Repairable vehicles are increasingly being scrapped as the cost of repairs approaches their total value, says aviation portfolio manager
The current inflationary environment around the globe is contributing to an increased number of aircraft being written off rather than repaired.
Wayne Murphy, aviation portfolio manager at Rokstone Underwriting, explained that many insurance policies for aircraft include clauses which stipulate that aircraft should be written off if the cost of repair crosses a certain threshold relative to the total value of the aircraft.
“Every slip has a provision that says if the repair bill is more than 75% or 85% of the total value of the aircraft, then it’s written off,” he said.
As inflation has caused increases in the price of materials for repair, transport and labour, this threshold is being reached more often, especially for aircraft based in relatively remote areas.
Compared to three years ago, Murphy said that aircraft repair costs had risen by around 30% due to the impact of inflation.
He added: “The cost of bringing equipment to remote areas to make repairs – especially when you might need to build a temporary hangar to house the aircraft while those repairs are completed – is adding to the overall cost of a claim.
“We’re seeing more cases of aircraft being written off – which could have been repaired – just because costs have gone up.”
Aircraft shortage?
The increase in aircraft being written off is in no danger of creating a shortage of aircraft in the global supply, noted Murphy.
“There’s such a large fleet in the world that no one’s talking about there being a shortage of aircraft yet,” he explained.
Airlines that have purchased newer aircraft, such as the Boeing 777X, are suffering from delays in production, however.
Murphy said: “Those airlines are thinking more around the implications of having older aircraft in their fleets, which aren’t as fuel efficient and produce more emissions.
“What could perhaps happen is what happened in the motor industry, where prices of used vehicles have gone up because of the delays in the shipping of new vehicles.”
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