MRO Memo: Younger Neo Teardowns Reflect Frothy Engine Market

New-generation engine shortages continue to drive perverse incentives in the aftermarket, with certain engine pairs deemed more valuable to owners than the aircraft they power.

At only 3.5 and 4 years old, two ex-Spirit Airlines Airbus A320neo airframes will be the youngest ever to be torn down after they were acquired by parts company EirTrade Aviation from lessor Aviation Capital Group.

U.S. LCC Spirit has rejected around 100 A320 aircraft—mostly Neos—as part of its Chapter 11 bankruptcy protection process, along with a number of Pratt & Whitney geared turbofan (GTF) spare engines.

The airline plans to exit Chapter 11 with a fleet of roughly 100 aircraft, half its previous size, of which only 10-28 will be A320neo-family units, according to an engine support agreement with IAE.

Disassembly of the two aircraft acquired by EirTrade will take place in Goodyear, Arizona. All parts will go to EirTrade’s parts hub in Dallas.

“We have also acquired four sets of in-demand LRU and BFE components from the PW1100 engine type within this significant transaction,” noted Bill Thompson, EirTrade’s VP of origination and trading for the Americas.

EirTrade’s latest deal means almost 20 A320neos have now been sold for part-out as limited MRO capacity, engine production and shorter times-on-wing continue to turbocharge demand for spare engines.

This week, however, Roger Welaratne, MD and CEO of engine lessor SAEL, warned that such conditions could quickly change when technical issues are resolved, leaving new investors in the spare engine market exposed to falling values and lease rates.

One of the latest—and most unusual—engine investments to hit the market is from U.S. cryptocurrency company Ethzilla.

For $100 a pop, its customers can buy blockchain tokens backed by two CFM56 engines leased to a U.S. airline until 2028.

Cash flows from rent and utilization-based payments will be collected and distributed monthly to token holders in cash or immediately available funds, to the extent that funds are available for distribution, Ethzilla said.