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lightsaber
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Supply and demand of used Aircraft engines

Thu Feb 06, 2020 9:20 pm

Right now, there is a shortage of narrowbody lift, so airlines are holding onto 737NG and A320CEO Aircraft. That shouldn't surprise anyone here on a.net.

What interested me:

https://aviationweek.com/mro/retirement ... gine-parts

"A CFM56 that goes for about $7 million now might only be worth $2-3 million in five years,” GA Telesis president and CEO Abdol Moabery said. “If that happens, you don’t want to be the one who paid $7 million today."

I have long been an advocate that today's modern narrowbodies will replace the current 737NG/CEO rapidly. This puts an economic impact of the (in my opinion) high production rates for NEO/MAX+ A220.

Note: I assume that $2-$3 million is a $7 million engine 2/3rds of the way to a $2.5 million overhaul, so means a new $7 million becomes $3 million plus $1.67 million in wear and tear:

Thus in 5 years, the aircraft/engine combo losses say a third of value (1-4.67/7=33.3%%)

A little steeper depreciation than a 20 year straight line, but not as bad as I thought (assuming nominal overhaul residuals are retained). I think this is reasonable. Thoughts? Basically, a $45 million narrowbody, with normsl amounts in the maintenance escrow accounts, will sell for $30 million (I assume buyer receives or is discounted escrow accounts).

Lightsaber
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81819
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Re: Supply and demand of used Aircraft engines

Thu Feb 06, 2020 9:49 pm

The impact on airlines will be dependent upon the average age of their fleets. For airlines having to maintain large batches of old engines they will probably need to buy spare engines to ensure their aircraft remain in the air. As there is a direct connection between older engines and older air frames, the opportunity to spread the spare engine costs across a fleet / period of time becomes limited.

Just a thought. Quite a few North American airlines have been purchasing older previous generation aircraft. This strategy could be linked to ensuring retirements are linked to an orderly supply of replacement parts.
 
MDGLongBeach
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Re: Supply and demand of used Aircraft engines

Thu Feb 06, 2020 9:58 pm

This isn’t a general response but I know the high demand and low supply for JT8Ds has brought delta to buying old Allegiant birds in Victorville for replacement parts. I imagine their value is pretty high, are there any other engines in high demand right now? Could we foresee this being a trend when more modern aircraft now, down the line begin to phase out (like A320 and 738)?
 
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Spacepope
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Re: Supply and demand of used Aircraft engines

Fri Feb 07, 2020 6:54 pm

It's gonna be an interesting next few years. The extended use of older aircraft to fill in for MAX groundings has meant there are quite a few more motors in service that would otherwise have been retired for parts or spares. These are gobbling up other parts as well as useful hours before major overhauls, however when the options are either fix the engine or ground an airframe (when they are already lacking). MAX coming online should free up a bunch of well-used engines for spares, but till then...
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litz
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Re: Supply and demand of used Aircraft engines

Fri Feb 07, 2020 7:37 pm

MDGLongBeach wrote:
This isn’t a general response but I know the high demand and low supply for JT8Ds has brought delta to buying old Allegiant birds in Victorville for replacement parts. I imagine their value is pretty high, are there any other engines in high demand right now? Could we foresee this being a trend when more modern aircraft now, down the line begin to phase out (like A320 and 738)?


I imagine DL's moves are also to acquire JT8D's that perhaps have lower cycle/time parts in them (or as a whole) ...

It's not exactly a young piece of machinery anymore, and any penny saved helps the bottom line.
 
Sokes
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Re: Supply and demand of used Aircraft engines

Sat Feb 08, 2020 2:15 pm

From the OP's link:

"Oliver Wyman says preliminary data for 2019 shows net removals jumped in 2019, surpassing 700 aircraft."
Airbus alone delivered 863 jets in 2019.
https://www.cnbc.com/2020/01/01/reuters ... -spot.html

Can B737-700 and A319 engines supply used serviceable material for bigger models?
Why can't the world be a little bit more autistic?
 
MIflyer12
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Re: Supply and demand of used Aircraft engines

Sat Feb 08, 2020 2:32 pm

lightsaber wrote:
I have long been an advocate that today's modern narrowbodies will replace the current 737NG/CEO rapidly.


That's all going to depend on Airbus' ability to ramp A220 production (14/month by 'mid-decade' strikes me as both non-specific and unambitious); on Airbus' ability to ramp 32xneo production (early signs are poor); and Boeing's ability to put MAX back in service and ramp production back up -- and carriers' desire to take new MAXs. There is nothing else new to buy. E2s compete on the bottom of the size range. Lets's not even waste time on Sukhoi, Mitsubishi and Comac.

So, today carriers are stuck paying $7 million for that engine or flying less. U.S. carriers - all of the FAA's Big 10 other than AA - are making pretty good margins. It doesn't take too many willing buyers to set the market price.
 
Chaostheory
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Re: Supply and demand of used Aircraft engines

Sat Feb 08, 2020 2:33 pm

Sokes wrote:

Can B737-700 and A319 engines supply used serviceable material for bigger models?


Yes and vice versa.

Larger and more organised airlines with all 3 variants will often swap engines post shop visit from an A321 to an A319 or A320 where the engine life will be prolonged at derated thrust.
 
SteelChair
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Re: Supply and demand of used Aircraft engines

Sat Feb 08, 2020 3:41 pm

Two thoughts:

1) There is an enormous installed base of CFM56 engines, approximately 30,000 have been built.

2) PMA parts will soften the blow for costs of rebuilds. CFM and GE must hate PMA.

No doubt, short term demand for used airplanes and engines is high due to inability of Airbus to ramp up faster, MAX remains grounded, and no MOM. Airlines have no option but to keep flying older airplanes. It's just a that shame so many of them contracted out their core maintenance competencies, but hey, it looked good to the quants.
 
amdiesen
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Re: Supply and demand of used Aircraft engines

Sat Feb 08, 2020 4:33 pm

lightsaber wrote:
"A CFM56 that goes for about $7 million now might only be worth $2-3 million in five years,” GA Telesis president and CEO Abdol Moabery said. “If that happens, you don’t want to be the one who paid $7 million today." https://aviationweek.com/mro/retirement ... gine-parts

I have long been an advocate that today's modern narrowbodies will replace the current 737NG/CEO rapidly. This puts an economic impact of the (in my opinion) high production rates for NEO/MAX+ A220.
Right now, there is a shortage of narrowbody lift, so airlines are holding onto 737NG and A320CEO Aircraft.

Note: I assume that $2-$3 million is a $7 million engine 2/3rds of the way to a $2.5 million overhaul, so means a new $7 million becomes $3 million plus $1.67 million in wear and tear.

MDGLongBeach wrote:
This isn’t a general response but I know the high demand and low supply for JT8Ds has brought delta to buying old Allegiant birds in Victorville for replacement parts.
Driven by demand that is less sensitive to fuel economy, ie short mileage cycles. For a readers consideration, a mitigating factor on the issue raised.

Chaostheory wrote:
Larger and more organised airlines with all 3 variants will often swap engines post shop visit from an A321 to an A319 or A320 where the engine life will be prolonged at derated thrust.

………..
We can model it if you like. For your consideration we would start by
• separate engine and frame depreciation
• separate mechanical utility and economic utility
• separate engine depreciation and overhaul depreciation
• assume an efficient market

The objective would be to solve for two costs. The cost of the overhaul over a time period and the cost of the engine over time.
Imposing economic depreciation thinking over tax based depreciation; straight line seems sensible for measuring the cost of overhaul life. The engine should have a different treatment.

next data collection:
Mechanically how long does an engine last; years?, hours?
How is overhaul usage measured hours? cycles? Any back of the napkin thoughts on usage penalties as highlighted by M Chaos?
Are overhaul costs reasonably static? $2.5m is our reference. Any back of the napkin thoughts on premiums paid for older engines?
reader please add ideas here: 'quick reply'

Respects to your engineering expertise, many of us are here because of you and your colleagues. I appreciate the constructive consul when we query the craft. Perhaps a few of us on the market side could reciprocate this round.
puzzling over:
1) proper amortization of long-lived assets where costs and revenue are complex, in a technologically evolving environment.
2) the economics of gate real estate
 
Chaostheory
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Re: Supply and demand of used Aircraft engines

Sat Feb 08, 2020 5:57 pm

amdiesen wrote:
=
We can model it if you like. For your consideration we would start by
• separate engine and frame depreciation
• separate mechanical utility and economic utility
• separate engine depreciation and overhaul depreciation
• assume an efficient market

The objective would be to solve for two costs. The cost of the overhaul over a time period and the cost of the engine over time.
Imposing economic depreciation thinking over tax based depreciation; straight line seems sensible for measuring the cost of overhaul life. The engine should have a different treatment.

next data collection:
Mechanically how long does an engine last; years?, hours?
How is overhaul usage measured hours? cycles? Any back of the napkin thoughts on usage penalties as highlighted by M Chaos?
Are overhaul costs reasonably static? $2.5m is our reference. Any back of the napkin thoughts on premiums paid for older engines?
reader please add ideas here: 'quick reply'

Respects to your engineering expertise, many of us are here because of you and your colleagues. I appreciate the constructive consul when we query the craft. Perhaps a few of us on the market side could reciprocate this round.


Yikes.

Too many factors/variables to take into account, so the answer is: depends.

Usage is measured by hours and cycles.

Longer answer:

The CFM56 on our A320 fleet will go about 10 000 cycle before it needs performance restoration (shop visit). We're based in a sandy and dasty environment which is torture for engines and reduces their life by 20-30% and increases maintenance costs by a similar amount. A shop visit is $3m with total complement of LLPs costing an additional $3.5m. The LLPs on the CFM56-5B last anywhere between 15-30k cycles. I work on the Boeing fleet and it's been a while since I looked at the Airbus fleet stats but our usage was around 1.5hr per cycle and the engines operated at a 20% derate.

A new cfm56 costs $11m+. A quick engine change kit can add $1m+ to the engine value.

I suspect with the max groundings and airlines flying ceo/ngs longer, maintenance costs associated with limited LLP availability will rise.
 
goosebayguy
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Re: Supply and demand of used Aircraft engines

Sat Feb 08, 2020 6:24 pm

If Boeing decide to completely scrap the 737MAX and go for a clean sheet 737. Its going to have huge effects on this market.
 
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Spacepope
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Re: Supply and demand of used Aircraft engines

Sat Feb 08, 2020 7:02 pm

amdiesen wrote:
How is overhaul usage measured hours? cycles? Any back of the napkin thoughts on usage penalties as highlighted by M Chaos?


One example is that AA had originally pkanned on phasing out its first 22 or so B738s by now, with another 4 A320 panned to be parked, with capacity replaced by 7M8. These all instead had work done on them and are still in service. More important to this discussion is that we now have 50+ engines each getting another 3000+ hours on them annually as the MAX stays parked. This compounds witht heir demand for spares (instead of some of them becoming spares themselves) and the increased demand for shop time to repair old engines.
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bennett123
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Re: Supply and demand of used Aircraft engines

Sat Feb 08, 2020 8:47 pm

Just as an example, Kemble currently has 1 A319, 3 A320 and 3 B737NG that are in reasonable shape.

I would be surprised if they linger.

IMO, they will rapidly return to service or be parted out.
 
amdiesen
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Re: Supply and demand of used Aircraft engines

Sat Feb 08, 2020 8:58 pm

Data: cfm56.new ~=$11m+
Data: quickEngineChangeKit ~= $1m+
Data: cycles between shop visits = 10k
Data: hours between shop visits = 15K
Data: total complement of LLPs ~= $3.5m
Data: shop visits include $1.56m in LLP cost, (this can be unrealized or realized)
Data: shop visit cost (average usage) = 2.5m (*20% in your example equals 3m)
estimated, adopted or derived from M. Chaos, corroboration is appreciated.

Chaostheory wrote:
Usage is measured by hours and cycles.

Longer answer: The CFM56 on our A320 fleet will go about 10 000 cycle before it needs performance restoration (shop visit). We're based in a sandy and dasty environment which is torture for engines and reduces their life by 20-30% and increases maintenance costs by a similar amount. A shop visit is $3m with total complement of LLPs costing an additional $3.5m. The LLPs on the CFM56-5B last anywhere between 15-30k cycles. I work on the Boeing fleet and it's been a while since I looked at the Airbus fleet stats but our usage was around 1.5hr per cycle and the engines operated at a 20% derate.

Yikes. Too many factors/variables to take into account, so the answer is: depends.

Thanks, any simplification ideas coach? If the forum can provide 8-10 meaningful factors you could have a ballpark model that could be a pricing seer.

Would you consider that the objective is to create a formula that has ease and utility for non-green visor decision makers, and as such could be approached from a ‘big rocks’ perspective. If so, would the forum consider: what are the meaningful factors given an industry application at average usage and average conditions? This certainly does not preclude your response as proper given my comparative ignorance.

Some of the thoughts include; building a ‘rule of thumb’, calculate based on most relevant factors, smaller factors that cause a deviation from the mean are recognized but excluded. Economic obsolescence is generally a discrete factor in time. If the engine has x > = 50% life in the overhaul put it to work. If the engine has x <= 20% life in the overhaul then “does economic obsolescence retire the asset”

A simple example would be the life of a computer. It can be broken down into 2.75yr generations. Value estimations can be modeled using three factors.
The objective of this example is to paint a picture with the realization that there is an elegant pricing model that can estimate market value. Your individual cases would involve applying small rock factors to adjust.
Gen1: primarily classified as business use
Gen2: the personal users’ sweet-spot
Gen3: dominated by casual use
Gen4: is either a semi-forgotten asset or a wonk has been clever
Gen5: you’re a hoarder or a university

Meaningful factors: Repair incidents significantly increase between year ~4. 3yr warranties can be commonly obtained. CPUs, most ram and the case last forever, every other component is replaceable.

1- RyanAir and Emirates appreciate the business model of volume discounts on new and selling for economically depreciated market value before incidents of repair significantly increase; in the computer example midlife Gen2.

2- Lufthansa and Delta plan for milking every gram of utility out of Gen1-3; and they have some pretty clever wonks

3- Another valid model would be to play the maintenance/warranty (assumes transferable). Buy the asset new, sell the asset when there is 10% left on the warranty/maintenance agreement.

4- Buy as a counter-party to example 1, 3 and 4.

Depending on an airlines business model, an adaption of one of these four models is valuable. Unless you are Lufthansa, Delta or credulously trust your broker; your going to want a pricing model. Also a useful decision making tool upon a maintenance event.

The forum has previously expressed that a frame must have at least one engine with x > 50% life on the overhaul. One would deduce that most engines visit the shop for an overhaul before usage hits zero. Anyone care to estimate an average percent overhaul life at the point of a shop visit? Do engines usually retire based on economic obsolescence or do they cycle/hour out; any estimates on age or cycle count?
[/quote]
puzzling over:
1) proper amortization of long-lived assets where costs and revenue are complex, in a technologically evolving environment.
2) the economics of gate real estate
 
Dalmd88
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Re: Supply and demand of used Aircraft engines

Sat Feb 08, 2020 9:25 pm

After the initial aircraft and spares purchases, there are very few new engine purchases. Everything from there on out is rebuild what you have. After a couple of shop visits you have essentially replaced almost everything.
 
thegrew
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Re: Supply and demand of used Aircraft engines

Sat Feb 08, 2020 10:28 pm

This may greatly show my ignorance but would it be possible to install a LEAP in place of a CFM56 on an A320 series without changing much else? I appreciate the NEOs have other refinements but is a halfway house possible?

Sent from my moto g(7) plus using Tapatalk
 
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kitplane01
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Re: Supply and demand of used Aircraft engines

Sun Feb 09, 2020 6:22 am

Chaostheory wrote:

and the engines operated at a 20% derate.

A new cfm56 costs $11m+. A quick engine change kit can add $1m+ to the engine value.



Wow. I believe you, but I would have thought 20% was a very large derate. The Cessna/Pipers I fly would climb like crap with such a power reduction, and I always understood that jets flew best with quick climbs and minimum time down low.

Also, what's a "quick engine change kit"?
 
JayinKitsap
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Re: Supply and demand of used Aircraft engines

Sun Feb 09, 2020 6:46 am

Lightsaber has pointed out a number of times the importance of fleet size. The CFM56-7B on the 737NG has thousands in service, nearly every airport has parts, and production is starting to slow down. This is when prices are the lowest for the parts, but spare engines are holding their value well.

Compare to the JT8D on the Mad Dogs, engines still with hours before maintenance sell surprisingly well, considering the plane went to the desert. That is because parts are scarce and quite expensive, the minimum size lot number means one needs to buy dozens of parts to obtain once stock is depleted.

The A380 engines by either EA or RR will be incredibly spendy in a few years, due to their small numbers.
 
smartplane
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Re: Supply and demand of used Aircraft engines

Sun Feb 09, 2020 11:00 am

JayinKitsap wrote:
The A380 engines by either EA or RR will be incredibly spendy in a few years, due to their small numbers.

The T900 active population hasn't quite peaked yet.

Largest T900 operator has 12+2 years full maintenance contract, so RR still has parts to make for it's own warranty and maintenance commitments.

With all those expected early retirements, should be enough parts for EK, LH, BA and NH at sensible prices for a while yet.
 
Dalmd88
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Re: Supply and demand of used Aircraft engines

Sun Feb 09, 2020 1:18 pm

thegrew wrote:
This may greatly show my ignorance but would it be possible to install a LEAP in place of a CFM56 on an A320 series without changing much else? I appreciate the NEOs have other refinements but is a halfway house possible?

Sent from my moto g(7) plus using Tapatalk

I really doubt we will ever see reengine programs again like we saw with the DC8 fleet. The cost return just isn't there. There is a lot of engineering and certification costs plus the purchase of the new engines and the mod work. For what would be spent a rather large fleet would need to be modded. The NEO is a much simpler solution.

When the DC8 was modded it was a huge leap in tech and the airframe was unique enough to make it pay off. It was a large narrow body with transcontinental range. The remod was in the planning stage at the same time as the early DC70 and 767 program planning. It also saw a very long cargo life after passenger airlines moved on to other types.
 
Chaostheory
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Re: Supply and demand of used Aircraft engines

Sun Feb 09, 2020 3:21 pm

kitplane01 wrote:
Wow. I believe you, but I would have thought 20% was a very large derate. The Cessna/Pipers I fly would climb like crap with such a power reduction, and I always understood that jets flew best with quick climbs and minimum time down low.

Also, what's a "quick engine change kit"?


A.netters are generally speaking more than a little myopic when it comes to aviation. There is an unhealthy obsession on these forums with 'fuel burn'. Yes reduced thrust takeoff and derated climbs take longer and increase trip fuel burn but the pennies saved from zoom climbs become meanigless when you're redlining your engines and thrashing them.

Short sectors, long runways and a good wing = large derate/flex thrust use.

Airbus aircraft tend to be a bit better than Boeings in this regard.

5% ave derate on 777 fleet. 10% derate on 747 fleet. 15% on 787 fleet and 25% on A330 fleet.

QEC kit = Engine equipped with all its dangly bits and appendages on the relevant base or stand. A good crew can remove/replace an engine (cfm56) in a couple of hours?

There is a very good cost analysis carried out by RR for the Trent 800 breaking down derate/reduced thrust use and the impact on maintenance. You should be able to find it with a concentrated effort on google.

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