Teardown, Parts Specialists Await Ramp Up In Buyers' Market
With the expectation that overall teardowns and part sales should increase in the second half of 2021, the actions of companies operating in the space will be dependent on several factors.
Individual aftermarket companies may move faster or slower, depending on financial shape, business strategy and willingness to take risks in what is considered to be a very favorable buyers’ market.
Gerben Groothuis, chief commercial officer for Aircraft-End-Of-Life Services (AELS), shares the belief that teardowns should ramp up in the second half of 2021 yet feels the pace may pick up unevenly.
“Those that can afford it, will tear down early,” Groothuis predicts. “The ones that do not have money will do it a little later.”
Groothuis admits that the last 10 months have not been easy for the company in the midst of the global crisis, but it should come out the other side in a relatively healthy position. “We haven’t had to furlough anybody and we are in sound financial shape,” he adds.
AELS operates a turnkey teardown business – buying aircraft, disassembling them and selling parts mostly to operators and MROs – in eastern Netherlands.
Despite the Covid-19 pandemic impacting business, recent work has been steady. The company has recently been completing the teardown of two Airbus A330 and two Boeing 737 aircraft. “Since the fourth quarter we have taken an A319 and an A330 and expect an A320 family aircraft in the next 12 days,” Groothuis notes.
However, he is not yet seeing European traffic pick up as much as he expected a couple months ago. That means aircraft are inexpensive to purchase, but owners are reluctant to sell at reduced prices. “We would buy more aircraft at these ridiculously low prices if they were not reluctant to sell,” Groothuis says.
When the up-turn comes, AELS expects the downward pressure of prices for salvaged parts to be offset by increased demand.
Its end-to-end approach gives AELS more control over the entire process and ability to pursue its goal of recovering as much of an aircraft as possible.
Groothuis expects to sell 1,200-1,500 parts from each aircraft, recycle as much of the rest as possible and end up with very little pure waste. He says this environmentally-friendly approach gives him an advantage in dealing with some operators, which are also concerned about sustainability.
The best candidates for recertification and resale are those parts that endure the most wear and tear. In addition, there may be some parts on aircraft exteriors that endured damage or wear during long storage periods.
Among aircraft, Groothuis expects four-engine aircraft to be grounded in favor of more efficient two-engine alternatives. “There are better alternatives available that the A340 and 747 in passenger configuration.”
On the western side of the Atlantic in the U.S., another parts seller is eager to embrace the recovery. “We don’t want to wait,” says Zaheer Faruqi, CEO of Atlanta-based Aventure Aviation. “We want to be ahead of the curve.”
Aventure does not do tear downs itself. Rather it buys aircraft, contracts with companies like eCube Solutions and Air Salvage International to disassemble them, then stores and sells parts from two warehouses on or near Atlanta Hartsfield Airport.
In recent times, it has been very active. In the past 15 months, the company has bought and sold parts from three 757s, one 777, three CRJs and one 737NG. Two more 737NGs will be parted out soon. Aventure also has parts from four E190s on consignment from a supplier that had come under financial pressure.
Aventure has been able to move fast partly due to its business model. “Some companies bought inventories years ago and offered power-by-hour deals,” Faruqi explains. “They may have $50 million in inventory, but aircraft aren’t flying anymore.”
Now is the time to buy aircraft at very reasonable prices, even if the market recovery is expected, not guaranteed. “You got to take some risks in this business,” Faruqi says. He observes that 737NGs selling for 30% of their pre-COVID values are very tempting.
Disassembly usually takes between 45 to 90 days, depending on facility. Small facilities tend to work quicker while larger, mostly storage facilities tend be slower. Aventure acquires only airframes, leaving engines to the owner or some other aftermarket company.
Faruqi says he is already seeing a small rebound in part demand. Many carriers have been using grounded aircraft as part “donors,” he notes. “But at some point that becomes untenable.”
But he warns of teardown facilities not getting too greedy or overeager. Faruqi cites one company that bought a large number of the same aircraft type from a major airline and began to tear them all down at once. “That could create a glut in spares. You want to keep supply in the right balance with the market.”