Printed headline: Airframe Teardowns
For airframe dismantling and recycling companies, the good news is that projected deliveries of aircraft on huge OEM backlogs will accelerate retirements, providing stability of supply and a ready market for salvaged parts, especially in the used-serviceable-materials market and among operators of relatively new aircraft.
To understand why this is so it is necessary to grasp the changing commercial airline fleet dynamics. According to Oliver Wyman’s just released “Global Fleet and MRO Market Forecast Summary 2017-27,” the in-service commercial airline fleet is expected to grow to more than 35,501, up from 25,368 at the start of 2017. Those numbers take into account deliveries of more than 20,400 new airframes, of which 50% will replace in-service units. A byproduct of this trend, says the forecast, is that by 2027 some 58% of the fleet will be new-generation aircraft, bringing the active fleet’s average age to 9.7 years, compared to 11.2 years today.
Bottom line, the forecast projects retirements of about 10,000 mostly older-technology models. Small regional jets and narrowbody transports, the forecast reports, have been the leading airframes being removed from service, resulting in a retirement age of 18. That is considered young for an aircraft to be withdrawn from service, but it is no great surprise to some aircraft dismantlers who report that an increasingly youthful fleet of commercial jets is showing up on their ramps—as airlines and leasing companies shift to more operationally efficient models.
“About 10 years ago, the average age of an aircraft sent to us was 25 years,” says Mark Gregory, managing director for Air Salvage International, a UK company that dismantles 50-60 commercial jets annually. “At that time, we were getting a number of Boeing 747 Classics—specifically, the 747-200, which averaged about 30 years old. But going forward, it is highly likely that more aircraft averaging 15-20 years of age will be going into storage and parted out.”
In fact, Gregory notes, this is already happening. He says Airbus narrowbody transports are showing up at Air Salvage International with as little as 15-18 years of service. On the widebody side, the company is tearing down five 747-400s averaging 22-23 years of age, and two 19-year-old 777-300s. “We also continue to get a number of 737 Classics, but they are still 25-30 years old,” he says.
Others in the field agree with Gregory’s assessment. “The average age of a 737 or an A320 coming in for storage is about 20 years, with about 80% to be torn down,” says Anca Mihalache, sales and marketing manager for Vallair. The Luxembourg-headquartered company specializes in “end-of-life acquisitions” of A320, 737 and ATR aircraft and caters to a broad customer base including leasing companies, parts traders and MRO providers. “In the next five years, we expect the number of 737NGs being stored will increase as they reach their second and third life cycles,” Mihalache adds.
Ken Kocialski, a partner in CAVU Aerospace, reports that the company, which has facilities in Stuttgart, Arkansas; Roswell, New Mexico; and Goodyear, Arizona, has disassembled three A340s and “four or five” 777s, along with earlier-production A320s coming out of service. “Over the last 12 months, the older A320s have been the flavor of the month,” he says. “However, we’re seeing more 737NGs, including the -700 and -800 models. Of the six or seven 737NGs we have gotten, we have already dismantled three at Goodyear and two at Roswell.”
Kocialski says 757s also are coming onto the teardown market as more airlines phase them out. “There is a ready market for the parts coming off those aircraft, with cargo airlines that continue to keep the 757 in service,” he says.
Air Salvage in the UK is booking teardowns of Boeing 747-400s and 777-300s averaging 19-23 years of age. Credit: Air Salvage International
Sharon Green, senior vice president and CEO of asset management services at aircraft lessor GECAS, notes that “of aircraft types relevant to the part-out market,” the largest retirement rates will be among those 20 years of age or older. “As a rule of thumb, that is their estimated useful life,” she explains. “In absolute terms, most of the fleet retiring will be older equipment such as the A320-A1/5A types. However, the older A320ceo models will start to retire a bit heavier than the 737NGs over the next 5-7 years, since the 737NGs entered service later. Their retirements are expected to pick up after that time horizon.”
Green adds that the remaining 737 Classics and MD80 fleets will continue to be phased out but emphasizes that “these are not relevant” to the teardown market. “Currently, 30% of the 737 Classic fleet is still in service, and over the next seven years, they will represent a large portion of the narrowbody retirements,” she says. “However, from a part-out perspective, there is limited value with them, because aircraft whose fleets are mostly out of service—even with large numbers to be retired soon—will have little part-out value.”
Green also points out that the greatest number of retirements for widebodies will be among older types such as the A300/310, the A340 family, the 747-400 and 777-200 (non-ERs). As with the 737 Classics, she maintains that the part-out market from those aircraft will be challenging. “A significant portion of [the 747-400 and A340 fleets] are already out of service,” she says. “Only about 35% of the 747-400 built fleet remains active, and for the A340 family, it’s 50%. Given these markets have already matured—and there is ample parts supply—the impact has already occurred, and the values of these make them less desirable than other aircraft types.”
Air Salvage International’s Gregory concurs, drawing a comparison with the Embraer 170/175 regional jets. He calls the parts market for those “very hot” right now, commanding high prices, since few of the popular jets have been retired. “There is something like 1,500 high-value [line-replaceable units] for the E170/175, but for the 747-400, the high-value parts only [number] about 500,” he says. “In fact, that estimate is probably excessive because the market is saturated—and dying.” United Airlines’ decision to retire its remaining fleet of 20 747-400s by year-end will further stress the parts market.
Air Salvage also is receiving for dismantling an increasing number of narrowbodies with as little as 15-18 years of service. Credit: Air Salvage International
Nonetheless, Gregory says some demand still exists for consumable and life-limited parts, such as escape slides, and high-usage components such as wheels and brakes on the 747-400. “But there is really no market for flight deck instrumentation and other low-usage items which stay on the aircraft until it is scrapped,” he notes. “When you look at the resale market for those kinds of parts, it’s not worth putting them through a shop and refurbishing them.”
As for the near-term prospects, Gregory reports that along with additional 747-400s he expects more 777s will be dismantled, especially as some of the earlier-production models come of age. “Because the 777 is a very reliable aircraft, there is a risk that the market for parts could become saturated much faster than they would be consumed,” he advises. “We expect to dismantle three 777s this year and see more of those within the next five years, along with A340s and A330s in the 19-20-year age range.”
Gregory says he expects to dismantle 15-20 A320s per year but adds that a slowdown may be happening with the 737-700. “Three years ago, there was an influx of the 737-700, but that seems to have slackened off because they are staying in service longer as passenger, as well as cargo, aircraft. Also, the flow of 737 Classics to the dismantlers has slowed, since lower fuel prices have kept some flying longer.”
That could be changing, according to Tim Zemanovic, general manager of Jet Yard, which operates an aircraft storage facility at Pinal Air Park in Marana, Arizona. Zemanovic cites low fuel prices, which “have encouraged many operators” to keep older, less fuel-efficient aircraft in service longer. “This has impacted the storage and dismantling industry,” he says. “However, in recent months, we have seen the number of parked aircraft increase somewhat, and there are more opportunities with the A320 and 737 Classics for both storage and teardown.”
With A320neo deliveries already underway, and imminent with the 737 MAX family, Zemanovic does not anticipate a bow wave of retirements of narrowbody jets—at least initially. “The airlines will need the capacity that some of the older aircraft can provide, so the Airbus A320ceo and the Boeing 737NG will probably remain in service longer,” he says.
GECAS’s Green agrees, citing airframe OEM production schedules for the new-generation narrowbodies.
“There has certainly been a large increase in the narrowbody orderbooks over the past 10 years, but the tail on the delivery schedule is much longer now,” she says. “In 2005, the OEMs had nearly three years of production capability sold, whereas now they have about nine years at the current production rates, and six years at the announced increased production rate. While the number of units sold has increased, the delivery rate of those units is tracking historical averages.” She adds that “it will take many years before production of  MAX and [A320]neos will be enough to replace the current installed base of NGs and CEOs.”