Soaring fuel prices squeeze pre-owned t-prop inventory

 - December 1, 2008, 7:09 AM

Future fuel prices will determine the markets for regional turboprop and jet aircraft, according to Saab Aircraft Leasing president and chief executive Michael Magnusson. The Swedish manufacturer maintains a sizeable fleet of its Saab 340 and 2000 regional turboprop designs for lease and expects to benefit from industry moves to reduce costs by making greater use of such equipment rather than regional jets.

When Magnusson spoke to AIN European regional airlines were reporting that fuel costs had increased by 41 percent in the 12 months to July 1 and now accounted for about 13 percent of total costs. According to European Regions Airline Association environmental-impact statistics, after a fall in consumption last year, the early months of this year saw operators burning more fuel, possibly reflecting a slight increase in numbers of turbofan aircraft in the fleet.

According to Magnusson, turboprops are generally perceived to be much more efficient than turbofan-powered machines, but it is almost impossible to say which aircraft are the more economical. “The market is not black and white, and aircraft operators sway between RJs and turboprops.”

He conceded that the first nine months of the year saw reduced market activity, a circumstance that he welcomes because it means “there are so few aircraft available [for lease] and any [becoming so] are placed quickly.” On the basis of current lease contracts, he says that only “a few” Saab turboprops are expected to become available next year.

Following this year’s sharp rise in oil prices, available regional jets in October outnumbered turboprops, said Magnusson. Average New York jet-fuel spot prices grew from around $2.50 per gallon in October 2007 to approximately $4 in mid-2008 before falling below the $3.20 mark in October.

He said that in the 12 months leading up to October the supply of used 30- and 50-seat turboprops continued to decline. For example, UK regional Eastern Airways, which is adding two more Saab 2000s to its six-strong fleet this month, has had to lease aircraft from the manufacturer because none are available to buy.

In contrast, availability of used 30- and 50-passenger RJs increased steadily throughout the first 10 months of this year, with a particularly steep growth at the end of the northern summer even as average fuel prices had declined sharply. In October, numbers of available RJs exceeded those of turboprops for the first time since Saab began tracking the market three years earlier.

Looking ahead, Magnusson predicts that more than 200 fifty-seat RJs will become surplus in the U.S. “over the next few years.” On the turboprop front, American Eagle has been forced to reduce fleet capacity and “obviously chose the smallest aircraft [including] Saab 340s.” The airline is expected to have parked all 27 of its 340s by early next year, according to Magnusson.

Saab expects to see growth in the Russian market, following the withdrawal of an import tax on aircraft of up to 50 seats.

Accordingly, he foresees double-digit growth in Russia over the coming 12 months. “They have a lot of old, fuel-inefficient aircraft that do not fly very much.”

A differentiator in airlines’ choice of what equipment to use where is, of course, route length, since the greater speed of RJs is increasingly a factor as distances increase (even though turboprops may be flown over distances as long as 700 miles).

Nevertheless, there can be disparities in use between similarly powered designs. For example, Magnusson notes that, in terms of global daily departures between July and September 2008, Franco-Italian ATR 72s were much more popular than competing Bombardier Q400s on routes of less than 200 sm, with the latter only matching the use of 70-passenger RJ designs. However, the RJs come into their own on flights of more than about 250 sm, beyond which there are always many more departures of RJs than turboprops.

Beyond the 200- to 300-sm sector, use of turboprops declines relatively quickly: beyond stage lengths of 400 miles there are fewer than 100 daily departures by each design, whereas RJ daily departures number between 200 and 400 for flights of 200 to 700 miles. Larger RJs and small single-aisle jetliners such as Airbus A320 and Boeing 737 variants increasingly enter the marketplace for services of more than 400 miles.

Indeed, the highest incidence of daily RJ flights occurs when sectors exceed 900 miles. Saab says there are very few ATR 72/Q400 flights of more than 700 miles.

Magnusson says that among smaller 30- to 50-seat regional aircraft there are about 17,000 to 18,000 daily departures worldwide, while among 70-seaters there are almost 5,000 per day.