Commodity Trading on the International Market-Airline crisis is boneyard boom |31 October 2008

While airlines are finding it cheaper to park their planes in desert areas, because of lower passenger traffic, small airline Air Seychelles has, happily, acquired a third Boeing 767 aircraft named Amirantes. Air Seychelles has also placed orders for Boeing’s Dreamliner.

The arrival of Amirantes was planned before the drop in visitor arrivals from Europe, Seychelles’ major tourism market now affected by the worldwide financial crisis.

In the US, American Airlines, Delta Air Lines, Northwest Airlines and United Airlines are all grounding jets to offset high fuel costs and falling demand for seats. Clickair from Spain, Ryanair in the UK and Qantas in Australia also have plans to park some of their fleet.

The resting places for these jetliners are the maintenance and storage centres – the so-called aircraft boneyards – that line the deserts of southern California, Arizona and New Mexico in the United States. And business here is booming.

The Evergreen Maintenance Center (EMC) in Arizona sprawls across the sun-scorched Sonoran Desert, north-west of Tuscon. Spanning 1,600 acres, the facility holds a 6,800-foot runway, three hangars and maintenance facilities that can handle up to 400 parked aircraft.

This summer alone, 30 jetliners joined the ranks of abandoned planes. The majority of these were narrow-body airplanes from US domestic carriers, including three Boeing 767s surrendered by MAXjet Airways, the all-business carrier that went bankrupt last December.

There are now 165 airliners in storage, says Steve Coffaro, vice-president of Evergreen Maintenance Center. But he expects up to 50 more to arrive in the next three to six months.

Mike Potter, who oversees operations at another aircraft graveyard in the Mojave Desert north of Los Angeles, has brought in 15 this year. And more are expected.
 
“If the airline industry keeps on going in the direction that it is heading, there will be a couple of hundred airplanes here in the next 12 to 18 months,” he says.
 
Owners of the aircraft, usually leasing companies and banks, prefer the monthly rates at these desert storage centres to the daily rate fees charged by national airports.

The number of stored aircraft acts as a useful barometer for the health of the airline industry. But so does the measure of what happens to the aircraft once they arrive at the boneyards.

When times are good for global aviation, EMC is busy performing the necessary maintenance work to get planes back in the air under new ownership, usually in developing countries. One year ago, says Coffaro, demand outstripped supply for aircraft from start-up airlines in Russia, Central and South America, and some African countries.

But when demand for second-tier aircraft falls – and at the same time as US carriers ground their fleet – the maintenance side of business declines, and storage and disassembly go up.

Until now, 80% of EMC’s business has been on airframe maintenance, with 20% spread across storage and recycling services. But those percentages could easily switch if the global industry goes into decline.

At the moment, Coffaro is optimistic that demand for remodelled aircraft will continue. “It is still up in the air who will buy aircraft and who will not. But for the time being at least we expect 20 to 30% of the aircraft that are coming in to be remarketed.”

Part of this demand will come from air cargo firms, he says, that want to replace old freighters with remodelled commercial aircraft such as the Boeing 757.

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Crude oil prices

As at 30/10/08

Nymex Crude Future 69.79 US dollars per barrel
Dated Brent Spot 66.99 US dollars per barrel