How best to end a tired relationship?
BREAKING UP is never easy – especially when a relationship has lasted more than 20 years. A large phase of an aircraft’s life cycle happens after the plane is taken off the market. If the aircraft has been wellmaintained over its life, its owner stands a good a chance of getting a higher resale value. On the other hand, if the plane is not in flying condition, it is taken to be parted-out. The process of taking apart an old aircraft might sound straightforward. But it is not. Parting out involves several different complex steps and parties. It is also an expensive process that can sometimes involve prolonged storage and hefty transportation costs. In some cases, labour costs alone can run to as much as $50,000. Some buyers are also known to buy only serviceable parts, meaning that the seller must bring the aircraft to a shop, have it overhauled and its parts tested before a deal. There is, too, a need to create a complete inventory of the parts. In fact, it can take almost three years before you start making a profit from an aircraft part-out. And, arguably, that’s not even the hardest part of saying goodbye to your plane! We asked three experts for their parting-out tips.
In terms of value can you rank the first five parts to see in the part-out of an aircraft?
The engines will go first, for anywhere between $200,000-$3 million. Then the rest of the airframe, so: landing gear is $100,000 to $250,000, the Auxillary Power Unit (APU) could sell for $80,000 to$175,000, the windshields can be $50,000 to $60,000 and then the avionics.
Typically, the entire airframe will fetch between $40,000 for an older Cessna Citation. That price would rise to $600,000 for a Challenger 604. The last things to go are the serialised components. Anything in the aircraft that has a box with a serial number on it. So, the flat motor, the actuator or the hydraulic pump.
It really varies from aircraft to aircraft. But generally, engines that have time available will typically sell first. Then come the heated windshields that typically go bad. Next to go are modifications that can be put onto another aircraft, such as an updated traffic collision avoidance system (TCAS) or a flight data recorder – perhaps a later model Satcom or Wi-Fi system. APUs can go next, depending on the market. Most often, there tend to be more APUs in the market than there are people buying them. These would normally cost between 40 to 60 cents on the dollar compared with what it would cost for new or overhauled parts.
When is the best time to part-out?
Normally when maintenance, known as an engine event, is due or when there is a major airframe inspection. But it is case-specific. One aircraft failed an engine borescope and had landing gear and automatic dependent surveillance (ADS-B) due.
You have aircraft values that are constantly declining, while maintenance parts replacement is constantly increasing. The original equipment manufacturer (OEM) parts replacement cost, too, increases three to seven per cent annually. This all occurs while maintenance, repair and overhauls (MROs) have increased labour costs. So, we have this declining asset value while everything supporting it is increasing. There’s a time when it makes sense to start the acquisition and teardown process.
Part-out is an inexact science. With a new aircraft, the process is difficult because the original owners will already be on manufacturers’ and maintenance programmes. And then you have to balance that against the fact that when you get old aircraft – on the third or fourth tier of ownership – people don't make a significant expenditure because of the low value of the aircraft. Sometimes the crystal ball can be a little opaque.
What type or aircraft do you typically deal with?
Most of the aircraft that we see for part-out are older than 20 years. Any aircraft that is due for a major engine event or a major airframe event is a good candidate. These will especially be ones that are not on an engine programme. It can be very difficult to sell engines that are already on a programme. That’s because buyers who want an engine programme are already on a programme. And those who want to buy an engine without a programme are not willing to pay the same price. Engines on a programme will almost always be fitted onto an aircraft that is being resold and in flying condition. 70% of the cases I handle are aircraft that are flying and need to continue flying, while 30% are part-out.
We deal across the big OEMs. We’ve also parted-out everything from Gulfstream IVs to the Cessna CJ and Embraer Phenom products.
What are the biggest reasons not to part out?
It depends largely on the saturation of the market – how many parts are available. I can think of people who are still holding on to parts from aircraft they parted-out because there isn’t enough demand for them. It effectively comes down to supply and demand. Second, consider whether the engines can be sold. For example, corrosion might not matter on the airframe, but it does on the engines. And lastly, if you’re a new entrant to the business do you have the capability to pull off funding it, carrying out the part-out and storing parts? There are certainly a lot of risks to part-out.
It comes down to understanding the needs and current availability of alternate options in the market. It's a bit of speculation and analysis based on market values.
It would depend on how you use your aircraft. If the depreciation is not really what is driving you and you are looking at operational cost, it is important to look at how many hours you are actually flying. A slightly older jet might be 15% less efficient, but if you are paying 10 times the amount of money to buy it, then it may not be a good deal. Even in the case of aircraft that have had some damage, the undamaged parts are sellable, although only certain segments of the marketplace are more receptive to those parts.
In your experience, what's the highest part-out value for an entire aircaft?
4 million on a business aircraft. It’s a whole different world with commercial airliners. I have seen an Embraer 175 at a part-out value of $17 million – $6 million for each engine.
The highest values must be on aircraft such as the Falcon 900 and the Bombardier products. The more expensive the aircraft the higher your gross numbers are going to be – probably somewhere in the low millions.
What is JSSI's role in the aftermarket?
JSSI is supporting a lot of engine maintenance events, lease assets and exchange opportunities. We have a clear view on upcoming demand, where we can identify a strike price on an aircraft acquisition. The company can also utilise engines of a certain pedigree to facilitate
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supporting upcoming maintenance events with either lease assets or possible exchange assets. The value of the airframe is more unpredictable, because the parts might fail. But, as we have several airframes on programmes, we can build inventory based on upcoming client demand on hourly maintenance contracts.
Who is a typical client for you?
JSSI Parts supports JSSI with parts and leases, making it our top client. Other clients include owners and operators out in the market who are looking for alternative support, to avoid going directly and paying the OEM’s published rate. This aftermarket option provides an owner-operator a competitive price on a component that may not be as valuable as the OEM adjusted value. We also support MROs, who can keep the client happy by reducing operational costs in a situation. MROs will also have parts brokers – from both international and domestic locations – that are supporting their own owner-operators to facilitate sales through them. And on occasion we support the manufacturers with supply chain issues they are not able to facilitate or who have a client that's looking for a lowercost option.
Would you work with engines that are already on a programme?
Typically, if you remove an engine from an aircraft and install it on another one, that's where the OEM engine coverage stops. Their contracts are strict about keeping their engines with the airframe they were enrolled with. But if you do plan to buy an aircraft and intend to use the engines in another format – sell, lease or exchange them – there needs to be consideration for how the existing programme owner will react. It does present new opportunities for JSSI for enrolling new engines and assets on the programme if owners choose to do this.
What happens when the market is saturated?
At present, the business aviation parts supply market is not saturated because there are not many options. This is driven by the programme support, the client’s or the operator’s desire to install OEM parts and not explore the aftermarket. There needs to be further education with owner-operators and MROs to promote the aftermarket – where they can reduce operational costs. The misconception is that there’s a reduced advantage, but you don't really sacrifice much in terms of quality by going to the aftermarket as well.