People who buy / sell parts, please, give me advice.

[uhb129b]

Working for an airline I am faced with the following situation. We have two old aircraft that we want to retire. We are leasing them, but we have the option to purchase them at market values. The technical guys say it might be worth buying the aircraft and dismantling them for the parts, as the other similar aircraft in the fleet are also getting old, and it is better to have enough spares on stock. Now, I have to make a business case to do this or not.

My questions are the following:

- I roughly know what the market value of the aircraft is. But how do I establish what the market value of the unserviceable parts of these aircraft is?

- Supposing that we dismantle the aircraft, what would be a good estimate of how much of the parts will be beyond repair?

Thanks!

uhb129b

[Wirelock]

Do you have overhaul capability for the parts that you are removing?
Greets

[uhb129b]

several aircraft:
- 737-300 from 1982 and 1983
- F70 from 1992 and 1994 (these are not on the list to be dismantled, but who knows...)
- all of them were predominantly used in Europe
- we have overhaul capacity for some of the parts (e.g. landing gear), but not for everything we would keep on stock.

[uhb129b]

Sorry, my bad! The correct years for the 733s are 1986 and 1987.

[jethrotull]

Based on the offer price for these 2 aircrafts you will have to crunch a few additional numbers.

1) Cost of disassembly = A.

2) List of rotables that can be re-used i.e. LDG, ENG, PCAs etc. Against this list you'll have to note down usefull life remaining for the LLPs i.e. CSN/CSO. These parts will have to be valued against their usefull life = B.

3) The List of rotables that you have made in item#2, get a quote for purchasing these rotables from a few vendors, the quote should also highlight the CSN/CSO = C.

4) Now B - (Price of 2 x A/C + A) = X

5) X=or> C then don't buy the a/c. However if X < C then buy.

Spare prices tend to rise up once a a/c Type gets retired but there is adequate demand for it, at the same time the spare prices collapse once the number of a/cs being retired increase disproportionately to the ones in service.
Things to keep in mind, the B737Cl are on a soft market, demand has collapsed for air travel and the surviving airlines can get a B737NG at attractive rates so why would they go for a less efficient Classics. Additionally classics are attracting a lot of additional maintenance inspections.

Hope this helps.

[Dodo56]

In theory you shouldn't find any of the parts beyond repair if you are flying the aircraft now! If they are removed in SVC condition they can be consigned to your stores in that condition tagged by your own engineers. There are people who make a living from parting out aircraft and selling the scrap, then leasing out the components. There are thousands of components in an aircraft so putting a value on these is a major job - I believe the normal practice to to consider the most major parts values (such as engines and gears) and regard this as the value of the ship with the rest of the components being the profit.

Remember to account for the costs of parting out and storage space for the parts. A lot of the case will depend on what price you can get for the aircraft. In today's climate for old types you should be in a strong bargaining position.

[airbirduk]

Have you considered doing the disassembly then giving a company the parts on consignment?

Always worth a thought.

[Bus429]

Where are you based? If the aircraft is from an EASA Member State it can be parted out under a Part 145 AMO with an appropriate A rating and a Form 1 can be issued as "Inspected" (you do not have to have a C-rating for this). See Part 145 AMC 145.A.50(a) paragraph 2.7. Several stipulations apply.

[uhb129b]

Thanks to everyone for the advice!

Summarising what I need to do:

1) Estimate how much the disassembly will cost

2) Select the parts that we want to keep

3) Get a quote for the price of these parts as if we would buy them from a vendor

4) Get a quote for the remaining parts and the scrap metal as if we wanted to sell them.

5) If (aircraft purchase price + cost of disasembly+cost of overhaul of parts-revenue from sold parts) < purchase price of the parts we want to keep, then we should go ahead.

I might also factor in the financing costs, costs of ownership of the parts, some parts being damaged beyond repair during the disassembly, etc.

Is this correct?

[uhb129b]

Bus429,

We are based in Europe, but I am not following you.

Part 145.A.50(a) does not have paragraph 2.7. Or am I looking at the wrong place?

http://www.easa.europa.eu/ws_prod/g/doc/Regulation/reg_2042_2003_Part145.pdf

[sb_sfo]

Just an off-the wall comment, but you might want to get a time machine with that. Scrap metal prices were insane last year, now, not so much...

[TARTAN]

uhb129b, I honestly don't see how it will be cost effective to buy a
serviceable aircraft and use it as a christmas tree. You can 'S' tag
the avionics from it but they often don't transfer well to another
aircraft. You are better off just dealing with the spares companies
and getting what you need on exchange which is a hell of a lot
cheaper than buying them outright. If you owned the a/c in the
first place then it would make sense to rob them. Their value
would have been written off and so the cost of the spares taken
off of them would be of a nominal cost.

[Bus429]

unb129,

Look here (http://www.easa.eu.int/ws_prod/g/doc/Agency_Mesures/Certification_Spec/decision_ED_2003_19_RM.pdf) (Acceptable Means of Compliance). Page 182 on the PDF count.

[uhb129b]

Thanks to everyone for the helfpul comments. Apparently, I have lots of research to do.

Could you guys also suggest me companies who buy parts and inventory?

I found two so far:
A J Walter Aviation (http://www.ajw-aviation.com/)
Avtrade - Home (http://www.avtrade.co.uk/index.html)

[Nopax,thanx]

I used to be in this business myself and concur with what is said about values. The big players used to value an aircraft on its engines alone, and the rest was profit.

Some traders will try and turn you over so be careful if you do go this way. If you get into bed with a reputable company you'll both do well on the transaction.

Avtrade are good guys, known them for many years and they will be realistic especially with 737's which they are well experienced on.

[airbirduk]

PM me, the company I work for may be interested.

Thanks.

[uhb129b]

The big players used to value an aircraft on its engines alone, and the rest was profit.


I tried this and this way there is a gap of 0.3 million USD between the market value of the aircraft and the combined values of the two engines and the APU. There must be something the big guys know and I don't. :(

[uhb129b]

I used to be in this business myself

What did you do?

[Dodo56]

The big players used to value an aircraft on its engines alone, and the rest was profit.

I tried this and this way there is a gap of 0.3 million USD between the market value of the aircraft and the combined values of the two engines and the APU. There must be something the big guys know and I don't. http://images.ibsrv.net/ibsrv/res/src:www.pprune.org/get/images/smilies/sowee.gif

As I suggested earlier the economics of the deal very much depend on the acquisition price of the ship! Given the current market the owner may be amenable to negotiation, seeing as his likely options outside of selling it to you are to pay to park it in the desert, probably forever, or to let it go for pennies to the 3rd world on the promise of payment sometime never.

The other big components that may affect the equation is gears, depending on residual life. I've also known of people who have bought an aircraft to part out and ended up leasing it out for a few years first, but that was in more buoyant times.

Re parts companies yes you could speak to the two you listed. There are quite a few around and here's a few more suggestions for you:
Executive Jet Support - Home Page (http://www.ejs.aero)
http://www.p3aviation.com
Airline Services Components (http://www.ascltd.com)
Thameside Aero Spares (http://www.thamesideaero.co.uk)

I've worked with all of those and they are good guys.

[rugmuncher]

Dalmar Aviation with their Eastern European Contacts may be your one of your best to consider.

[uhb129b]

Just to update you guys on the outcome.

We decided to return the aircraft to the lessor and not to part them out.
- the most important reason was that as an airline we need to save cash at the moment. We can not afford tying down cash in relatively illiquid assets like aircraft parts.
- it looks like due to the depression there is enough supply of any part we might need at good prices
- we don't want to run the risk of having the market for 733 parts collapse due to oversupply from retired aircraft

Thanks to everyone who helped!