Jetrader - Fall 2014 - 33

PHOTO BY AIRCRAFT DEMOLITION, LLC

The reason: According to Zemanovic,
there are a lot of factors contributing to
a buildup of retiring aircraft. One of these
is the push by airlines to retire older, less
fuel-efficient aircraft as new fuel-sippers
become available. Another trend is the
choice to retire middle-aged aircraft and
dismantle them for parts, rather than pay to
put them through 'C' and 'D' heavy checks.
"It can cost millions to take an older 777
apart and put it through a heavy check,"
Zemanovic said. "For some aircraft owners,
it just makes more sense to part out the
aircraft and sell the most profitable components, while replacing it with a newer,
more fuel-efficient model."
Aircraft Demolition's CEO says this practice is sufficiently common and that his
company is now seeing both 777s and 737700s being parted out rather than being
overhauled. The most popular recycled
parts are aircraft engines, auxiliary power
units (APUs), landing gear, line replaceable
units (LRUs), actuators, black boxes, and
other cockpit items.
The demand is for used components that
still have life left in them before their next
overhaul. For many airlines, swapping out
end-of-cycle engines and landing gear with
equivalents that have some hours left is an
economical way to push back the expense
of heavy checks. It's a practice that caught

on when the 2007 recession devastated
the airline industry, and it remains common today.
A third trend is for airlines and other
aircraft owners to do teardowns themselves,
rather than sell their planes for scrap. Again,
the reason is money: By doing their own
disassembly and recycling, aircraft owners
can shuffle still-viable parts among their
own fleets, plus sell the rest for profit.
Fortunately for recyclers such as Aircraft
Demolition, most aircraft owners lack the
skills, technicians and tools to do their
own work. "As a result, we find ourselves
going to their sites and doing the jobs for
them under contract," Zemanovic said. "We
have the expertise and equipment they
need, which ensures the disassembly and
recycling is done properly, in line with
AFRA standards."

Arguments Against the Tsunami
ASI's Bradley Gregory also cites history
in gaming his position on the retiring aircraft tsunami. The difference is that-from
Gregory's perspective-the market forces at
play do not support the dire scenario being
described by AFRA and Boeing.
"Over the past 20 years, it is true that
there has been a sharp increase in aircraft
retirements, along with a fall in the average
age of aircraft being retired," Gregory said.

"All the time, interest rates are rock bottom," which explains why "younger aircraft
will be removed from service early" and
replaced with new, fuel-efficient aircraft
today, rather than be allowed to fly on for
years to come.
"Likewise, as the economy begins to
gain momentum, interest rates will also
begin to hike; pushing the average age of
disassemblies back into the 20s," he said.
Gregory also takes issue with AFRA's
assessment that close to $3.2 billion worth
of harvested parts will enter the commercial aviation supply chain in 2014, offering around 50 percent savings compared
to new original equipment manufacturer
(OEM) parts. "This would make the average
value of each of the aircraft dismantled in
excess of $7 million each," he estimated,
"when in fact less than 10 percent of aircraft removed from service and dismantled
are valued at $7 million-plus. The majority
of aircraft [being] dismantled are valued at
between $1 million to $4 million."

The Bottom Line
Clearly, there are strong arguments on
both sides of the retiring aircraft tsunami
debate. As a result, it will be left to time
and events to settle this debate, with the
aircraft recycling industry waiting to see
if the tsunami materializes or not.
Jetrader * Fall 2014 33

Jetrader - Fall 2014

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