AC*/TS/PD/WS | Canada-Based Carriers

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Tough shopping for Air Canada
Airline analysts, consultants skeptical Used widebody jets hard to come by
Rick Westhead
Toronto Star
21 June 2005

Air Canada shouldn't expect to find bargains on second-hand planes after the union representing mainline Air Canada pilots voted to quash the carrier's plans to buy new state-of-the-art jets, airline analysts and consultants say.

Demand for widebody jets, typically used to fly routes from North America to Asia and other far-flung destinations, has never been stronger.

With jet manufacturers such as Boeing Co. and Airbus SA still several years away from delivering new models, airlines are gobbling up most of the fuel-efficient second-hand planes they can find.

"The market for passenger aircraft continues to strengthen," Morgan Stanley airline analyst Douglas Runte wrote Sunday in a report to clients. "There are almost no widebody aircraft such as the 767, 777 or A330 available."

In fact, of the 600 Boeing 767-300ER jets produced by the manufacturer, just four were "parked" and available for purchase on the second-hand market in March, Runte wrote. Boeing's 777 model and Airbus' A330 and A340 models are in similarly scant supply.

"Prices are rising and availability is tight," said David Treitel, an executive with New York airline consulting firm SH&E. "There's no easy solution for Air Canada here."

However, Air Canada spokesperson Laura Cooke said the airline remains confident on meeting its target of acquiring three widebody planes next year. Last year, Air Canada acquired six such second-hand planes, and the number available could rise dramatically if any carriers filed for bankruptcy or bankruptcy protection.

Air Canada had originally placed orders worth $6.1 billion (U.S.) for 18 Boeing 777s and 14 of the Chicago-based company's new 787, also known as the Dreamliner for such things as its spacious interior and large passenger windows. Air Canada also acquired the option to purchase 18 additional 777s and 46 more 787s.

Air Canada didn't reveal the cost for each airplane, but Boeing's 777-300ER has a list price of as much as $245.5 million. The 787 sells for $120 million.

Even with the steep price tags, Air Canada hoped the new planes would pare fuel costs by about $300 million within five years. Now, however, the company faces paying relatively steep prices for second-hand jets.

Treitel, whose company has been hired by airlines to buy used planes, said he recently considered a purchase for a group of used 767 jets that were built in the early 1990s and selling for at least $28 million apiece.

Even after the purchase, an airline would face the added cost of refitting the plane to adapt its avionics equipment and conform to the carrier's seating configurations. That alone could add another $15 million to the price, Treitel said.

In a memo to employees announcing the collapse of the Boeing deal, Air Canada executive vice-president Rob Reid noted that "the used aircraft market, especially for wide-bodies is extremely tight, but hopefully, over the course of the next year we will be able to find used A340, A330 and 767 aircraft, which will enable us to achieve the growth that was otherwise planned for 2006 with 777 deliveries.

"While, clearly, we don't feel that this is as attractive economically, especially with today's high fuel prices, we will work our way through it," Reid wrote. "Key for us will be the longer-term issue of replacing our 767 aircraft, but for now, we'll just leave that for another day."

Kent Wilson, president of the Air Canada Pilots Association, confirmed yesterday that the union's members voted 1,140 to 961 to scuttle the purchase, at least partly because of widespread rancour over how pilot seniority lists were merged when Air Canada bought Canadian International Airlines Ltd. five years ago.