Huge surge of A320 orders greatly exceed near-, mid-term A320 retirements

Discussion
Low cost airlines drive orders

The proliferation of low-cost orders has driven many of the orders booked by Airbus in recent years.

Indigo Airlines of India, AirAsia, Lion Air, Norwegian Air Shuttle and Wizz Air account for hundreds of orders. Other low-cost carriers, such as those in Asia (Vietnam) and the US (Spirit, Frontier and jetBlue) are key customers.

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Lion Air and Norwegian ordered 100 Airbuses to entered into aircraft leasing. Financially distressed Norwegian said it is planning to sell its delivery positions to reduce its capital requirements and, hopefully, gain some profits from the sale of early positions.

AirAsia also ordered hundreds of Airbuses, well in excess of its own growth requirements, for its leasing unit. Although not nearly as dire as Norwegian, AirAsia’s poor financial results prompted sale of its leasing arm.

Aircraft retirements

The chart compares A320 orders with A320 retirements, but this is only part of the story. Some legacy airlines ordered hundreds of A320s to replace aging McDonnell Douglas MD-80s (American, Delta airlines) and Boeing 737 NGs (Delta).

The reason there are relatively low numbers of near- and mid-term A320 retirements is because the A320 didn’t enter service until 1988. The A321 followed in 1993 and the A319 in 1995. The A318 entered service in 2002, but this airplane was developed to kill the McDonnell Douglas MD-95. Few A318s were built.

Early fleet flips

While most US airlines and some European airlines historically keep fleets for 20-25 years, most low-cost airlines tend to “flip” their fleets as early as seven years, when warranty-driven maintenance holidays expire. The USA’s Southwest Airlines is an exception,

Initial lease terms for narrow-body aircraft tend to be 10-12 years.

These factors could result in a supply-demand imbalance as relatively young Airbuses exit service with first operators. (The same will be true for Boeing 737s, which will be the subject of a future post.)

These early fleet flips help drive the surge in orders in the early years of the delivery stream, illustrated in the chart.

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