Aircraft afterlife – how to avoid missing the point of no return?

aviation_newsWith Boeing 737MAX, Airbus A320neo and other next generation aircraft rapidly approaching their commercial launch dates, airlines, leasing companies and other asset owners are being faced with a pressing issue – how to make the most of their current 20+ year old aircraft. Restore, convert or scrap – these are the main options for aircraft owners wishing to squeeze the last juice out of their aging assets. However, neither of these options is likely to be sufficiently profitable. Moreover, it seems that there is no clear point when such an asset as an aircraft becomes entirely not worthy of investing in.

The majority of commercial aircraft have a life-cycle of 20-to-30 years, depending on certain types and operational conditions. With regard to passenger transportation, in certain cases aircraft exhaust their potential even earlier due to the increasing costs of maintenance, refurbishment and upgrades as well diminishing aircraft performance and comfort.

’For example, a major technical inspection and repair works on such aircraft as Boeing 737 Classics will cost approx. 700,000 USD, while the market price for a 20-year-old B737 CL is below 4 million USD, and keeps dropping as we speak. The question is what the owner may do in order to at least compensate its ongoing costs of maintaining the aircraft. One of the options is to lease (or sell) the aircraft to another operator. But is it the best option?‘ comments Tadas Goberis, the CEO of AviaAM Leasing.


Once the emerging aviation markets in Asia Pacific, Africa or Latin America were a perfect base for the second life of aging aircraft, as most of local airlines simply didn‘t have sufficient funds for acquiring younger aircraft. However, the situation has changed significantly during the last decade, and keeps changing. For instance, according to IATA, while the growth of the North American passenger traffic keeps slowing down, the Latin American market maintains a steady increase of 6 to 12% per month.

According to Tadas Goberis, the growing middle class in developing regions means that travellers, particularly in certain regions, are becoming more and more demanding with regard to air travel services, while the operational costs of airlines show no signs of dropping any time soon. The consistently rising oil prices alone contribute to one third of all airline expenses, whereas aircraft maintenance costs account for another 10-12%, corresponding to the total of almost 250 billion USD per year (IATA data, 2011). All of the aforementioned factors drive local airlines to seek more fuel efficient and less maintenance-demanding aircraft thus significantly lowering the demand for 20+ years old aircraft lease and sales with each year.


‘A second life for a passenger aircraft can be granted by converting it into a cargo plane. B737 Classics is amongst the most popular candidates for such a conversion. However, considering the remaining aircraft recourses and the cost of the conversion itself (3.5-4 million USD), only 20% of such aircraft can be potentially converted to freight. Moreover, the global freight demand over the past year has increased by less than one per cent only, while many countries maintain 15 or 20 years’ age limit for operated aircraft. Thus anyone who is considering the option of aircraft conversion must carefully evaluate the future market,’ adds the CEO of AviaAM Leasing.

When maintenance expenses become too much of a burden, interior and avionics upgrades – less efficient and aircraft conversion is not a viable solution, an aircraft owner is left with only two options – storage or scrap. Airlines (or other owners) may choose the first option for several reasons. For instance, if an owner has yet to decide upon the further utilization of a particular aircraft, storage is where that aircraft usually awaits the verdict. The same scenario is also likely to take place if an owner is still waiting for a positive correlation in demand that would bring the utilization of the aircraft back to profit (or at least to a break-even point with operational costs). However, the cost of storing an aircraft can be as high as 25,000-30,000 USD per month, meaning that aircraft preservation is just a temporary solution for the owner (though much less unprofitable than the ongoing utilization of an inefficient asset).


While aircraft storage may cost approx. 300,000 USD annually, aircraft tear down might not only cost less, but also bring profit to the aircraft owner.

’Depending on aircraft type and the scope of work, aircraft tear down will cost the owner up to 200,000 USD. But this is a one-time payment which actually pays off. The majority of dismantling facilities allow reclaiming approx. 70% of aircraft parts which can be restored and sold by aircraft owners. The remaining 30% is scrap metal, which is being sold by the teardown providers and is considered as non-recoverable waste. Fortunately, new aircraft recycling technologies allow reclaiming 80-85% of retired airplanes, meaning that the aircraft dismantling business is becoming increasingly efficient and thus profitable. All in all, considering the dismantling costs and the residual value of aircraft, in certain cases the margin for dismantling an aircraft may vary from 20 up to 80%,‘ comments Tadas Goberis.

Such major components as engines, landing gear, LRUs, etc. are the most valuable parts of a retired aircraft as they can be relatively easily restored and reintroduced either back to the owners fleet or sold in the open market. Parts which need to be changed regularly – for example, wheels and brakes – will also sustain high demand as long as a certain aircraft type is operated. APUs, landing gear and avionics elements as well as certain engine parts are also highly popular in the aftermarket due to substantially higher prices for absolutely new parts and components. For instance, the market surplus price for second-hand HPT Vanes (used in CFM56 engines) varies from 2,400 to 15,000 USD, while such new part costs between 25,000 and 50,000 USD.

As concerns profits from aircraft scrap, aluminium corresponds to the largest portion, followed by other materials, including steel, titanium, plastics, textiles, etc. However, reselling aircraft scrap is not as profitable as reselling parts. The current price offered for aircraft aluminium ranges between 0.6-1.4 USD per kilogram, depending on the purity of scrap. Considering that a single recycled aircraft may provide on average only 12-50 tons of aluminium, reselling scrap metal can hardly be considered as profitable.


Meanwhile, the demand for parts of certain aircraft like B737 Classic is going down as the life cycle of the model will reach the end in five to seven years from now. But life cycle is not the only deciding factor. Despite the fact that Airbus A320 is still quite popular in the industry the offer of its spare parts in the aftermarket is sufficient, since the number of dismantled parts from several A320s is sufficient to maintain the stock for a couple of dozens of aircraft.

The demand for spare parts is much higher for relatively young aircraft types like Boeing 737 NG, as only few of them have been torn down for parts yet. However, if an operator wishes to invest into scrapping such aircraft rather than operate them, one should act fast. For instance, as Boeing 737NG is approaching its 20-years’ edge (2020-2022), the number of scrapped aircraft will be increasing thus pushing the price for spare parts down.

‘Meanwhile, as concerns the most modern aircraft, practically none of the same rules apply. Half of the latest aircraft models are comprised of composites. But the problem is that modern technologies still cannot fully recycle such materials as carbon fibre. They require significant recourses in order to restore their technical performance and reliability. All in all, there is no universal formula for aging aircraft. Depending on the demand in a certain country or region, as well as an operator’s financial capabilities, some 20+ years old aircraft may get extra 5 years as passenger aircraft and a bit more – as a freighter. However, either dismantling for parts or sending to scrap – that is inevitable for the majority of aircraft. The main issue – not to miss the point when you can still make profit from your asset rather than being forced to write it off’, concludes Tadas Goberis, the CEO of AviaAM Leasing.

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