© Reuters. Rubber wheels can be seen behind the tires of an A310 aircraft on the tarmac at Aerocycle in Mirabel
By Allison Lampert
MONTREAL (Reuters) – With COVID-19 spanning a wide variety of airline fleets, companies that benefit from the dismantling and trading of aircraft parts are starting to see signs of an expected recovery in activity as airlines accelerate flight cancellation.
While companies that store, disassemble, and buy and sell used aircraft parts see opportunities in parked planes, a sudden surge in the supply of used parts could depress prices in the industry's estimated $ 3 billion a year, despite airlines looking for one Looking to cut maintenance costs, say executives and analysts.
Even though aviation remains in a slump due to the pandemic, the head of the US aerospace company GA Telesis has been made aware of five airlines that have requested offers to dismantle aircraft.
Across the border, Canada's Aerocycle is for the first time offering grounded planes to disassemble and resell parts rather than just recycling planes delivered by carriers, the CEO said.
The fate of the global pool of grounded aircraft is being closely monitored by market participants for serviceable materials. A report by consultant Oliver Wyman predicts a "tsunami of demand" for such parts as airlines try to cut costs.
Used materials could compete with new parts, shifting the airline's immediate demand for "aftermarket" spending, which refers to the maintenance, repair and overhaul sectors now valued by Naveo Consultancy at $ 50 billion.
As a result, an industry manager said he had avoided buying parts and feared a break-in if too many planes were dismantled.
"I think we will see a rapid drop in prices," said the executive on condition of anonymity.
The number of aircraft that have been dismantled for parts or scrap could double to 1,000 by 2023, from around 400 to 500 aircraft per year since 2016, according to the data company Cirium.
Naveo estimates that 60% of the world's passenger and cargo fleets are currently flying.
In 2020, Naveo estimates that 2,000 aircraft out of 680 in 2019 will be retired or parked and not returned to service. Not all of these planes would be dismantled immediately, however, as some airlines are waiting if market conditions improve, says managing director Richard Brown.
In fact, UK-based Air Salvage International, which typically disassembles between 40 and 50 aircraft a year, has parked more aircraft with no buyers for their parts since the COVID-19 outbreak. Founder Mark Gregory expects most of them to be dismantled at some point.
Prior to the pandemic, aircraft arrived at Air Salvage with a buyer, reflecting good demand for coveted parts like engines.
Airlines are looking for serviceable used parts from retired aircraft for their younger, heavily maintained aircraft. This has enabled airlines to avoid costly repairs and keep their planes flying.
GA Telesis, of which Tokyo Century Corp (T 🙂 is one of the largest shareholders, has seen airlines use spares from their grounded aircraft to defer servicing the company's repair business, chief executive Abdol Moabery said.
The pandemic, which is expected to result in a 55% drop in passenger numbers in 2020, has resulted in older aircraft being retired prematurely, including the landing of B747 jets by British Airways, some of which are on air salvage are aligned.
Fewer double-ship planes flying internationally means less demand for their parts, with the exception of certain planes used to transport cargo.
Gregory said Air Salvage was approached by an aircraft leasing company about dismantling several A380s, but with only about 5% of jumbo jets still active, according to Naveo, demand for their parts is low.
Airlines are looking for narrowbody parts as around 64% of this type of single aisle aircraft are active domestic flights.
James Benfield, a UK partner of Baird Capital, expects increased demand for disassembly services for catchy B737 and A320 aircraft after the private equity firm acquired a disassembler in August.
While maintenance companies and new engine manufacturers also trade in used materials, excess parts could weigh on their sales.
General Electric The CEO of Co (N 🙂 said during a call for earnings in July that the company is "well positioned to participate in the used serviceable material industry trend".
GE Aviation manufactures engines, but also uses used parts.
Aerocycle sees opportunities in aircraft breakdowns. The small aircraft recycling company has hired a new business development manager to help drive demand as it plans to buy aircraft, said CEO Ron Haber.
"It's a calculated risk," said Haber. "We know what type of aircraft will fly and are still in great demand."
Airlines have avoided selling planes at a loss despite pressure from some bargain hunters.
"There's a lot of low-balling going on," said Moabery. "But these offers are not yet accepted."
Florida-based companies like International Aircraft Associates (IAA (NYSE :)) are watching as airlines and lessors cut their losses by year-end and convert their parked planes for parts.
"When they do that, people like us want to be ready," said IAA President Mitch Weinberg.