically being the initial entry into service examples or those with low market share engine types. Examples of this are the retirements of 7 PW4000 powered A330 during 2018; and 7 PW4000-powered 777s, both types with an average age of just less than 20 years old.

The current stored volume of aircraft (c.400) is critical as these aircraft provide a swift supply to fulfil short term or unplanned operator demand requirements; and given that a typical transition period is around 12 months, these stored aircraft are key to achieving 2019 volumes. 2019 will also likely see small volumes of other widebody aircraft types start to transition from first operators into the secondary market. Macroeconomic uncertainty may impact on transitions volumes as operators review their capacity and fleet plans. The industry is starting to comment that the market cycle has likely peaked, and is flattening off, with some mooting entering of a very gradual downturn, potentially driven by the current cost of fuel (oil price) that has risen steadily throughout 2018. This is balanced with the continued growth in both passenger and freight traffic, although the slowdown in the Chinese economy may place further pressure on airline operators to ensure they have a balanced fleet profile and capacity.

With many factors influencing the market for used widebody aircraft, many of which are outside the control of the operators, lessors, airframers and engine OEMs, it will likely be a challenging year for all, but one which also has significant potential. The industry will need to continue to collaborate to ensure the full aircraft lifecycle ecosystem continues to function for all, from new aircraft entering into service, mature aircraft types transitioning into the secondary market, through to the retirement and potential teardown of legacy product types.

Rolls-Royce continues to invest and focus on this important sector of the market, and is well positioned to help, support and enable transition of Rolls-Royce powered aircraft in the market. It will continue to drive the pioneering and industry-leading lessor service, LessorCare, now including LifeKey – an enhanced version of our industry leading OPERA offering, providing lessors with access to the value of TotalCare Life. There are currently 15 LessorCare customers covering nearly half of the leased Trent fleet, with new customers coming on board on a weekly basis.

As ever it will be fascinating to see how the year unfolds.