Qantas faces tough challenge in selling B737-400 fleet


Qantas could have trouble finding new homes for its B737-400 fleet as the current market price for the aircraft is well below what the Australian carrier has been seeking. Qantas has started putting up for sale its fleet of 21 B737-400s, some of which are due to come out of the carrier’s fleet later this year. While the sale of its B737-400s has been in Qantas’ long-term fleet plans for several years as part of its continuing narrowbody renewal programme, the decision to start seeking buyers now comes as Qantas can use additional cash.

Qantas’ financial position remains solid but the carrier, following the recent string of natural disasters and the surge in oil prices, is now facing what it has called its biggest crisis since 2008. Qantas last week unveiled plans to cut capacity and accelerate the retirement of two B767s.

See related report: Qantas slashing capacity in response to fuel costs, disasters. Fares under pressure in key markets

Industry sources tell CAPA that several potential buyers have already looked at the initial batch of B737-400s Qantas is looking to offload. But so far Qantas has not been able to consummate any deals because the carrier is insisting on too high a price.

Sources say Qantas is asking for about USD5.5 million for the first batch of aircraft. However, B737-400s have been selling recently for about USD3 million to USD4 million per aircraft. Some of the potential buyers have indicated the value of the Qantas aircraft could be even less than USD3 million given the number of cycles they have flown and the work that would required.

Several operators have already looked at the Qantas aircraft, including cargo operators which are looking to acquire and convert B737-400s. Some of these cargo operators are looking for large batches of sister aircraft. The Qantas aircraft could be ideal for such transactions as they are common aircraft and have been well maintained. But there is already a large feedstock of B737-400s which are suitable for conversion, including younger aircraft. These operators are price conscious and will not be willing to pay above market rates for the Qantas aircraft.

Some passenger carriers have also looked at the aircraft but also will not be willing to pay above market rates given the current supply of B737-400s in the marketplace. The passenger and cargo carriers which have looked at the Qantas aircraft are primarily from emerging markets, such as Asia, the CIS and Latin America.

The timing of the sale for Qantas is not ideal as the recent spike in fuel prices is prompting several airlines in both the passenger and cargo sectors to defer acquisition plans. The higher fuel prices are also prompting carriers to cut capacity or accelerate fleet renewal plans. As a result more old-generation aircraft such as B737-400s are expected to start flooding the market.

Even before the recent fuel spike in fuel prices the availability of B737-400s in the second-hand market was expected to increase significantly this year. For example, the Malaysia Airlines (MAS) B737-400 fleet is expected to be offloaded starting this year. Malaysian government-owned company PMB owns 17 MAS-operated B737-400s, with the first batch likely to be put up for sale within the next several months, competing for buyers with the Qantas aircraft.

According to Ascend data, the Qantas B737-400 fleet has an average age of 18 years. The aircraft are due to be replaced with B737-800s over the next few years, with the first batch coming out this year. Qantas already operates 35 B737-800s with another 25 on order, according to Ascend data. Qantas expects to take delivery of 11 new B737-800s this year.

Qantas Airways fleet summary (at 04-Apr-2011)

Qantas%20fleet%20summary.jpg.png" alt="" width="452" height="254" />

Qantas' fleet is predominantly widebody.

Qantas Airways fleet breakdown for aircraft in service (at 04-Apr-2011)

The Australian flag carrier owns 82.4% of its in service fleet - a high proportion by industry standards.

Qantas Airways owned vs leased for aircraft in service (at 04-Apr-2011)

Qantas%20fleet3.jpg.png" alt="" width="458" height="258" />

Qantas could potentially end up parting out its B737-400s. If other operators are not willing to pay more than USD3 million per aircraft, Qantas could be better off selling to companies which specialise in parting out ageing aircraft and engines.

Another option for Qantas would be to convert the aircraft into freighters and then sell them. But this is considered highly unlikely as this would require an upfront investment and assuming risk. Qantas’ maintenance division has the capability to convert 737s, having converted a few years ago four of the group’s B737-300s using passenger-to-freighter conversion kits acquired from Israel Aircraft Industries. These B737-300s are now operated by Qantas joint venture cargo carrier Australian Air Express.

Want More Analysis Like This?

CAPA Membership provides access to all news and analysis on the site, along with access to many areas of our comprehensive databases and toolsets.
Find Out More