For the past several years, the aircraft teardown industry has been buffeted by a reduction in the number of aircraft being parted out, as moderate fuel prices and strong air traffic growth have kept midlife aircraft flying under lease extensions or renewals. Coupled with this, investment capital to buy or lease aircraft has been more readily available, increasing competition for existing assets—all across the aircraft life cycle. The result is that the supply of desirable teardown aircraft—those with considerable green time remaining on engines, along with usable parts—continues to be limited or even reduced.
There are those who take a cautionary view of the teardown market. Patrik Huibert, teardown business unit manager for Vallair in Luxembourg, argues that the market tends to do better in an airline business downturn, which is reflected in lower aircraft values. “Despite the well-publicized airline failures such as Air Berlin and Monarch, the market still absorbs all of the aircraft, keeping the global fleet expanding and flying,” he says. “So it is not the right time for teardowns.”
To illustrate, Huibert reports that last year, Vallair dismantled only one aircraft, and just two in 2016. In 2013, the company did 10. “Vallair believes that there are no signs of a faltering market,” he notes.
Adding to the lack of supply is the e-commerce boom that is driving demand for replacements of older cargo aircraft. “Worldwide operators need Airbus A320s and Boeing 737 Classics and NGs. That means there are even less aircraft available for teardown,” says Huibert.
According to Richard Brown, London-based principal at ICF, today’s aircraft retirements are primarily driven by age—aircraft averaging 20 or more years that have reached the end of their service lives. As a result, the pipeline for suitable teardown candidates, especially the 737NGs and (midlife) A320s, has been constrained given the relatively lower fuel-price environment. In addition, Brown cites the Boeing 767, 777 and A320 families. “There have been more lease extensions and decisions to keep the aircraft in service for longer than we anticipated,” he points out.
Adam Guthorn, a director of Alton Aviation Consultancy in New York, says that the current teardown market represents a continuation of the prevailing factors of the past several years. However, he points out, the industry is approaching an inflection point where production of the current aircraft programs is set to end and the new ones will begin to gain critical mass.
“Natural aging and fleet demographics will begin to push more aircraft into retirement, thereby increasing viable part-out feedstock,” says Guthorn, who explains that the aircraft retirement age is now about 25 years—slightly below the long-term historical average of 26 and down from a high of 30 a decade ago.
Consequently, he says that absent a severe market downturn, retirement totals are expected to steadily rise in coming years, increasing the supply of part-out candidates and, by extension, the supply of surplus material.
“High-use replacement parts, such as Stage 1 turbine blades on existing platforms, as well as components with applicability to replacement platforms, such as 737NG parts that can be used on the 737 MAX, should sustain relatively stable values,” Guthorn predicts. “Low-failure components with high mean times between removals, which are not applicable to the next generation of aircraft, will see their value erode as increased parts supply and fewer aircraft in service dampen their market.”
According to Sharon Green, senior vice president and CEO of GECAS Asset Management Services (AMS), multiple factors are affecting the teardown market in different ways. Among them is the reduced availability of “desirable” aircraft, which the leasing giant defines as those with an in-service percentage of at least 80%. Lower fuel prices, she agrees, are also driving airlines to opt for lease extensions instead of replacements. But at the same time, a wider variety of aircraft types are currently available for teardown, she says.
“As recently as 2-3 years ago, we saw mostly narrowbodies with the occasional widebody. But now we see all widebody variants, as well as regionals,” Green notes. “In fact, Embraer E-jets were our top-selling platform last year, when just two years ago we had none in the portfolio or on the skyline.”
Mark Gregory, managing director of Air Salvage International in the UK, says that there has been an increase in three aircraft families landing at his facility in Gloucestershire for teardown—the 777-200ER, 747-400 and the A340-300—all averaging more than 18 years old.
“Last year, we took in seven 777-200ERs over 19 years of age for parting out,” he explains. “We are also seeing more 747-400s and A340-300s, averaging 22-24 years, and 20-25 years, respectively. The A340-500 and -600 models are also being withdrawn from service, and we have quoted quite a few.”
Gregory points out that members of the 737NG family are also being retired, but after a longer service life. “It is very rare that we get a 737NG under 18 years old,” he notes.
There also have been an increasing number of Airbus A319s and A320s—averaging 18 years of age—coming in for part-out, says Gregory. While the company dismantled approximately five A320/A319s in the 2016-17 time frame, since November of last year six more arrived for teardown. “These are late-life aircraft that the leasing companies have been unable to place with other operators,” he says.
Gregory adds that in addition to jets, over the last couple of years Air Salvage International has parted out seven ATR 42s that were more than 30 years old—something he says is a “a more recent trend.”
GECAS-AMS’s Green notes that an “unusually large number” of 777-200s are becoming available in clusters from operators across the globe, which is depressing their part-out value.
“Our price point has dropped dramatically, and we are still seeing more availability, which could impact our and other sellers’ inventory costs,” she explains. “However, since production of this variant only ended in 2013, the falling part-out value may make retirements economically infeasible for some operators and potentially slow the pace.”
Interestingly, Green notes that some younger aircraft models are starting to show up again for teardown. “Today, we are starting to see narrowbody aircraft as young as 10-12 years available for teardown, while only five years ago, the reference point was 20-25 years,” says Green, citing a similar trend with widebodies. “The main widebody aircraft we are dealing with at AMS are 777s and A330s, which are generally around 15 years old, although we occasionally see a younger one.”
In a more recent development, Singapore Airlines has returned five of its A380 superjumbos to the lessors, which, as Air Salvage International’s Gregory points out, are only about 12 years old, with a “very thin” secondary market. “We’re already quoting to dismantle these,” he says.
ICF’s Brown reports it is likely that an increased number of early-production A380s will be dismantled, thanks in part to high interior reconfiguration costs that could run $30-40 million per aircraft. “That number needs to be much lower to attract a new operator,” he remarks.
Also pushing some aircraft types just approaching maturity into the part-out market are major scheduled maintenance events. Tommy Hughes, CEO of VAS Aero Services in Boca Raton, Florida, cites the 737-600 and -700.
“They are in the 12-14-year range and are facing major airframe checks, as well as full overhauls of their CFM56-7 engines—for the second time since new,” he notes. “That means replacement of all life-limited parts [LLP] and high-pressure turbine [HPT] hardware.”
While some owners and operators are electing to perform this maintenance, Hughes says that many others are opting to retire those aircraft, replacing them with the more efficient 737-900 or the 737 MAX.
Hughes notes that increased retirements of the 737-600/700 will add surplus material supply on the airframe component side, but not for the CFM 56-7 engines. “The LLPs are out of life, and the HPT hardware has high scrap rates,” he says. “The OEM—CFMI—is faced with manufacturing hurdles because of the increase in shop visits. “Concerns lie in the market if they will be able to meet the growing need for replacement parts.”
Asked about the marketability of parts generated by the A380 retirements, Hughes says they will definitely be in high demand. “Since the retirements are just starting to take place, there is no surplus of salvaged parts on the market today,” he points out. “New parts are the only repair option for an A380 operator—for now.”