‘From Russia to Love’: Rich airlines scouring emerging markets for hand-me-down jetliners

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A Southwest Airlines flight prepares to depart as another Southwest jet arrives at Love Field in Dallas, Texas. The carrier’s in the middle of acquiring 83 used Boeing 737-700s from around the world.

It’s a tale that could be dubbed “From Russia to Love.”

Two Boeing Co. 737 jetliners swooped onto a factory airfield near Seattle in March, the last of the models once flown by a collapsed Russian carrier. They were headed for makeovers to erase the Cyrillic logos and any other trace of Transaero Airlines. Next stop: Dallas’s Love Field, where hometown carrier Southwest Airlines Co. is on a record shopping spree.

The imports are integral to what Jon Stephens, Southwest’s director of fleet transactions, describes as a “beautiful plan” to swap out some of its oldest models without spending lavishly. The carrier’s in the middle of acquiring 83 used Boeing 737-700s from around the world, the largest such haul in its more than four-decade history.

Southwest and its U.S. competitors — now awash in cash after earning record profits last year — are scouring developing nations for second-hand jetliners as cheap fuel makes older, less efficient aircraft more economical to operate. That bucks the traditional flow of hand-me-down planes from North American carriers to counterparts in emerging-market countries and makes an already volatile market for Boeing Co. and Airbus Group SE more unpredictable.

“If you’ve got excess things with wings, you are probably trying to sell it in the U.S. right now,” said George Ferguson, senior air transport analyst at Bloomberg Intelligence.

Driving the shift is the collapse of crude prices. While the commodities downturn has clipped economies from Russia to Brazil, lower fuel costs helped U.S. airlines earn almost US$19 billion last year.

Kevork Djansezian / Getty Images

United Continental Holdings Inc. is importing as many as two dozen used Airbus A319s from China. Delta Air Lines Inc., which pioneered the strategy, is studying taking used 737s as its Brazilian alliance partner, Gol Linhas Aereas Inteligentes SA, shrinks and restructures operations.

The carriers haven’t cut back on new aircraft orders, either, in a buyer’s market for cutting-edge jets. Because the used planes don’t need to be flown heavily to recoup capital costs, they can be added selectively to routes “so airlines have more schedule flexibility and can improve on-time performance,” said George Dimitroff, head of valuations for Ascend Flightglobal Consultancy.

Older planes lost their stigma in the U.S. during the last 15 years as four of the largest airlines filed for bankruptcy. To cut costs, they deferred orders and made do with planes they previously would have swapped for newer models. They’ve expanded the practice even as fortunes have reversed this decade, taking advantage of sophisticated maintenance operations to extend service.

If you’ve got excess things with wings, you are probably trying to sell it in the U.S. right now

Used-jet imports to North America jumped 29 per cent to 198 airplanes last year with Southwest leading the way, followed by Allegiant Travel Co. and Delta, according to Ascend data.

Lower fuel bills mean airlines are hanging onto older single-aisle jets rather than parking or scrapping them. Of the smallest Airbus and Boeing models, only one A319 and no 737-700s have been disassembled for parts this year, compared with a total of 17 in 2015, according to Ascend.

“It’s partly a function of oil and lease expense and there’s actually demand by airlines like United and Southwest that want to acquire these airplanes and fly them,” Dimitroff said. “They’re more valuable as fliers than a collection of parts.”

The trend is adding to a topsy-turvy global aviation market for the leading manufacturers, Boeing and Airbus. They already face slowing sales as airlines navigate currency fluctuations and sub-US$50-a-barrel oil, which has reduced the incentive to buy more fuel-efficient aircraft.

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