| Avolon refutes arguments that economic life of aircraft assets is shortening |
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| September 19th: Aircraft leasing company Avolon has released a research paper arguing that there is little evidence to alter the view that the standard 25 year aircraft depreciation policy currently practiced by the global aviation industry is appropriate. The paper, authored by Avolon's head of strategy, Dick Forsberg, cites voluminous historic and recent aircraft retirement trend data to look at the likely impact on aircraft economic values of the emergence of newer fleets, including current Airbus A320 and Boeing 737NG aircraft. |
The purpose of Forsberg's analysis is to test whether the 25 year assumption on the economic life of commercial jets remains valid. Avolon's own fleet currently has an average age of just 1.9 years.
The report, the first in a series that will deal with a range of aviation industry issues, considers how trends in aircraft retirement have changed over time and identifies key differences between the behaviour of specific aircraft types. The paper also considers the likely impact on retirement trends and aircraft economic values of the retirement of newer fleets, including current Airbus A320 and Boeing 737NG aircraft.
Aircraft Retirement
The average retirement age for all commercial jet aircraft retired, since commercial jet aircraft began flying in the 1950s, is close to 26 years. Avolon expects 8,000 aircraft to be retired over the next ten years, more than all of the retirements that have taken place since the 1950s. Despite the increasing number of aircraft retirements, Avolon’s analysis confirms that in-service life and average retirement ages continue to support the global aviation industry’s widely used 25 year depreciation assumption. Avolon’s study supports the thesis that the in-service lives of core single and twin-aisle fleets are not experiencing material diminution and that the industry’s economic life assumptions and depreciation policies will remain valid over the next decade and beyond.
"The economic life of commercial jet aircraft is an issue of great debate in the aviation industry today. In times of economic uncertainty or around the introduction of new technology, questions are raised around aircraft economic life assumptions made by investors and financiers and whether a permanent shift is taking place in the long-term values ascribed to commercial jets. We are experiencing both of those factors today and we have completed a detailed review of the retirement outlook for the global aviation industry to assess whether a change in valuation and depreciation time horizons is required," said Dick Forsberg, author of the paper and Avolon’s Head of Strategy.
"Whilst a small number of individual aircraft may suffer value impairment through early retirement, there is strong evidence that the broader patterns of fleet operation and ownership will continue to support current industry value retention assumptions and that that in-service life and average retirement ages continue to support the global aviation industry’s widely used 25 year depreciation assumption." |
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