Defence Minister Wayne Mapp says 17 Air Force jet fighter training planes cannot be returned to service and are destined to join the mothballed Skyhawks as museum pieces.
Dr Mapp says an option to use the Aermacchi jets for pilot training has been abandoned as engine manufacturer Rolls Royce can no longer support their maintenance.
He says the deadline for a $155 million deal with American firm Tactical Air Services to buy the Skyhawk and Aermacchi fleets expired at Christmas.
Dr Mapp says the deal is unlikely to proceed, and instead the planes could now be sold for spare parts or to museums.
He says there could be a market for advanced avionic components from the aircraft, but the United States government would have to approve such a sale.
Army's ability curtailed - analyst
A defence analyst says the loss of the Aermacchi training planes will affect the Army's ability to deploy beyond the South Pacific.
Lance Beath, a senior lecturer in strategic studies at Victoria University, says without any fast jets in New Zealand, the Army can not train to face the air threat present in any serious theatre of war.
Dr Beath says in a Defence Force White Paper released in November last year, the Government envisaged the Army being able to function in Asia and further afield.
He believes a gap is opening between where the Government would like the Army to be deployed and its credibility of operating in those environments.
Defence Minister Wayne Mapp says he is looking at ways to improve the Army's training.
But Dr Beath says the lack of preparedness may concern New Zealand's defence partners and limit the Army's ability to deploy in some war zones.