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Airlines Scrap Clunkers Sooner as Oil Prices Bite

Monday, 7 Jan 2013 | 4:55 AM ET
Ichiro | Digital Vision | Getty Images

Jets are heading off to their final resting place at a rate similar to cars as airlines scrap aircraft at earlier stages, according to new research by consultants PricewaterhouseCoopers (PwC).

Aircraft are being "parted out" — scrapped and sent to the jet cemetery — after just seven to eight years, compared to traditional lifespans of 20-25 years, as airlines look for newer, more fuel-efficient models.

(Read More: The Boeing Dreamliner)

The historically high cost of oil, with Brent crude over $100 a barrel for most of last year, has made efficiency ever more important.

The increasing power of emerging markets airlines is also affecting the lifespan of airplanes. Older aircraft would traditionally have gone to these markets.

This means that there are more "middle-aged" aircraft on the market — and it may be more profitable for investors to buy them, run down the lease and sell them for parts than to lease them.

"More aircraft are being parted out after only 7/8 years service instead of the traditional 25 years, as investors are gaining greater value and returns than if the aircraft remained operational," according to Neil Hampson, PwC's global head of aerospace & defense."The flipside of this, however, could be more aircraft retiring to so called 'jet cemeteries'."

Negative consequences could also be felt by airlines themselves, if they are forced to write down the resale values of the aircraft they own. Leasing is becoming increasingly popular as airlines are reluctant to commit to buying planes, and PwC forecast that it could account for 40 percent of the market by 2020, compared to 12 percent in 1990.

(Read More: Airline Travel in 2013)

Order backlogs have reached unprecedented levels, according to the report, a sign that the appetite for newer models is increasing. In the battle of the big two manufacturers, Boeing is likely to have delivered more planes than Airbus for the first time in more than a decade in 2012.

(Read More: Boeing/Airbus Rivalry)

There could be issues for aircraft financing in coming years if interest rates rise, and European banks are already stepping back from the market, according to PwC.

"With the cloud of economic uncertainty still hovering around Europe, we are seeing banks there retreating from the market and interest from Asian investors is increasing," Shamshad Ali, PwC financial services partner, said. "We are already seeing banks from China and Japan snapping up aviation assets and we think this trend will only accelerate."

By CNBC's Catherine Boyle; Follow her on Twitter @cboylecnbc

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