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Used Jet Market Takes Off : Backlog of Orders for New Airliners Fuels Demand for Old Ones

February 05, 1989|ROBERT E. DALLOS | Times Staff Writer

NEW YORK — The Vancouver Canucks of the National Hockey League wanted to travel in style, so they bought a used Boeing 727 not long ago. The plane, which had already seen duty for about 13 years with United Airlines and USAir, cost the team about $2 million. But it turned out to be too costly for the Canucks to operate, so they sold it to a Venezuelan airline for $4 million only 14 months later.

"That's better than selling tickets," said Richard L. Spaulding, president of USAir Leasing and Services Inc. And it reflects the fact that there is a hot market for used airliners because new planes are in such demand that manufacturers have significant backlogs of orders.

Spaulding's company, a subsidiary of USAir Group that markets used aircraft for USAir and other airlines, airplane manufacturers, banks and other financial institutions, handled both transactions for the Canucks.

He is president of the International Society of Transport Aircraft Traders and says its 175 members have been kept busy lately, scurrying around in a search for used planes. Wide bodies, such as Boeing 747s, McDonnell Douglas DC-10s and Lockheed 1011s, are especially in demand.

Airlines placing orders for new planes these days are looking at a three- to five-year wait for most models. As a result, they are either holding onto their older planes or buying used ones.

So prices have skyrocketed. A 15- to 20-year-old DC-9, for instance, which sold originally for $4 million, would bring $7.5 million today, Spaulding said.

Michael Chowdry, president of Aeronautic Leasing in Denver, which buys used planes and leases them to airlines throughout the world, said: "Airlines have this big thing about maintaining market share. . . . They want to protect their turf--and how do you protect your turf? With equipment. But there is no equipment.

"If you order a Boeing 747 today, you have to wait four or five years. So they have to settle for used aircraft, and they are willing to pay almost any price."

Chowdry said his company bought a 17-year-old 747 from a financial institution about four months ago for $32 million. Aeronautic Leasing has already been offered more than $37 million for the plane but does not plan to sell because, as Chowdry put it, "We believe in the value of the aircraft."

Even much older planes are hot sellers. Boeing's veteran 707s were selling for $500,000 to $800,000 eight or nine years ago, said James E. Matthews, head of American Aeronautics Group of Orlando, Fla. At that time, he pointed out, 707s were already more than 20 years old and "ready for the scrap heap."

But then a "hush kit," costing $3 million, was put on the market to convert the planes so they can pass current noise restrictions in the United States and abroad. That breathed new life into the 707. "I have a client in Canada," Matthews said, "who has asked us to find him a 707 and who is willing to pay $7 million for it" after noise modifications.

Even before demand for new planes heightened to current levels, prices of used airliners held up well. "No used jet transport has ever sold for less than it cost new," said Paul Turk, an official of Avmark, an aviation consulting service in Arlington, Va., that specializes in airplane prices.

There were, of course, dips in the market at various times, and the value of planes dropped in the 1970s, when fuel prices shot up and the economy dipped.

Doug Dunn, Delta Air Lines' vice president for purchasing, recalled as an example that in 1987, when the airline had nine DC-10s it wanted to unload, it "couldn't give them away. We could have parked them in the desert," he said. Today, such planes are selling for $18 million to $20 million each, he said.

But not all carriers like to buy secondhand planes. American Airlines, for example, has found that the modification and maintenance work required on a used airliner adds 30% to the price. Thus, said Daniel Garton, managing director of financial analysis for Dallas-based American, "It is generally more economic to buy new planes."

In addition, American likes its fleet to have "commonality"--a preponderance of planes from one manufacturer to hold down the costs of maintenance and crew training. "It's hard to achieve this by twosies and threesies," Garton said.

Recent Exception Made

Nevertheless, American will make an exception "in a pinch," he said. It recently bought two 15-year-old 747s from Trans World Airlines that it needed for its new Dallas-Tokyo route. Without the planes, it would not have been able to inaugurate the service. "They were the only long-range planes available," Garton said.

But, like American, other successful, well-established airlines are reluctant to buy used aircraft. Such planes are usually purchased by upstart airlines that cannot afford new ones and by airlines that are in financial difficulty. Carriers in Third World countries also buy many used aircraft.

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