Cash-poor U.S. airlines may face huge plane bill

As aircraft age, replacements may be hard to come by

Other looming costs could easily push the airlines' essential capital outlays above $1 trillion in the next two decades. The expected increase in passengers will, for example, require more spending on terminals, training facilities and other essential infrastructure.

In addition, the Federal Aviation Administration says airlines will have to spend $20 billion to $25 billion in coming years to equip cockpits for the coming "NextGen" air traffic control system.

It's money the airlines simply don't have.

Lingering impact

Troubles that started with the recession and terrorism of 2001 severely limited the ability of the big U.S. carriers to update fleets, their largest capital investment and the heart of their business.

Most U.S. airlines remained on the sidelines the past few years while global sales of commercial jetliners boomed. They focused on restructuring and cost cutting, with four of the six large traditional carriers -- United, Delta, Northwest and US Airways -- going through Chapter 11 bankruptcy since 9/11.

But because of the worldwide scramble for new airliners, waiting to begin fleet replacement and expansion is a fast-expiring option for U.S. carriers. Boeing and Airbus are mostly sold out through 2010, with some models effectively sold out into 2013.

Any carrier that fails to get in line soon could end up flying lots of old, fuel-guzzling, maintenance-intensive planes. Boeing's Baseler points out that with a typical delivery rate of two per month, American would need 15 years to completely replace its 300 MD-80s, 1980s-era jetliners that compose about 45% of its fleet.

American provides perhaps the best example of the pressure that carriers are under to begin fleet renewal and expansion. Executives are loath to spend money on new planes because they don't believe the industry's economics currently justify such investments. But at 14 years average age, the fleet of 672 big jets is getting long in the tooth.

In March, American decided it couldn't wait any longer to replace its oldest planes and said it will move up delivery of 47 previously ordered Boeing 737s that it had delayed almost indefinitely after the 9/11 terror attacks. That's "the first bite at replacing the MD-80s," says CFO Horton. The first nine of the new 737s are scheduled to join the fleet in early 2009.

Horton said American would prefer to wait until Boeing offers a more fuel-efficient, mostly composite replacement for the 737 design. But Boeing President Scott Carson said at the Paris Air Show that the 737's replacement won't fly for at least another seven years.

The trick for American, Horton says, will be to "find the sweet spot" between ordering more 737s and ordering the 737's eventual replacement. At the same time, it likely will have to decide soon whether it can afford to begin replacing its aging Boeing 767 fleet with Boeing's popular and futuristic 787 Dreamliner.

Not all big carriers face the same challenge. Continental continued to take deliveries of new planes in the post-9/11 era and has the youngest fleet of the bunch. Average age: less than 10 years. It has orders for 85 more Boeing planes. Still, it needed to secure its place in the already long delivery line for Dreamliners to avoid being stuck 15 years from now with uncompetitive old planes. That's why it ordered 20 Dreamliners in late 2004, and raised that order to 25 in May.

The 787 is scheduled to fly for the first time later this year and enter commercial service in 2008. The first three won't join Continental's fleet until 2009; the last five not until 2013.

"Normally, we wouldn't commit to aircraft as far out into the future as we committed to those last five 787s. But when we saw the demand being what it had become, we decided to go ahead," says Gerry Laderman, Continental's treasurer and vice president of finance.

Southwest, the industry's profit leader, never stopped ordering planes. It has orders for 285 Boeing 737s, although in June it announced plans to defer delivery of 15 of the 34 it previously expected to pick up in 2008.

But the rest of the big U.S. carriers remain, for now, mostly on the sidelines.

Northwest ordered 18 Dreamliners two years ago, and expects to take delivery later this year of the last of 32 new Airbus A330 wide-bodies. But it still has, by far, the oldest fleet in the industry, with an average age of about 18 years.

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