Technology Effects on Aircraft Fleet Decisions

Abstract

This paper presents a net present value based decis ion making model of aircraft upgrade decisions that airlines are facing in an uncertain environment. The model introduces additional variables beyond an historic extrapolati on of aircraft age. These additional variables are based on relative cost improvements f or a particular replacement decision. This decision making model is then compared to established fleet forecasting methods. The model does compare well with the established methods while allowing for deviations to explore of fuel price sensitivities of these decisi ons. Finally, a comparison of the effect of this advanced decision making model on the environmental consequences is presented. I. Introduction HE aviation industry faces a number of criticisms a s to the environmental impact of aviation. The last decades, however, have seen a dramatic improvement in efficiency and environmental impacts while travel has inc reased equally dramatically. This was made possible by the constant improvement of aircraft and especially ai rcraft engine technologies. It is therefore necessary to maintain this pace of technology development or even try to accelerate it, because even though efficiency has improved, the ab solute system level environmental impact, especiall y for emissions and fuel burn has actually increased due to increase in travel volume in aviation. This is e specially necessary in the face of a number of policy goals t hat propose halting or actually decreasing the syst em level environmental impact. The airline industry faces itself pulled in opposin g directions by the traveling public, aircraft manu facturers, and environmental regulators while facing profitability challenges. The traveling public demands cheap, re liable, and safe transportation choices that are convenient and easy. This forces airlines to offer choices that m atch traveler’s demands, which can sometimes be counter to the demands of the other stakeholders. For example, passeng ers will typically favor flight frequency over aircraft size , since this allows airline customers to fly at a t ime convenient to them instead of forcing few flights with large airc raft. The result is that airlines can be forced by their customers to be pulled in directions of environmentally non opti mal solutions. The aircraft manufacturers will try to meet the dem ands of their customers, the airlines. However, the y have to match technology development schedules and engineering resource availability. This means realistically that the number of new aircraft design and improvement projects that can be under way at any given time is limi ted. Due to this constraint it becomes necessary to balance the frequency of technology updates with the amount of improvement available for the airline customers. Fo r example, it can be beneficial to delay a new airc raft design by a number of years to accommodate technology development schedules and engineering resources, in order to guarantee a certain minimum level of improvement that will be available. This is important because the investment of airlines in new technology aircraft requires a m inimum amortization of these investments. However, rapidly rising fuel costs can quickly cause demand for much better aircraft and leave airlines financially vul nerable. Environmental regulators worldwide are considering a number of policies that try to reduce the environ mental impact of aviation. This can encompass a variety of approaches and goals. The gamut runs from relative ly mild corrective actions or standards trying to force avi ation into a more environmentally friendly directio n to full Pagovian taxation that captures the entirety of the cost of externalities caused by aviation. However, fundamentally all of these proposals affect airlines directly. Th is happens through charges that airlines have to pa y that they might not be able to pass through to their customers, or indirectly through, for example a certification sta ndard for aircraft, that potentially limits the availability of aircraf t or forces design choices of manufacturers.