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Topic: Nearly New Aircraft Being Scrapped
Username: n471wn
Posted 2013-04-17 14:09:26 and read 25008 times.

There have been numerous articles lately in industry publications about the new phenomenon of young commercial passenger aircraft being scrapped. This forum previously had a thread on the 10 Frontier A-318's which were scrapped after only a few years of service. The reasons cited for this early scrapping is generally thought to be (1) that today more than ever the parts of an airliner are worth more than the whole and (2) that financing is easier to obtain for new a/c than for used a/c----even if that useage is only for a few years.

It has generally been thought that leasing companies were the ones who ultimately made the decision to scrap these new a/c BUT in checking the numbers of the 19 scrapped Boeing 737-700's we see that Boeing was the owner of 4 ex GOL 737-700 a/c and they (Boeing) flew them to VCV and had them scrapped. With hundreds of 737-700's on order and yet to be delivered, it strikes me as strange that Boeing would make no attempt to sell these a/c and just let them be cut up. You would think they would want to better protect the reputation of the service life of their products.......

Topic: RE: Nearly New Aircraft Being Scrapped
Username: AeroWesty
Posted 2013-04-17 14:25:12 and read 24855 times.

Quoting n471wn (Thread starter):
You would think they would want to better protect the reputation of the service life of their products

With the desire for those in sales to earn commissions, and executive staff to earn bonuses for hitting financial milestones, where's the counterbalancing incentive? Truth is there's no immediate bonus for keeping planes flying for 30 years, so they go to the scrapper when the parts are worth more than selling a used aircraft whole.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: deltalaw
Posted 2013-04-17 14:29:13 and read 24824 times.

Quoting n471wn (Thread starter):
it strikes me as strange that Boeing would make no attempt to sell these a/c and just let them be cut up.


Boeing has made an effort to sell used aircraft in the past when they have taken them from airlines as part of a new aircraft purchase. Why would Boeing make an effort to extend the life of used airframes when there is no financial incentive for them to do so. I am sure it is far more profitable for them to book a new order than it is for them to get involved with frames they have already delivered.

That being said, why a 3rd party does not buy and try to resell them must speak to their depressed value and the relative ease of selling spare parts for models that have sold so many frames.

[Edited 2013-04-17 14:31:20]

Topic: RE: Nearly New Aircraft Being Scrapped
Username: ghost77
Posted 2013-04-17 18:23:03 and read 24184 times.

Quoting deltalaw (Reply 2):
That being said, why a 3rd party does not buy and try to resell

And try? That's the thing.

You can buy now for 10 and tomorrow will be worth 9 and maybe 2 years later is back in 12B USD.

High risk, a lot of money, few can afford them. Even thou, new more lessors are emerging.

g77

Topic: RE: Nearly New Aircraft Being Scrapped
Username: enilria
Posted 2013-04-17 20:07:35 and read 23817 times.

Quoting n471wn (Thread starter):
of the 19 scrapped Boeing 737-700's we see that Boeing was the owner of 4 ex GOL 737-700 a/c and they (Boeing) flew them to VCV and had them scrapped.
Quoting AeroWesty (Reply 1):
With the desire for those in sales to earn commissions, and executive staff to earn bonuses for hitting financial milestones, where's the counterbalancing incentive?

Well, the reason scrapping makes money is because Boeing charges a lot more for the parts needed to make an airplane than for a whole airplane. So, by contributing more used parts through this scrapping they are really creating more cheap parts to compete with their overpriced parts. So, ironically this may be even more stupid for Boeing.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: FI642
Posted 2013-04-17 20:14:47 and read 23748 times.

The A318's had/have high operating costs and many parts are the same with other members of the A320 family.

The 737's are the same way.

Like buying a used car, you think you're getting a deal when most of the time you are not.

Readily avilable parts, at a "reduced" price. It is an instant win for the airframe owner.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: DrColenzo
Posted 2013-04-18 02:24:27 and read 20710 times.

Quoting FI642 (Reply 5):
Like buying a used car, you think you're getting a deal when most of the time you are not.

Readily avilable parts, at a "reduced" price. It is an instant win for the airframe owner.

Exactly!

I think the replies here have made the correct point: unless owned by the state airlines have to make a profit to survive and it is no use having an airliner sitting in the desert costing money (I've found out that the storage is much more expensive that I first thought) that might not be used for a few years, if at all, when it can be parted out and improve the airline's balance sheet and profit and loss account.

Money talks, b*llsh!t walks as they say, a newer airliner costs less to run and with current credit facilities to own, too. Why bother keeping an old airliner sitting in storage when you can make a quick buck on the parts?

The only way keeping an old airliner going is when the capital costs have been paid off long ago, there is a supply of ready and cheap parts and the overall cost per mile is competitive with current airframes - I am thinking North West /Delta and the DC-9 here (or even NW and the DC-10 a few years back), but even these are now being replaced with another cheap to buy, cheap to run and maintain oldie, the 717!

Topic: RE: Nearly New Aircraft Being Scrapped
Username: vlad135
Posted 2013-04-18 03:24:31 and read 19864 times.

Quoting enilria (Reply 4):
Well, the reason scrapping makes money is because Boeing charges a lot more for the parts needed to make an airplane than for a whole airplane. So, by contributing more used parts through this scrapping they are really creating more cheap parts to compete with their overpriced parts. So, ironically this may be even more stupid for Boeing.

Why would Boeing sell the parts below market value? I'm pretty sure they're smart enough to do some kind of analysis in order to maximize their profit.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: Ronaldo747
Posted 2013-04-18 05:49:54 and read 17398 times.

Quoting n471wn (Thread starter):
BUT in checking the numbers of the 19 scrapped Boeing 737-700's we see that Boeing was the owner of 4 ex GOL 737-700 a/c and they (Boeing) flew them to VCV and had them scrapped.

I'm not aware which GOL 737-700s were scrapped but I guess that were the oldest one and those should had very high numbers of cycles compared to their age. They are not attractive for the second hand market any more.

Quoting n471wn (Thread starter):
With hundreds of 737-700's on order and yet to be delivered, it strikes me as strange that Boeing would make no attempt to sell these a/c and just let them be cut up.

Well I see 222 aircraft to be delivered too, but many of them might be switched to the -800 or even -900ER over time. Especially the Southwest orders.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: m1m2
Posted 2013-04-18 06:26:21 and read 16535 times.

The answer for me would be math. Is it worth more as an "airplane" or more as the sum of the value of it's parts? To airline execs an airplane is a man made machine designed to make them money. If it stops making money as an airplane, then it becomes highly valued aircraft parts.

That's just my take on it, I'm sure others will disagree.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: DrColenzo
Posted 2013-04-18 06:32:31 and read 16372 times.

Quoting m1m2 (Reply 9):

The answer for me would be math. Is it worth more as an "airplane" or more as the sum of the value of it's parts? To airline execs an airplane is a man made machine designed to make them money. If it stops making money as an airplane, then it becomes highly valued aircraft parts.

I can't see how anyone can disagree - that's good business sense and after all airlines are just businesses!*

*(many of us here on A-Net forget that at times)

Topic: RE: Nearly New Aircraft Being Scrapped
Username: lightsaber
Posted 2013-04-18 07:10:56 and read 15527 times.

All of these aircraft were attempted to be resold. The reality is the A320 is the smallest of the narrowbodies with good resale value. There is a reason Allergiant started buying A319s (low resale). However, they wanted planes for less than the competition (scrappers bidding to sell the parts), so they moved on up to the A320 which can carry enough additional passengers to make its added costs worth it. For the smallest frames (A318/736), the parts are worth too much to keep the frames flying.

Part of the issue is the number of A319s/73Gs available. These frames compete with used 733s whose part value is much less (e.g., different CFM-56s). Every used aircraft is sold in an 'auction format.' Sometimes the highest bid is a scrapper.

We're also in a time of low interest rates. This has made new aircraft available to many airlines that before were the customers of used airframes. With today's fuel prices, why not save money on the fuel?

Quoting vlad135 (Reply 7):
Why would Boeing sell the parts below market value?

They don't. Aircraft are like used cars, the sum of the parts (sold by Boeing) costs more than the assembled vehicle as most of Boeing's profit is supporting older aircraft. I loved my last car, but it was worth $2000 more as parts than a driving machine and I didn't want to pay the maintenance anymore. Cest la vie.

Quoting vlad135 (Reply 7):
I'm pretty sure they're smart enough to do some kind of analysis in order to maximize their profit.

They are. If they try to sell new aircraft at the price of parts, no one would buy. The trick is to price the new aircraft 'cheap enough' to sell and then make a profit on the steady stream of spares. The catch is that if Boeing sells a new aircraft for too little, it goes out the door worth more parted out.

Quoting enilria (Reply 4):
Well, the reason scrapping makes money is because Boeing charges a lot more for the parts needed to make an airplane than for a whole airplane. So, by contributing more used parts through this scrapping they are really creating more cheap parts to compete with their overpriced parts. So, ironically this may be even more stupid for Boeing.

Stupid?    Its a balance. When the resale price of an airframe dips, the part value is worth more. Without those high part prices, Boeing would not be able to develop any new aircraft. Overall both Airbus and Boeing have done well.

Lightsaber

Topic: RE: Nearly New Aircraft Being Scrapped
Username: Stitch
Posted 2013-04-18 07:59:21 and read 14424 times.

Quoting n471wn (Thread starter):
With hundreds of 737-700's on order and yet to be delivered, it strikes me as strange that Boeing would make no attempt to sell these a/c and just let them be cut up.

As Ronaldo747 noted, it is very likely most of those 737-700s ordered will not be delivered as 737-700s - the 737-800 and 737-900ER offer better value for operators.

And most of a 737-700's parts can be used in a 737-800 and 737-900ER, so for Boeing (and other scrappers), "previously flown" 737-700s offer better value in pieces than whole.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: twincessna340a
Posted 2013-04-18 08:30:44 and read 13749 times.

Quoting vlad135 (Reply 7):
Why would Boeing sell the parts below market value? I'm pretty sure they're smart enough to do some kind of analysis in order to maximize their profit.
Quoting Stitch (Reply 12):
They don't.

The used parts are sold at market value, albeit at a lower price than a brand new part. However, the cost of obtaining (and possibly refurbishing) the used part is lower than the cost of making a new part so the margin on the used part is similar if not lower thus not detracting from new part sales.

Quoting Stitch (Reply 12):
most of Boeing's profit is supporting older aircraft.

   Not only Boeing, but any equipment manufacturer (cars, const./farm equip., lawn mowers, etc.)

Topic: RE: Nearly New Aircraft Being Scrapped
Username: enilria
Posted 2013-04-18 10:44:04 and read 11216 times.

Quoting vlad135 (Reply 7):
Why would Boeing sell the parts below market value? I'm pretty sure they're smart enough to do some kind of analysis in order to maximize their profit.
Quoting lightsaber (Reply 11):
Stupid?    Its a balance. When the resale price of an airframe dips, the part value is worth more. Without those high part prices, Boeing would not be able to develop any new aircraft. Overall both Airbus and Boeing have done well.

You must misunderstand what I am saying. The scrapping business exists to create an alternative source of cheaper parts to compete with Boeing's new part prices which are high. By scrapping airplanes themselves they are increasing the supply of discount parts undercutting the sale of their own new parts. So they are losing money on their own parts by scrapping a plane and putting more used parts in the system. If they were scrapping Airbus airplanes it would make a lot more sense because they would be 1) reducing the number of used Airbus aircraft to compete with, 2) driving down the price of Airbus parts which hurts Airbus' sales of new parts, and 3) increasing the price of used aircraft through scarcity which makes new aircraft more competitive. With 737s only 2 of the 3 are beneficial.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: Stitch
Posted 2013-04-18 10:48:23 and read 11114 times.

Quoting enilria (Reply 14):
The scrapping business exists to create an alternative source of cheaper parts to compete with Boeing's new part prices which are high. By scrapping airplanes themselves they are increasing the supply of discount parts undercutting the sale of their own new parts. So they are losing money on their own parts by scrapping a plane and putting more used parts in the system.

Better Boeing (and Airbus) collect the revenue from those lower-priced "previously flown" refurbished parts than a third party...

Topic: RE: Nearly New Aircraft Being Scrapped
Username: lightsaber
Posted 2013-04-18 11:31:01 and read 10203 times.

Quoting enilria (Reply 14):
The scrapping business exists to create an alternative source of cheaper parts to compete with Boeing's new part prices which are high. By scrapping airplanes themselves they are increasing the supply of discount parts undercutting the sale of their own new parts. So they are losing money on their own parts by scrapping a plane and putting more used parts in the system.

Agreed. But look how few planes are scrapped. Overall, Boeing and Airbus want to maximize the part revenue which will always result in some scrapped aircraft.

Quoting enilria (Reply 14):
3) increasing the price of used aircraft through scarcity which makes new aircraft more competitive.

But there will always be times of surplus used aircraft at the wrong size. e.g., the A318 and 736. No discounting of parts would keep those aircraft from being scrapped. Nothing could have stopped it as the cost per flight is just too much. The reality is that part prices are very little of the total cost to fly a plane. Parts are generally sold at 2.5X to 3.5X cost. Those parts are perhaps 3% of the cost of flying. So if Boeing and Airbus remove all profit from their parts, they only cut the cost of flying by 2% (or less). A change of flying costs of 2% will not keep any more planes flying.

But that difference in part prices is the majority of Boeing and Airbus' profit. If they would cut their profit by more than half, than the cost per flight would drop 1%. Not worth it... There is a balance and there will always be leakage of parts in scrapped planes. With a plane as old as the 737, there is no avoiding older examples reaching the end of their economic life.

It makes more sense for Boeing and Airbus to take part profits and invest them in more range (MAX/NEO) that sells new aircraft.

And what fraction of "newish" aircraft are scrapped? Even if the number were to grow to 5% (right now its less than 1%), it is better from a revenue standpoint to keep with the current model.

There have been times when engine makers were caught selling new engines too cheap and it became more economical for airlines to buy new engines than rebuild (e.g,. Pratt with the PW4090). But the airframes are not there yet.

Lightsaber

Topic: RE: Nearly New Aircraft Being Scrapped
Username: AeroWesty
Posted 2013-04-18 11:35:25 and read 10096 times.

If the parts business is so lucrative, I wonder if Boeing would sell me a few unassembled 737s that I could warehouse and sell piecemeal.   

Topic: RE: Nearly New Aircraft Being Scrapped
Username: lightsaber
Posted 2013-04-18 11:47:19 and read 9795 times.

Quoting AeroWesty (Reply 17):
If the parts business is so lucrative

It is the lifeblood of the commercial aviation market. From vendors to air-frame integrator, the business lives off parts. Not business jets... (there is a different business model there). But commercial aircraft are a razor blade business.

Take razor blades. I *usually* buy a new razor when I need razor blades as that is cheaper than buying just the blades. If Boeing and Airbus discount new too much, that is where they will end up (rapid replacement of airframes).

There is a downside to this model. About 8 or 9 months ago, part sales for older aircraft fell off a cliff: MD-80, DC-10, 747, 767, and 737classic (many of the parts are different and I now work for a company that did better on the classic than the NG) part sales all of the sudden took a nose dive. Now the MD-80 parts have been in a tailspin for years, but at that time AA began retiring them fast enough to impact the spares market. So companies, such as the one I work for, have suddenly hit a wall on their profits (ours took a 'step down' due to these aircraft being scrapped). Being dependent on part revenue makes the airframes far more dependent on the economic cycle.

Scrapping of aircraft multiplies the variability in spares revenue as there is both a drop in needed spares (aircraft needing maintenance are parked) and a sudden increase in spares from scrapped aircraft. This is one reason why employment in aerospace can be very cyclical. Thankfully, right now, there is a huge boom in development of new commercial aircraft (C-series, MRJ, re-engine Ejets, MAX, NEO, and numerous new business jets).

Lightsaber

Topic: RE: Nearly New Aircraft Being Scrapped
Username: AeroWesty
Posted 2013-04-18 11:51:23 and read 9694 times.

Quoting lightsaber (Reply 18):
It is the lifeblood of the commercial aviation market. From vendors to air-frame integrator, the business lives off parts.

Oh I completely understand that, as I'm sure most people do. I was simply thinking aloud whether one could actually buy an unassembled 737 or two from Boeing, and whether it would be profitable to do so to sell it piece-by-piece. After all, it would save all those pesky disassembly costs.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: B6MoneyGuyJFK
Posted 2013-04-18 11:53:12 and read 9656 times.

Quoting deltalaw (Reply 2):
That being said, why a 3rd party does not buy and try to resell them must speak to their depressed value and the relative ease of selling spare parts for models that have sold so many frames.

I have this image in my head.... like an oversized used car lot.... Signs placed over different cockpit windows "Low flight hours" , "Only one owner", "Make offer".. A little office on the side where you can haggle..  

Topic: RE: Nearly New Aircraft Being Scrapped
Username: lightsaber
Posted 2013-04-18 12:19:29 and read 9065 times.

Quoting AeroWesty (Reply 19):
I was simply thinking aloud whether one could actually buy an unassembled 737 or two from Boeing, and whether it would be profitable to do so to sell it piece-by-piece. After all, it would save all those pesky disassembly costs.

My misunderstanding. Buying the parts of a 737 would cost you about $100 million *more* than buying a fully assembled 737. If you want new parts, Boeing already has a price list for components. This is the same with new cars. For example, my current vehicle costs about $50,000 more as unassembled parts than what I paid for a new vehicle. For example, as a new vehicle assembled, the windshield whipper soft goods cost me about $3. As spare parts: $20. A bumper new is about $100. As a spare part $600. Some parts, such as tires, brakes, and batteries, there is not so much of a markup due to competition from aftermarket parts. The same is true of aircraft (there are aftermarket tires, brakes, and batteries for the 737 and A320).

Quoting B6MoneyGuyJFK (Reply 20):
I have this image in my head.... like an oversized used car lot....

The parts market isn't far from that. Airframes are put up for bid in an auction format. Usually the parts houses make a bid on any aircraft that interests them (until their back lot is full). If an operating out bids them (e.g., G4 had to raise their bids to acquire A319s as some of their initial offers were below parts value), the plane keeps flying. If not... parts. It depends on the demand for the airframe and that has to do with operating costs and potential revenue (range and seats).

For an A320, the assembled price remains above the parts price out to about 20 years. When the plane needs a 3rd D-check (or start of the D-check interval), it is usually more economical to sell the plane for parts and use that money as a down payment on a new A320.

For the A319, depressed RASM has pushed its assembled value below parts value (and the cost of dis-assembly) after only about 7 years. Yes, a huge difference in economic life based on just a few seats...

For the A318, the reduced revenue potential has hit the value so hard that there is no resale market and only a parts market.   The same is true of the 736 and we're seeing the 73G having issues too.

But this is just the way it goes. Soon we will see 500 new 737s and 500 new A320s hit the skies every year. Since they will have new engines with new sub-systems, there will be new part selling opportunities.

The parts market is one reason I think there should *not* be a -7MAX and A319NEO. Neither of those planes will hold their assembled values above parts value long enough to justify selling the short length. Keep to the better revenue potential of the A320/A321/738/739.


Lightsaber

Topic: RE: Nearly New Aircraft Being Scrapped
Username: AeroWesty
Posted 2013-04-18 12:22:35 and read 8979 times.

Quoting lightsaber (Reply 21):
Buying the parts of a 737 would cost you about $100 million *more* than buying a fully assembled 737.

So there is a profit to be made. Now the question is, would Boeing actually sell me an unassembled 737 or two for the assembled price. I could be rich!

Topic: RE: Nearly New Aircraft Being Scrapped
Username: ETinCaribe
Posted 2013-04-18 13:04:21 and read 8033 times.

Quoting DrColenzo (Reply 6):
I've found out that the storage is much more expensive that I first thought

How much roughly, if you can share?

Quoting DrColenzo (Reply 10):

Quoting m1m2 (Reply 9):

The answer for me would be math. Is it worth more as an "airplane" or more as the sum of the value of it's parts? To airline execs an airplane is a man made machine designed to make them money. If it stops making money as an airplane, then it becomes highly valued aircraft parts.

I can't see how anyone can disagree - that's good business sense and after all airlines are just businesses!*

Indeed, any in a sh**ty business with very low margins as an industry.
Indeed. Let businesses take the risk and reap the benefits (or losses). No crying in business (unless you are too big to fail in which case WE bail you out  )

Quoting lightsaber (Reply 18):
here is a downside to this model. About 8 or 9 months ago, part sales for older aircraft fell off a cliff: MD-80, DC-10, 747, 767, and 737classic

Was it due to oversupply of retiring fleet?

Topic: RE: Nearly New Aircraft Being Scrapped
Username: KELPkid
Posted 2013-04-18 13:07:32 and read 7987 times.

The fact that B and A are running their lines at near record production levels isn't helping matters much, either, for the used aircraft market...why by used when a new production bird has several fuel saving change incorporations in it and you can get a production slot relatively easily?  

Topic: RE: Nearly New Aircraft Being Scrapped
Username: mcg
Posted 2013-04-18 13:54:37 and read 7101 times.

Quoting lightsaber (Reply 21):
hen the plane needs a 3rd D-check (or start of the D-check interval), it is usually more economical to sell the plane for parts

When parts come out of airplane due for a major check, do the parts require some sort of check to ensure that they are in good working order?

Topic: RE: Nearly New Aircraft Being Scrapped
Username: lightsaber
Posted 2013-04-18 14:51:05 and read 6529 times.

Quoting AeroWesty (Reply 22):
Now the question is, would Boeing actually sell me an unassembled 737 or two for the assembled price. I could be rich!

   Nope. They want the profit off the parts. They would sell you an unassembled 737 for about $100 million more than the assembled one and the assembled one has resale provisions (e.g, FR cannot sell 738s before X years where, IIRC, X=7). Boeing wants their ancillary revenue.   

Quoting ETinCaribe (Reply 23):
Quoting lightsaber (Reply 18):
here is a downside to this model. About 8 or 9 months ago, part sales for older aircraft fell off a cliff: MD-80, DC-10, 747, 767, and 737classic

Was it due to oversupply of retiring fleet?

It is due to parked aircraft instead of overhauls (no need for parts until C or D check started) *and* an oversupply of parts from the retired fleet.

Note: I should have had the 757 on that list too, but it is being hit to a lesser degree. (Not as abrupt a drop off in spare part demand from vendors.) The same timeframe....

Quoting mcg (Reply 25):
When parts come out of airplane due for a major check, do the parts require some sort of check to ensure that they are in good working order?

Some of the parts will be new (as they were replaced as needed) and some will be sent to the vendor for refurbishment. Some parts can be 'spot checked' and then they'll be ready. Other parts have cycle lives (e.g., landing gear) between overhauls. There isn't 'one' answer. Some parts are just thrown out at the C or D check anyway... so there is no parts revenue there, only metal scrap.

The most valuable parts are the engines/nacelles. Those each have their maintenance history logged. One engine would likely be worn out, in need of overhaul. The other engine would have plenty of life left on it and could be on another aircraft within the hour! (I know LH did that with 727s...)


Lightsaber

Topic: RE: Nearly New Aircraft Being Scrapped
Username: 7BOEING7
Posted 2013-04-18 22:29:01 and read 6078 times.

Quoting lightsaber (Reply 11):
Without those high part prices, Boeing would not be able to develop any new aircraft.

There is money to be made in parts but to say Boeing wouldn't be able to develop new airplanes without a parts business on the side seems a little over the top. It's not like printers where the manufacturers make all their money off the cartridges. How many of the most common parts replaced come from Boeing as opposed to the vendors that make them and quality of the initially installed parts improves constantly, increasing the MTBF. Newer models also have seen increased times between major checks (C,D) also lowering the profit from parts sales. I don't think the pitch to the Board of Directors for a new model is based on profit from parts as opposed to airplanes.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: lightsaber
Posted 2013-04-19 06:14:53 and read 5691 times.

I speculate the current aircraft profit model was started way back when by Ford and their trimotor. Ford flooded the market with far more affordable airframes with the intent to make money off the parts. However, like with the model-T car, they didn't evolve the product quickly enough and were soon left in the dust.

Quoting 7BOEING7 (Reply 27):
There is money to be made in parts but to say Boeing wouldn't be able to develop new airplanes without a parts business on the side seems a little over the top. It's not like printers where the manufacturers make all their money off the cartridges. How many of the most common parts replaced come from Boeing as opposed to the vendors that make them and quality of the initially installed parts improves constantly, increasing the MTBF.

Most of the regularly replaced parts, other than tires and brakes, come through Airbus and Boeing. New aircraft go out the door at a low profit margin. Parts, for Boeing and Airbus, typically have a 60% profit margin!    And they come with support contracts...

In many cases, the vendors are not allowed, by contract, to directly sell new parts. Take the 737 classic. I work for a company that makes parts that go on the plane. We're allowed by the contract to refurbish old parts, but if certain items are not good (e.g., never allowed to repair a pressure vessel), the customer must buy from Boeing or find a good part on the used market. WE CANNOT SELL DIRECT OR BOEING AND GE WOULD BLACKLIST US!!! Now repairs are our profit center too, not the parts we sell to Boeing. New contracts are similar, just with longer MTBF lives.

Even bolts and rivits must come through the Airframers. There are exceptions (tires, brakes, and a few other high wear items that airlines will not buy from the airframers). Some of the bolts cost over $200!    This is why airlines are tempted to used counterfeit parts as the airlines could buy the same part for $40 (sometimes even ten cents on the dollar). But once one counterfeit part is found, the airline must then search all their aircraft to replace all of them. Counterfeit parts do *not* maintain the same quality control. (I've seen bolts sold as grade 8 nickel that didn't have 1/3rd of the cyclic fatigue life that was required.)

Our MTBF is very low. But you do realize some of that is being achieved by 'chucking parts' at given intervals? The parts never fail, they are just replaced proactively. After replacement, we make our money refurbishing the old one (e.g., set the replacement interval low enough that only new soft goods and coatings are required). Wear items haven't improved that much in 30 years. Oh, carbon and other seals have improved a little, but not by as much as the MTBF intervals have increased. Much of the improvement is by maintenance intervals. MTBF is not the same as time on wing...

And on the 787 and all new airframes, Boeing controls the maintenance prediction algorithms, so airlines are truly locked into buying parts through Boeing.

Quoting 7BOEING7 (Reply 27):
I don't think the pitch to the Board of Directors for a new model is based on profit from parts as opposed to airplanes.

Its both. However, Boeing and Airbus are switching to new Ancillary services as part MTBF lives extend. e.g., Boeing's new wing prediction software to aid route planning. You had better believe part profits were part of that business case.

Lightsaber

Topic: RE: Nearly New Aircraft Being Scrapped
Username: neutrino
Posted 2013-04-19 08:14:21 and read 5479 times.

Quoting AeroWesty (Reply 22):
So there is a profit to be made. Now the question is, would Boeing actually sell me an unassembled 737 or two for the assembled price. I could be rich!

Should you succeed in sweet-talking Boeing (or Airbus or both) into supporting your business plan, count me in as a major investor in your enterprise. 

Topic: RE: Nearly New Aircraft Being Scrapped
Username: enilria
Posted 2013-04-19 08:46:06 and read 5409 times.

Quoting Stitch (Reply 15):
Better Boeing (and Airbus) collect the revenue from those lower-priced "previously flown" refurbished parts than a third party...

I'm just saying that by scrapping their own aircraft they are probably doing more damage than good, although the answer probably comes down to where the parts went. Perhaps Boeing took them and is selling them as "refurb Boeing-approved parts".

Quoting lightsaber (Reply 16):
Agreed. But look how few planes are scrapped. Overall, Boeing and Airbus want to maximize the part revenue which will always result in some scrapped aircraft.
Quoting lightsaber (Reply 16):
Quoting enilria (Reply 14):
3) increasing the price of used aircraft through scarcity which makes new aircraft more competitive.

But there will always be times of surplus used aircraft at the wrong size. e.g., the A318 and 736. No discounting of parts would keep those aircraft from being scrapped. Nothing could have stopped it as the cost per flight is just too much. The reality is that part prices are very little of the total cost to fly a plane. Parts are generally sold at 2.5X to 3.5X cost. Those parts are perhaps 3% of the cost of flying. So if Boeing and Airbus remove all profit from their parts, they only cut the cost of flying by 2% (or less). A change of flying costs of 2% will not keep any more planes flying.

I mean scarcity of whole airplanes. The fewer planes there are on the market, the more used aircraft are worth and the more they are worth, the less price pressure they put on new aircraft.

Quoting AeroWesty (Reply 17):
If the parts business is so lucrative, I wonder if Boeing would sell me a few unassembled 737s that I could warehouse and sell piecemeal.
Quoting lightsaber (Reply 21):
My misunderstanding. Buying the parts of a 737 would cost you about $100 million *more* than buying a fully assembled 737.
Quoting AeroWesty (Reply 22):
So there is a profit to be made. Now the question is, would Boeing actually sell me an unassembled 737 or two for the assembled price. I could be rich!
Quoting neutrino (Reply 29):
Should you succeed in sweet-talking Boeing (or Airbus or both) into supporting your business plan, count me in as a major investor in your enterprise. 

The problem is that a lot of parts are unsellable and most of those are fuselage components. How often do you need a tail? It doesn't really work economically until the airframe has close to zero residual value.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: AeroWesty
Posted 2013-04-19 09:02:48 and read 5356 times.

Quoting neutrino (Reply 29):
Should you succeed in sweet-talking Boeing (or Airbus or both) into supporting your business plan, count me in as a major investor in your enterprise.

I figure that all we need to do is to work this into a program that would qualify for the Lightsaber Seal of Approvalâ„¢, and we're golden!     

Topic: RE: Nearly New Aircraft Being Scrapped
Username: Wisdom
Posted 2013-04-19 09:34:15 and read 5271 times.

I disagree with several comments above.
Before, I used to think that all aircraft parts were supplied by Boeing too, but it seems that it doesn't quite work that way.

1. Most demanded parts on an airplane are not "OEM" parts. In this case the OEM being Boeing.
They are: Hamilton Sundstrand, Honeywell, Rockwell Collins, Parker Hannifin, Messier-Bugatti, Dunlop, Bridgestone and the hundreds of other suppliers/subcontractors. On most parts boxes, you find the logo's of these suppliers.

If we talk engines, it's GE, PW, RR and not Boeing. More in detail, if you need a fan blade, you might even deal directly with subcontractors/Vendors like Volvo Aero.

I haven't seen many parts stowed inside boxes that carry the Boeing logo, unless they were structural parts.
By structural parts I mean the flaps, manhole covers or landing gear uplocks.

2. More than half the residual value on a used aircraft is achieved by its engines, landing gears and avionics.
Most of them are supplied directly by the subcontractor/vendor and not by the OEM. Airbus is trying to make everything go through them, so that they can pocket margins on high-value parts while keeping parts cost under control as opposed to vendors asking high prices when dealing directly with airlines.

3. A318/B736 have a low resale value, because there is no demand. Rather than resell them for 10 million$ each, they can make 15-20 million$ out of the sale of the spare parts.
VIP conversion is a possibility but it doesn't make Boeing any richer and they would prefer to sell BBJ's.

4. When selling parts from an aircraft it scraps, Boeing will compete with other vendors on the open market.

5. OEM's are more and more offering total solutions, where airlines pay fixed costs per flight hour for a set of defined parts and components:
Boeing offers Boeing Goldcare, Airbus has Flight Hours Services.
http://www.airbus.com/support/flight-hour-services/

This is not new as many MRO's have offered this in the past and the engine manufacturers have started offering this a while ago.

These kinds of programs are generally called "power by the hour" in the industry.

For someone like Boeing, it would be more beneficial to bring in parts from scrapped aircraft into such programs, rather than having to buy brand new parts in order to incorporate them into the program.

[Edited 2013-04-19 09:36:20]

Topic: RE: Nearly New Aircraft Being Scrapped
Username: lightsaber
Posted 2013-04-19 12:16:45 and read 5076 times.

I decided to do a little research. It looks like demand for scrapping is coming from demand for the engines (too few spares and its cheaper to buy a used engine rather than overhaul an engine). Warning: This article is 2 years old and aircraft values have dropped since then:
In addition, demand for spares has grown for engine parts as operators see opportunities to keep aircraft on wing longer, without sending engines through a shop visit. IBA also notes a significant interest from engine traders rather than placing orders with engine manufacturers for spare engines.

Figures produced by IBA provide evidence of a fall in prices for passenger aircraft. A 20-year-old A320 has a market value of $8.3 million, says IBA, 20% down on the $10.3 million it was worth a year ago. However, for the tear-down market the aircraft will probably be sold for between $6 million and $7 million according to the firm. Of this, the part-out companies will probably receive between $1.5 million and $2 million per engine.

IBA says the 737 Classic is more affected than the A320 mode as its market is plummeting. A 20-year-old 737-400 now has a market value of $5.5 million, but in the tear-down market the value would drop to $3 million.


So it looks as if the actual aircraft parts are not driving the transactions, but rather the engines/nacelles.

Spare narrowbody engines cost over $5 million each (without nacelle) new.

http://www.flightglobal.com/news/articles/talking-scrap-344137/

Quoting enilria (Reply 30):
he fewer planes there are on the market, the more used aircraft are worth and the more they are worth, the less price pressure they put on new aircraft.

Agreed. But we're talking about less than a hundred aircraft out of 12,610 flying:
http://www.boeing.com/boeing/commercial/cmo/

These airframes being scrapped pay more for parts than they are impacting the current market value of aircraft. But as noted above, it is the engines that are worth the money.

Quoting Wisdom (Reply 32):
5. OEM's are more and more offering total solutions, where airlines pay fixed costs per flight hour for a set of defined parts and components:

Those are quite profitable. Partially as OEM's ensure maintenance happens per plan and not by anyone 'winging it.'

Quoting AeroWesty (Reply 31):
I figure that all we need to do is to work this into a program that would qualify for the Lightsaber Seal of Approvalâ„¢, and we're golden!

   I'm better at engineering than business.  

The link above explains the plummet in older aircraft parts:
According to Gregory, 80% of an A320 can be reused in the market place. On a typical Classic, the company would have taken out 1,500 line replaceable units five years ago. Today, the same aircraft will only need 300 items out. "The list has shrunk along with the market requirement. Fewer parts are required by operators and most of these aircraft end up for scrap," he says.

So there is high value in scrapped A320s. But we're only talking about a few dozen per year. The 737 classics are fading away.

Quoting Wisdom (Reply 32):
2. More than half the residual value on a used aircraft is achieved by its engines, landing gears and avionics.

Agreed if engines means engines+nacelles. Those major dollar items all easily portable.

Quoting Wisdom (Reply 32):
Before, I used to think that all aircraft parts were supplied by Boeing too,

By contract, most are 'gated through Boeing' for new parts. Rebuild parts may come direct from the vendors. Boeing still does well selling spare. More money on assistance/PIPs.

Quoting Wisdom (Reply 32):
More in detail, if you need a fan blade,

Not on the new engines. Yes, engine vendors make money off their spares and not the airframer. But it is the same model. But if you need a new valve for that engine, the vendor is required to divert your call to GE/Pratt. If the valve is in the pylon, it could be a Boeing component (maybe Airbus, but less likely). You may only contact the vendor for repairing/rebuilding an existing component. We hire for all sorts of competitors and would know if terms changed; these are the normal terms in the industry and have been for decades. So in your example, you may contact the vendor for repairing an existing fan blade. But there will be in the contract some limit of repair that would require purchasing the new fan blade from the engine vendor.

Trust me, I'm fully aware engines and airframes are sold as two separate deals.  

And I'm aware that no one will let Boeing or Airbus get in the way of engines, avionics, brakes. Those one deals directly with the OEM. (e.g, Pratt, Honeywell, or Meggitt). The engine overhaul shops also deal with the vendors for rebuilding components (even the OEM shops, they have to keep costs competitive). But if a new A320 can have 80% of its parts worth pulling... that implies demand. For the 737 classic, the warehouses are full of parts waiting for re-build already...

Quoting Wisdom (Reply 32):
For someone like Boeing, it would be more beneficial to bring in parts from scrapped aircraft into such programs, rather than having to buy brand new parts in order to incorporate them into the program.

Boeing rebuilds. They have enough parts going through that they work with the vendors. They buy some scrap, but because of the low new part negotiated price, Boeing (or GE) will buy new parts sooner than their competitors who have to buy the same part from Boeing (or the engine OEM) after their markup...

Lightsaber

Topic: RE: Nearly New Aircraft Being Scrapped
Username: KELPkid
Posted 2013-04-19 13:22:15 and read 4942 times.

Quoting lightsaber (Reply 33):
The 737 classics are fading away.

How many LRU's (and other parts like doors, etc.) do the classics and 737NG's have in common? I'm sure there's quite a few...  

Topic: RE: Nearly New Aircraft Being Scrapped
Username: Wisdom
Posted 2013-04-19 13:55:33 and read 4831 times.

Quoting KELPkid (Reply 34):
How many LRU's (and other parts like doors, etc.) do the classics and 737NG's have in common? I'm sure there's quite a few...  

They'll probably share some LRU's, but in my experience, the OEM would give them different part numbers and make them non-compatible. Even within the same family of aircraft (B737NG) and even the exact same type (B737-900ER) you see this kind of variations, depending on effectivity codes of the aircraft.

So it's unlikely that you could swap a lot of parts between a classic and a NG.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: Spacepope
Posted 2013-04-19 14:14:14 and read 4765 times.

Quoting lightsaber (Reply 33):

I decided to do a little research. It looks like demand for scrapping is coming from demand for the engines (too few spares and its cheaper to buy a used engine rather than overhaul an engine).

Common A.net wisdom (take that as you will) holds that instead of investing in engine overhauls, G4 purchased entire MD80s from SAS just for their engines. Not sure if this is what DL is doing as well, though they just had another MD-80 they purchased from SAS fly into Blytheville this week.

Topic: RE: Nearly New Aircraft Being Scrapped
Username: lightsaber
Posted 2013-04-19 14:37:30 and read 4697 times.

Quoting KELPkid (Reply 34):
How many LRU's (and other parts like doors, etc.) do the classics and 737NG's have in common? I'm sure there's quite a few...

Not many (if any) on the engine (the CFM-56-7 runs too hot for prior LRUs). For the airframe? It depends. Much of the hydraulics...


Quoting Wisdom (Reply 35):
So it's unlikely that you could swap a lot of parts between a classic and a NG.

I'm betting of the 1500 LRUs that used to be pulled and now they're pulling 300... that tells us the ratio. 300 out of 1500.

Lightsaber


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