American Accelerates Retirement of Older Aircraft
American Airlines is set to sharply increase the number of jets it is planning to retire beyond its announced plans as it accelerates a fleet transformation to respond to the coronavirus crisis. Some 4,700 jets have been parked globally as airlines slash operations due to travel restrictions, according to Ascend by Cirium fleet data, and American's decision confirms industry speculation that many of those older jets will not fly again.
Above - American's future fleet requirements will be based around newer, more efficient and quieter aircraft like the Boeing 787 (Kevan James)
In addition to the retirement of 34 Boeing 757s and 17 Boeing 767s announced just two weeks ago, American now plans to also withdraw a batch of 76 Boeing 737s it acquired between 1999 and 2001, nine Airbus SE A330-300s and 20 Embraer E190s.
The plans were announced by President Robert Isom in a video Q&A with employees on Sunday, where he said the arrival of new Boeing 737 MAX jets, expected later this year after a prolonged global grounding, could help facilitate the retirement of older jets that would be in need of heavy maintenance. The airline is also considering retiring some of its 50-seat regional jets, he said.
American said on March 12 it was accelerating the retirement of its remaining Boeing 757s and 767s as it looks at removing older, less fuel-efficient aircraft from its fleet.
"Decisions beyond the 757 and 767 have yet to be finalised, and we continue to make refinements to our overall fleet plan," American spokesman Ross Feinstein said, adding that decisions would be based on demand. Airlines around the world have slashed capacity and even the planes flying are nearly empty. Data firm OAG said the aviation industry was less than half the size it was in mid-January, just before countries started confirming coronavirus cases outside China.
Looking to the future - The Boeing 777-300 (Kevan James)
Aside from heavy maintenance needs on the A330-300s and some of the 737s, American was also facing retrofitting costs on some of the 737s. It said on Monday it would be seeking up to US$12 billion from a government aid package meant to help airlines manage costs during the downturn, particularly for employee payroll. The pace of aircraft retirements influences an airline's cost structure since new aircraft are costly to buy but cheaper to run. It also gives a clue to potential future demand for new aircraft.
Some analysts are predicting a surplus of aircraft as a wounded airline industry emerges from the coronavirus lockdown into what many economists expect to be a broad recession. But decisions by airlines to retire planes in 2020 and 2021 could trim that surplus, Ascend by Cirium consultancy head Rob Morris told an Airline Economics webinar on Friday. The last two years saw a total of 1,130 retirements, he said. Aircraft demand is influenced by a combination of new production and the rate at which airlines retire older planes.
Airlines' fleet plans had been structured around expectations that global travel demand would continue to grow this year and beyond, but now analysts do not expect passenger traffic to recover 2019 levels for some time.
As aircraft are placed in storage areas or even airliner graveyards, an American 767 landed in Miami from Lima, Peru late Monday in what could have been the final flight for its 767 fleet. So far American has temporarily parked 135 out of 150 widebodies - including 787 Dreamliners - and more than 300 single-aisle jets, and may continue to park more of its smaller aircraft as the crisis continues, Isom told employees.
Application for US$12b in government relief
American Airlines became the first US carrier to announce it will request federal aid under the just-approved relief package, saying it will apply for US$12 billion as it attempts to survive a global downturn sparked by the coronavirus pandemic. The US carrier has seen its business devastated as part of an industry-wide depression, but the funds should permit it to survive without resorting to deep layoffs, executives said in a letter to employees on Monday. With air travel at a near standstill due to COVID-19, Trump administration officials have said they are examining the possibility of taking equity shares in airlines as part of the bailout for the industry.
"These funds are being distributed to ensure continuation of essential airline service and protect jobs," American's Chief Executive Doug Parker and President Robert Isom said in the letter. "We intend to apply for these funds and are confident that, along with our relatively high available cash position, they will allow us to fly through even the worst of potential future scenarios." Relief funding should allow the airline to avoid involuntary furloughs or cuts to benefits or pay for the next six months.
United Airlines and Delta Air Lines, the two other big international US carriers, have until Apr 3 to apply for support under the US$2 trillion "Cares" Act, which sets aside US$50 billion for passenger airlines.
Delta currently operate one of the industry's oldest fleets, including the Boeing 767 shown here. Earlier types like the 767 may not fly again once current restrictions begin to ease.
(Kevan James)
HUGE DROP IN PASSENGERS
The airline industry is one of the sectors hardest hit by the COVID-19 outbreak, with US carriers suspending most transatlantic flights and many domestic routes. There were just 154,080 travellers on Monday, down from nearly 2.4 million a year ago, according to data from the US Transportation Security Administration. The latest forecasts by the International Air Transport Association estimate that airlines globally will loss US$252 billion in revenues in 2020 compared to last year due to the cutbacks.
The trade group praised the US relief bill and also cited measures by other governments, including China, Australia, Colombia and Singapore. As part of their efforts to rein in costs at a time when revenues have fallen sharply, leading US carriers have encouraged employees to take unpaid leave where they maintain their health and flying benefits.
American also said the company would institute 'enhanced voluntary leave and early retirement options as "there is no doubt we will have more team members than we need to fly our dramatically reduced flight schedules over the next several months." Under the new policy, employees who take voluntary leave will be eligible for a "partial salary component," Parker and Isom added.
US officials said the government could take a stake in the airlines, as it did when Washington bailed out Detroit automakers after the 2008 financial crisis. Treasury Secretary Steven Mnuchin, speaking on CBS's 'Face the Nation' talk show, said the government could take equity positions in return for infusions of taxpayer money.
"Some of them are very good companies that just need liquidity and will get loans. Some of these companies may need more significant help and we may be taking warrants or equity as well as that," Mnuchin said. "The president wants to make sure the American taxpayers are compensated. This is not a bailout."
Aid payment details will be discussed only once American Airlines has officially made its request.
American's Boeing 757s are now expected to be retired (Tyler McDowell)
Doug Parker and Robert Isom's statement:
CEO Doug Parker and President Robert Isom thanked Congress for passing and the president for signing the Coronavirus Aid, Relief and Economic Security (CARES) Act.
These are challenging and unprecedented times for our industry, our company and our team. The bipartisan financial stabilization package that Congress passed today will provide immediate and necessary support for our team members, the heart of our business, as we work tirelessly to weather this crisis together. On behalf of American’s 130,000 team members and their families, we are deeply grateful for the aid during this difficult time. We will continue to provide critical air service to keep communities across the country moving and flexibility for our customers in this time of uncertainty.
We applaud the administration officials and leaders in Congress who worked hard to craft and pass this legislation to protect aviation workers and the American public and the president for signing the CARES Act into law.
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