How airlines buy new aircraft: a mix of price, strategy and in-flight innovation

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AeroTime

Behind every successful airline is a fleet of carefully selected aircraft, carrying out an array of operations from passenger and cargo flights to charter and ad hoc operations.  

Airline fleets are the lifeblood of the air travel industry because airlines rely on their aircraft as a main source of capacity and revenue generation.   

However, airlines dedicate an enormous amount of time to planning, strategizing and simulating which aircraft models and how many aircraft will best fit their operating model. This has a significant impact on an airline’s efficiency and profitability.  

But what goes on behind the scenes? And what happens when an airline introduces new aircraft into its fleet?   

AeroTime talked to Colin Dobson, Managing Director of aviation design and manufacturing firm TransParagon Global. He has many years of experience selecting, trading and introducing aircraft for the likes of British Airways and, more recently, introducing the Boeing 787-9 to Virgin Atlantic’s fleet. 

Half a billion dollars for an aircraft. But where do you deploy it?   

The price of commercial passenger aircraft can vary from tens of millions of dollars to several hundred million dollars per plane. For instance, in 2022, a narrowbody Boeing 737-700 cost US $90 million at listing price, while the cost of a single widebody Boeing 777-9 jet fell just $58 million shy of half a billion US dollars.   

In reality, the list prices often differ drastically from those negotiated between the airline and manufacturer. Renewing a fleet or introducing a new aircraft model can often be a multi-million – or even a multi-billion – dollar process.  

In June 2011, American Airlines announced the purchase of 460 narrowbody jets, including 260 Airbus A320s and 200 Boeing 737 MAXs. The deal was the largest order ever placed by a major US-based airline. At the time, the deal was valued at $38 billion at list prices.  

American Airlines saw its record snatched by Air India. On February 14, 2023, the Indian airline closed a deal with Airbus and Boeing to acquire 470 new aircraft, 400 of which are narrowbody jets and 70 twin-aisle aircraft.   

While price will always be a key component for aircraft acquisition, there are a number of other factors that airlines need to consider when looking into their future workhorses.   

“Price aside, you have to start looking at the overall commercial viability of the platform you are looking to deploy,” Dobson tells AeroTime. “Within that story unfolds the lifecycle costs for the unit itself, the maintenance solutions, the crewing solutions, and the interior that you choose to put in. There is a whole mix of things that come together.”  

An airline operating across a short-haul network is more likely to deploy narrowbody aircraft, such as a Boeing 737 variant or a model from the Airbus A320 family, over a widebody aircraft. A narrowbody aircraft such as a Boeing 737-800 ($106 million) is about three to four times cheaper than a Boeing 777-300ER ($375 million).  

Due to the lower cost and greater usage, a narrowbody aircraft generates a higher capital turnover, operating five or six flights a day in comparison to one or two flights operated by a widebody.   

However, on transatlantic routes (flights across the Atlantic Ocean from Europe, Africa, South Asia or the Middle East to North America) the average profits from a widebody aircraft can be 30-55% higher than a narrowbody.    

While commercial viability is key for a business, Dobson says that it does not overshadow the airline industry’s attention and adherence to safety standards. “It’s important that we [the industry] don’t take our eye off the safety ball. It’s crucial. To date, the industry has achieved a phenomenal track record through continuous improvement, product development and reliability enhancements.”  

Colin Dobson Managing Director of TransParagon Global Courtesy photo

Why do airlines place aircraft orders and delivery options years in advance?  

Occasionally an airline will place a large-scale order (an order comprising around 50 to 100 aircraft) with the first aircraft projected to be delivered within a couple of years or across a period of up to a decade.   

On December 13, 2022, United Airlines announced an order for 100 Boeing 787 Dreamliners with options to purchase a further 100. This was the largest widebody aircraft order by a US carrier in commercial aviation history. United Airlines expects to take delivery of the new widebody planes between 2024 and 2032.   

Additionally, the US carrier also exercised its options to purchase 44 Boeing 737 MAX aircraft for delivery between 2024 and 2026 and ordered 56 additional MAX aircraft, slated for delivery between 2027 and 2028.  

In total, United expects to take delivery of around 700 new narrow and widebody aircraft by the end of 2032.  

Aircraft deliveries can be spread across a long period of time due to various external factors that can affect a manufacturer’s ability to maintain the planned delivery schedule and an airline’s ability to operate optimally. These include the business environment, supply chain issues, geopolitical events, crises, war and global pandemics.   

The start of the Russia-Ukraine conflict in February 2022 disrupted supply chains and air routes between eastern Asia and Europe. The war resulted in both passenger airlines and cargo airlines adding additional hours to their flights as they circumvented Ukraine and Russia’s airspace to avoid risks associated with the conflict.   

In September 2022, Finnish flag carrier Finnair told AeroTime about its plans to reduce the number of aircraft in its fleet. Following Russia’s invasion of Ukraine and the subsequent closure of Russian airspace, which resulted in significantly increased flight times to Asia, Finnair, which had long connected Europe and Asia, was forced to change its strategy.  

Changes in the operating environment often place pressure on air carriers to reshape, remodel and adapt their business models.   

“So, securing manufacturing slots, known as options, is a way for an airline to protect its longer-term interests at a time when potentially several airline customers are competing for the same limited capacity,” Dobson explains.    

Aircraft interior: the innovation behind in-flight passenger experience   

From racing to secure a window seat to flying in first class from Singapore to New York, an aircraft’s interior in-flight entertainment systems (IFE) play a key role in delivering a great in-flight experience for passengers.  

“Customers do not board an aircraft, look outside and see the engine and wonder if it will work. Operations, maintenance and safety are a given. In general, they are focused on the onboard experience,” Dobson says, adding that “the work and effort to dispatch an aircraft, which the customer does not see, is significant”.  

Interior refurbishment of a single aircraft can take anywhere between one to eight weeks depending on the scope of operations and the number of aircraft.   

For example, in August 2022, Emirates kickstarted a two-year retrofit program aimed at fully upgrading the cabin interiors of 120 of its Airbus A380 aircraft.  

To accomplish the project, which Emirates called the ‘the biggest-known aircraft retrofit program in modern commercial aviation’, up to 190 additional staff were recruited by the airline. It also engaged with 62 key partners and suppliers who also hired hundreds of skilled workers.    

In total, up to 2,200 parts were requested by engineers working on the project and Emirates also raised 12,600 purchase orders for the initial phase of the program.  

Dobson says that the need for airlines to fit their fleets with innovative interiors is gradually rising due to demand from a younger generation of passengers. These travelers are seeking a more modern experience than previously provided by aircraft interiors and in-flight entertainment systems.  

“In-flight entertainment systems is a good case in point where some airlines are choosing not to install the fully embedded IFE system, preferring to use handheld devices. A significant number of customers today (typically over 80%) board with their own device. As such, the industry continuously questions the optimum customer proposition, balancing, cost, weight, flexibility, standards and so forth”, Dobson says.  

Crew training and hangar infrastructure    

If aircraft are the lifeblood of the air travel industry, crews, ground personnel and hangar facilities are the circulatory and organ systems that help house and carry fleets to where they need to be.  

Within the many divisions that come together to introduce new aircraft, there is also a huge logistical crew planning exercise that takes place.   

To become a commercial airline pilot, a cadet would need to undergo between four and 12 months of training to attain a private pilot’s license depending on the intensity of the program. An additional two years of training, alongside accruing 1,500 flight time hours, is required to attain an Airline Transport Pilot License (ATPL).     

Crew and pilot training, alongside transferring a pilot from one aircraft type to another, can take up to six months, Dobson explains. “You need to be confident when you retrain those crews, that the machine will turn up.  You cannot necessarily switch back to the machines they have just come from.”  

Dobson also points out that aircraft type will influence the customer service proposition, the training for the crews on the new interior, the new customer service regime and delivery of their service. As crews are trained with the skillset needed for exact aircraft types, airline hangar facilities are designed with customized structures tailored to a specific site and operational objectives. In addition to supporting productive maintenance activities, airplane hangar facilities influence the operational efficiency and cost control of an airline.  

However, modern aviation hangars are more expensive and complex than ever. The administration of a successful hangar project is now considerably more difficult due to multiple technical developments, decreased project timetable constraints, and enhanced regulatory oversight.  

The design and layout of an aircraft hangar is dependent on the aircraft type being introduced into an airline’s fleet. It also needs to take into account long-term fleet projections, including the number of aircraft that will be using the facility each year and maintenance activities.  

The aircraft model influences the hangar design and overall airline objectives, which include the types of maintenance to be performed, support and hangar functions, airplane access and layout requirements as well as standards for interior and exterior finish quality, security, and facility maintenance.   

“You may be taking a large widebody airplane, which requires a large widebody hangar facility,” Dobson says.   

Sustainable Aviation Fuel  

While the process of an aircraft acquisition has not changed much over time, Dobson says that there is now far more scrutiny around sustainability.  

The development and utilization of new aviation fuels and the introduction of biomass materials into airline operations is gaining momentum with major airlines ordering bulk sustainable aviation fuels (SAF).  

In September 2021, United Airlines agreed to purchase 1.5 billion gallons of SAF paired with an investment in Alder Fuels, a bio-fuel technology company. A few months later, in December 2021, the US airline became the first in aviation history to fly an aircraft carrying passengers using 100% SAF.  

More airlines, such as Air France-KLM, Delta Air Lines, JetBlue, Southwest Airlines, Singapore Airlines, Ryanair, Alaska Airlines, Virgin Atlantic and Brussels Airlines, have all committed to expanding their sustainability initiatives and acquiring more SAF to increase the percentage of their flights operated with SAF over the next decade.  

“We’re seeing a lot more aviation companies employing environmental safety and security managers and the like,” Dobson says. “So, there is much more focus now on the environment and that is playing out into the discussions that they have for potential aircraft acquisitions or parts acquisition.”  

While the world moves towards increased sustainability implementation, Dobson highlights the need for a balanced conversation and an affordable approach to sustainability. 

“I think one of the barriers or inhibitors which concerns me is a reluctance to acknowledge that more sustainable products are currently more expensive than the parts they replace. Clearly as technology develops, that will become less and less of an issue. But a lead has to be taken.” 

The process of introducing new aircraft into an airline fleet is a resource-intensive and multi-year affair. Financial considerations, operational requirements, fleet compatibility, future projections training and infrastructure all need to play a role in the selection, order and delivery of a new aircraft and its introduction into a fleet.