(Published in Aviation Business ME Magazine - Issue September 2015) www.aviationbusinessme.com
What goes up must come down – Facing the aircraft retirement Tsunami
Of the 19,000 commercial aircraft in service, only 7.000 will remain in the global fleet by 2030 predict 1BlueHorion Group with the level of aircraft retirements reaching a stunning 1000 aircraft a year within a decade. Factors contributing to early retirement include fluctuating fuel prices, financing – which is easier to obtain for new aircraft than used – and safety agency regulations limiting the age to register second hand aircraft to 20, or even 15 years. Some are parked in the desert, waiting to return to service. Others are initially parked, then sold off piece by piece until the aircraft is scrapped. And a few are abandoned next to the runway and left to corrode. There is another option gaining increasing credibility as part of the Corporate Social Responsibility aim of Manufacturers (OEMs) and Operators — recycling or reusing parts in a profitable yet environmentally sound manner.
The retirement age of commercial aircraft is decreasing as the global fleet renews, which is causing teardowns at younger ages. Recently, the industry has seen record aircraft orders driven by the operational needs of growing airlines, in the Middle East in particular. Current orders for new aircraft are at unprecedented levels, driven by the replacement of ageing fleets in North America, demand for fuel efficient aircraft and market growth in the emerging markets. But what happens to an aircraft once it has been retired from service? The courses of action open to the aircraft operator are affected by the cyclical nature of the aviation industry and will be determined by a number of factors: the type of aircraft, its age, its location and whether it is to be dismantled for reusable parts or for the raw material. An airline can double or even triple its money if it decides to part out an A320, as the associated spare parts are currently in demand. There is less demand for parts of an older aircraft such as the A300. Aircraft manufacturers and industry stakeholders have stepped up research methods into recycling and reclaiming materials from retired aircraft.
The Aircraft’s End of Life
Generally, aircraft are composed of a number of different materials and devices, including long and short carbon and glass fiber composites, wires, aluminum, titanium and steel alloys, foam, textiles and carpet, landing gears, fluids, electronic devices, engines, and other parts. Sometimes the complexity of materials and devices in aircraft (e.g., military, business jet, and civilian) can reduce the recyclability rate; therefore, during the initial design, manufacturers should consider the End of Life of aircraft.
In addition to economic returns, recycling has environmental benefits, as well. For example, aluminum manufacturing is an energy-intensive process due to the electrolysis step (or Bayer process). However, when aluminum is directly recovered and reused, it reduces the initial energy by 90%, which in turn also reduces raw material consumption.
The dismantling process consists mainly of three steps. The first step is decommissioning, which includes cleaning, draining of tanks, and various safety procedures. The second step is disassembling, which consists of equipment and parts removal from the body of the aircraft. The third step is the final draining of the systems, removal of hazardous materials, and deconstruction of the aircraft. Some of the components can be reused if the conditions of the parts are still in good shape (as serviceable or overhauled), such as engines and engine parts, the auxiliary power unit, landing gear, avionics, system equipment, and movable parts and devices. Many other good-quality materials and devices can be directly recycled and reused as provided below:
(i) some components, such as fluids (fuel, oil, and hydraulic fluid), security and safety equipment, batteries, avionics, and tires (requiring regulatory recycling);
(ii) aluminum, titanium, and nickel alloys; hot-rolled and corrosion-resistant steel alloys; wiring; harnesses; thermoplastics; foams; textiles; carpeting; papers/tissues with special recycling techniques;
(iii) cabin and cargo lining, wastes, and various other parts that are not recovered and usually go to landfills and aircraft graveyards;
(iv) all composite parts of the aircraft, including the fuselage and interior parts could be potentially utilized in other industries.
(v) the entire aircraft used for demonstrations and exhibitions in shows and museums for raising public attention for aviation.
If as example we consider that the initial weight of an average airplane is 106 tons, and, after three steps in the dismantling process, about 85% of the airplane materials could be recovered and the remaining 15% put in landfills. The 85% of the recycled parts are either used, as is, in the same field, or modified for other applications.
1BlueHorizon Group is forecasting that 30% of the 2015 fleet of in-service and stored commercial jets and turboprops will be retired within 10 years. "In the last decade, the average age of the passenger jet fleet dropped two years", says his Managing Director Leonard Favre. If this trend continues, the average retirement age will drop one year for every five years period, he says. Aircraft due for heavy maintenance often are the first candidates for retirement or parking. Favre points out that there is a significant opportunity for companies to dismantle and recycle retired airplanes to the highest standard rather than parking them in the desert, and also for aircraft ‘last off the production line’, especially those succeeded by newer models, are also targets due to their shorter useful economic life. As of March, 2015 single-aisle aircraft were parked, compared to only 458 twin-aisles. The number of parked twin-aisles has remained relatively steady since 2005, but the number of single-aisles rose to a peak of 2,450 in early 2013 from 1,180 in late 2005 he added. Not all aircraft reach the desert or dismantling facilities. ‘Niche aircraft such as the Boeing 757 are difficult to replace’ says Leonard Favre. Not having a replacement alternative, coupled with ‘a purchase or lease price low enough to offset fuel and maintenance costs, can make aircraft still viable on a cost-per-seat-mile basis. However, failing valuation make financing more difficult for aircraft older than 6-6 years’, he says. The key question is if airlines will be able to sustain the current level of fleet renewal, given higher aircraft prices or lease rates? Favre does not think so, but believes ‘the trend is probably solid for the next 8 – 10 years, depending mainly how long the fuel and financing cost will remind so low’.
The retirement age is about 25 years
The retirement age for commercial aircraft is about 25 years, but that could drop as values decrease. The fact that the government export banks ‘enable Tier-3 buyers to finance aircraft at Tier-1 rates instead of buying used models contributes to this trend. In addition, slowly almost all countries worldwide have restrictions on the age of imported aircraft (20 or even 15), if we except Europe, North America and Australia where more stringent maintenance regulations exist, says Favre. If the average retirement age is about 25 years, why are aircraft as young as six years being parted out? Simply put, their pieces are worth more than the whole. ‘Used parts maintain their value longer than aircraft – their prices fall much slower than prices for the whole aircraft’, says Favre. An early Airbus A320s generate about 700 parts, compared to 1,200 parts for newer models. Its main competitor the B737 face the same situation, with the 737 New Generation generating 1,800 parts for sale opposed to only 400 for the 737 Classics. Used parts prices come down to supply and demand with used parts prices for older models depreciating because over supply. Leading parts companies and airlines are requesting used parts for younger aircraft, which prompts aircraft to be dismantled at earlier age. Usually, the recycling process starts with the aircraft parked in average for 90 to 120 days and some up to 180 days says Favre. If the aircraft cannot be re-leased, the engines are usually sold or cannibalized for an other aircraft of the airline fleet, then the rest of the aircraft is dismantled and a parts company sells the pieces, or the dismantler consigns the parts to a company specialized.
Observing the market, prices are falling rapidly for the 2,600 aircraft near the 15-year vintage, such as the A320/321, A330/340, B757/767. While values for 5-15 year old aircraft are dipping, these fleets face maintenance requirements and rely on the secondary market for parts, which is driving more disassembly. As values fall, ‘part-outs become economically viable at younger ages’, says Favre. This makes several in-production aircraft models available for ‘prices approaching salvage value’, he adds. ‘There is approximately not far from one US$ billion in the teardown pipeline’. Favre sees the strongest demand for aircraft 10 years of age or older.\
With an estimated 12,000 aircraft retiring in the next 2 decades, aircraft recycling offers a broad range of opportunities for expanding the aerospace business. As the international aerospace community continues its focus on environmental issues and landfill regulations mount, asset owners are looking for efficient, revenue-building and environmentally-sound methods for aircraft disposal.