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n471wn
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Now Boeing 737-800's Are Being Scrapped

Wed Jun 19, 2013 7:54 pm

We know that 22 Boeing 737-700's have been scrapped or are derelict. But now we have for the first time the scrapping of Boeing 737-800's. Three of these 2002 built aircraft are in Greenwood, Mississippi awaiting their fate. These GECAS owned a/c flew for India based Jet Airways. It is hard to imagine that GECAS could not lease these out or sell them to an operator and that incredibly the scrappers have the highest bid. Unlike the 737-700 or the Airbus 318, the wait list for 737-800's is years out with a very heavy backlog. Hard to figure why someone would not be willing to take 11 year old a/c versus waiting for new ones. I understand all about supply and demand and that parts are worth more than the whole but I still find this decision an odd one. It appears that an inordinate number of a/c operated in India do not find new homes when they come off lease. Is that due to operational factors or maintenance issues? It just seems strange and sad to see these near-new high demand a/c being broken up.
 
SonomaFlyer
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RE: Now Boeing 737-800's Are Being Scrapped

Wed Jun 19, 2013 7:59 pm

Lessors and purchasers look at cycles, maintenance records and age among the important factors in buying an a/c. Its possible that Indian a/c operators don't keep records as detailed as the CAA or FAA might require or these a/c required a heavy check in addition to re-configuring the plane. When you add those costs up, the airlines and lease companies took a pass or bid less than the scrap value of the plane.
 
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RE: Now Boeing 737-800's Are Being Scrapped

Wed Jun 19, 2013 8:01 pm

There's a number of reasons why these airframes might have been part-out candidates. For example they might have been low-MTOW versions without winglets, meaning they might have required very expensive upgrades in order to re-lease them at a decent rental. The interiors may have been in poor condition as well. If the engines were in good condition it might have made more sense to sell/lease those separately and scrap the airframes.
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RE: Now Boeing 737-800's Are Being Scrapped

Wed Jun 19, 2013 8:01 pm

It sounds to me like poor maintenance; could be major corrosion issues, or alternatively it could be poor maintenance records. If the maintenance records are incomplete the plane essentially cannot fly.
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jfk777
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RE: Now Boeing 737-800's Are Being Scrapped

Wed Jun 19, 2013 8:51 pm

With all the bad news recently from India about the condition of Kingfisher A320 and Air India 777, what is it about India ? This is a country where people speak English and has huge amounts of graduates in Engineering. Why can't Air India produce records for its 777 fleet maintanence ?
 
FoxBravo
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RE: Now Boeing 737-800's Are Being Scrapped

Wed Jun 19, 2013 9:01 pm

Before jumping to conclusions about the maintenance (or lack thereof), see my reply #2 above. Even if well maintained from an airworthiness perspective, the costs of upgrading MTOW, installing winglets, refurbishing or reconfiguring the cabin and/or putting the aircraft through a heavy check could all tip the scales in favor of scrapping the airframe. This is not to say that there wasn't major corrosion or poor maintenance--I have no knowledge of these particular aircraft--but there are other reasons why a lessor might not want to invest a ton of money in an aircraft that could only be leased out at low rents to weak credits.
Common sense is not so common. -Voltaire
 
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RE: Now Boeing 737-800's Are Being Scrapped

Wed Jun 19, 2013 9:17 pm

Quoting FoxBravo (Reply 5):
Even if well maintained from an airworthiness perspective, the costs of upgrading MTOW, installing winglets, refurbishing or reconfiguring the cabin and/or putting the aircraft through a heavy check could all tip the scales in favor of scrapping the airframe.

I believe these three aircraft are VT-JNX/Y/Z and that none have winglets. I saw -JNZ at EWR in mid-April and it definitely did not have winglets.
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FoxBravo
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RE: Now Boeing 737-800's Are Being Scrapped

Wed Jun 19, 2013 9:46 pm

Quoting Cubsrule (Reply 6):
I believe these three aircraft are VT-JNX/Y/Z and that none have winglets. I saw -JNZ at EWR in mid-April and it definitely did not have winglets.

Thanks--that was my guess. Although I don't know these particular airframes I know that other Jet -800s are very "low spec"--meaning low MTOW, low thrust, no winglets, etc. Which may work fine for their operation with Jet, but not desirable to many other customers, meaning the lessor would have to put some money into the aircraft in order to re-lease them.
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lightsaber
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RE: Now Boeing 737-800's Are Being Scrapped

Wed Jun 19, 2013 10:01 pm

They just don't build them like they used to.     
Quoting SonomaFlyer (Reply 1):
Lessors and purchasers look at cycles, maintenance records and age among the important factors in buying an a/c. Its possible that Indian a/c operators don't keep records as detailed as the CAA or FAA might require or these a/c required a heavy check in addition to re-configuring the plane. When you add those costs up, the airlines and lease companies took a pass or bid less than the scrap value of the plane.

And that sums most of it up. Add the cost of retrofitting winglets and the scrappers are the highest bidders.

Ironically, the high production rates of 737s (and A320s) force up used part values...

Quoting jfk777 (Reply 4):
With all the bad news recently from India about the condition of Kingfisher A320 and Air India 777, what is it about India ?

I too am beginning to wonder about airlines in India and post use aircraft resale values...
Two years ago I would have come down hard on any poster suggesting there was a link. After IT, the benefit of the doubt was lost.

Quoting Cubsrule (Reply 6):
I believe these three aircraft are VT-JNX/Y/Z and that none have winglets.

Thank you. That is probably the root cause. Low MTOW and no winglets.

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RE: Now Boeing 737-800's Are Being Scrapped

Wed Jun 19, 2013 11:06 pm

Quoting lightsaber (Reply 8):
That is probably the root cause. Low MTOW and no winglets.

I doubt that's it alone.

There are plenty of carriers with financial restraints who could use low MTOW and non-wingletted 738's.

I suspect the additional issues are poor maintenance and ratty interiors as suggested above.
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 12:24 am

Quoting jfk777 (Reply 4):
This is a country where people speak English and has huge amounts of graduates in Engineering.

These English speaking engineers are employees of people like VJM who learn their business tricks from Shylock. They work with what they are given or they are out of a job......or worse you don't get paid

Quoting jfk777 (Reply 4):
Why can't Air India produce records for its 777 fleet maintanence ?

Probably because it is run by GoI bureaucrats, who treat it as a jobs program and appoint people who cut corners and award parts contracts to the best palm greaser.
 
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 3:21 am

Quoting jfk777 (Reply 4):
Why can't Air India produce records for its 777 fleet maintanence ?

Because the airline is run by the government of India, and is notoriously opaque when it comes to, well, anything. If I were to speculate, I'd guess that aircraft maintenance is probably awarded to the bidder who can get it done fastest/cheapest. I'm not necessarily saying that safety isn't paramount, but records of any kind are likely an afterthought at best.
 
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hOMSaR
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 5:22 am

Quoting n471wn (Thread starter):
I understand all about supply and demand and that parts are worth more than the whole but I still find this decision an odd one.

Why? You pretty much just explained it in the first half of the sentence.

If a company that owns an airplane can make $5 million by keeping the plane flying/selling it, or $10 million by parting it out and selling the parts, the truly odd decision would be to keep it whole for $5 million less than they could scrap it.

Companies are about getting what they perceive to be the best financial results, not about some sentimental feeling for a middle-aged airframe of a type of which a couple thousand are in service.
I was raised by a cup of coffee.
 
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 6:55 am

Quoting n471wn (Thread starter):
It is hard to imagine that GECAS could not lease these out or sell them to an operator and that incredibly the scrappers have the highest bid.

Many have already said it here, but this has to do with the status of the airframe. I doubt winglets has anything to do with it, on a fresh airframe they can be installed. But the problem here might be maintenance or rather what needs to be done with regards to maintenance to make another airline accept them. The status of the airframes can be very different depending on the airplanes history or number of cycles etc. You need to look into the specific aircraft documents to see if it is worthwhile financially to keep a specific plane in service or not.

It could also be that the specifications are such that a major retrofit might be necessary for another carrier to accept it.
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lutfi
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 9:01 am

Also at the moment interest rates are very low. Therefore the capital cost difference between a 10m USD aircraft and a 25m USD aircraft is not as high as it used to be, and may be more than offset by operational cost savings of the new aircraft (parts still in warranty etc)

So a whole host of airlines now have business model of leasing new aircraft, not secondhand aircraft
 
xdlx
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 11:26 am

DL should buy them for cheap  
 
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 11:56 am

Quoting xdlx (Reply 15):
DL should buy them for cheap

Like the early 739A builds, in the long run they're probably not a bargain .
 
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 12:10 pm

Quoting n471wn (Thread starter):
Unlike the 737-700 or the Airbus 318, the wait list for 737-800's is years out with a very heavy backlog.

Not sure I understand that logic. They are all built on the same production line, so if you would order a new A32X or 737NG, it would not really matter what sub-type you would order.

Quite a few 737-800s will be coming on the market, just think of all those Ryanair 737-800s that are getting replaced by newer built NGs. So less desirable airframes face a higher risk of meeting the executioner.
 
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lightsaber
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 1:07 pm

Quoting HOmSaR (Reply 12):
Companies are about getting what they perceive to be the best financial results, not about some sentimental feeling for a middle-aged airframe of a type of which a couple thousand are in service.

   And they will do what is best *that quarter.* What the market was a quarter ago or what it will be in a quarter is but a reference and a prediction.

Quoting Navigator (Reply 13):
But the problem here might be maintenance or rather what needs to be done with regards to maintenance to make another airline accept them. The status of the airframes can be very different depending on the airplanes history or number of cycles etc. You need to look into the specific aircraft documents to see if it is worthwhile financially to keep a specific plane in service or not.

Agreed. But the fact the planes needed $7M+ in retrofits to be usable by most 738 operators predisposes them to the parts bin for a given condition level.

IMHO, leasors will charge Indian airlines more if they keep returning aircraft in poor condition. Its understandable. In the run up to IT's demise, all Indian airlines (excluding 6E) were losing money.

Quoting vfw614 (Reply 17):
Quite a few 737-800s will be coming on the market, just think of all those Ryanair 737-800s that are getting replaced by newer built NGs. So less desirable airframes face a higher risk of meeting the executioner.

To rephrase, due to the availability of new and recent vintage 738s, the depreciation curve is steeper. Due to the increased number of 738s in service, part value has held steady. Thus, airframes will be scraped earlier.

Nothing but a financial decision.

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airlineaddict
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 1:41 pm

I'm surprised DL isn't interested in these. It fits in with their strategy.   
 
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 2:39 pm

Quoting lightsaber (Reply 8):
Thank you. That is probably the root cause. Low MTOW and no winglets.

Eh...

Quoting yyz717 (Reply 9):
There are plenty of carriers with financial restraints who could use low MTOW and non-wingletted 738's.

Exactly. SY for just one tiny example has several early, non-wingletted 738s. Granted, I'm sure SY alone couldn't pick up more than maybe one or two if they wanted them, but regardless, I'm guessing it has more to do with the frame conditions and maintenance issues/logs as mentioned.

Quoting yyz717 (Reply 9):
I suspect the additional issues are poor maintenance and ratty interiors as suggested above.

  

Quoting vfw614 (Reply 17):

Quite a few 737-800s will be coming on the market, just think of all those Ryanair 737-800s that are getting replaced by newer built NGs. So less desirable airframes face a higher risk of meeting the executioner.

Very true. It won't be many more years and used NGs will be like the used Classics today. It's hard the believe the NG is getting to be a dated product.
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 3:40 pm

Parting out is always lucrative than leasing out. Why spend money on fixing all the issues and pay parking fees until you find a new customer when you can make a quick buck on refurbished parts and scrap metal. And if you are ready to turn a blind eye to the end-user of these parts, even merrier.
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n471wn
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 3:42 pm

Quoting HOmSaR (Reply 12):
Why? You pretty much just explained it in the first half of the sentence.

If a company that owns an airplane can make $5 million by keeping the plane flying/selling it, or $10 million by parting it out and selling the parts, the truly odd decision would be to keep it whole for $5 million less than they could scrap it.

Companies are about getting what they perceive to be the best financial results, not about some sentimental feeling for a middle-aged airframe of a type of which a couple thousand are in service.

I think you missed my point. I am not debating if GECAS made a good financial decision--of course they did in selling to the highest bidder--in this case the company with the axe. My point was that I find it incredible that with all the world-wide operators of the 737-800 that no one could see that you could do the overhauls and redo the interior and even install winglets and have an a/c like new with many years of service left. Now if the issue is maintenance/records then some countries are far less stringent on such rules than others. No indication of any corrosion on these frames. I look to see some emerging companies concentrate more on these good used frames---the traditional leasing companies ignore this market segment---they deal in "new cars" but as we all know good "used car" dealers do well.
 
Grisee08
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 5:36 pm

Quoting airlineaddict (Reply 19):
It fits in with their strategy.

I always thought their strategy was waiting until airliner types are no longer manufactured, THEN want 100s of them.  
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asctty
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 5:58 pm

If these aircraft are indeed ex-Jet Airways, then I guess that they had a good reason to offload them.
IMHO, Jet Airways are by far the best of the bunch of Indian operators. Their long-haul fleet/service is very good. Their domestic fleet operate in some of the harshest condition across the country; high/low temp, high humidity and often torrential rain too. Perhaps the cycles of these particular aircraft have taken their toll earlier than expected when compared to other operators around the world.
As for the comment about the engineers, I work with many excellent Indian engineers. What lets the system down in the woefully inadequate corporate attitude to maintenance and safety. Depending on where you sit in the pecking order of a company, you must be very careful about critising any aspect of the company policy. There is a clear void between senior and middle management and an even greater void down to the worker bees! This is where I feel the fault lies.
 
milesrich
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 6:18 pm

Quoting Grisee08 (Reply 23):
Quoting airlineaddict (Reply 19):
It fits in with their strategy.

I always thought their strategy was waiting until airliner types are no longer manufactured, THEN want 100s of them.  

Delta only buys used aircraft if they are a bargain. Since these aircraft are worth more as parts than as whole aircraft, then the purchase price would not be a bargain.
 
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lightsaber
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 6:25 pm

Quoting n471wn (Reply 22):
the traditional leasing companies ignore this market segment---they deal in "new cars" but as we all know good "used car" dealers do well.

The issue is the bids by the 'used car dealers' were lower than the scrappers. GE would have done due diligence.

Quoting MountainFlyer (Reply 20):
It's hard the believe the NG is getting to be a dated product.

Why? First deliveries of NG were in 1997 (1998 for 738s). After 14 years, one expects a (small) fraction of airframes to be scrapped for economic reasons. Now, these examples are a bit young. But the clock says its the right time to start seeing a small (very small, such as these 3) number of 737NGs scrapped.

Now how many 737NGs traded hands last month on the used market? I suspect it was about two dozen. (That is a SWAG, not a real number.) So seeing 3 scrapped ins't a big deal.


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slimshady
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 6:27 pm

Is there any damage history or anything which makes the value less?
 
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 6:47 pm

Quoting MountainFlyer (Reply 20):
Exactly. SY for just one tiny example has several early, non-wingletted 738s. Granted, I'm sure SY alone couldn't pick up more than maybe one or two if they wanted them, but regardless, I'm guessing it has more to do with the frame conditions and maintenance issues/logs as mentioned.

SY wants to double their fleet, but they also returned 737-800 N806SY as it was the oldest plane in their fleet. It flew for North American until 2003 when SY leased it. CN/MSN:28215, Line No.: 75. EIS 1998 Last I heard it was to go overseas.
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Skyguy
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RE: Now Boeing 737-800's Are Being Scrapped

Thu Jun 20, 2013 7:41 pm

Quoting SonomaFlyer (Reply 1):
Lessors and purchasers look at cycles, maintenance records and age among the important factors in buying an a/c. Its possible that Indian a/c operators don't keep records as detailed as the CAA or FAA might require or these a/c required a heavy check in addition to re-configuring the plane. When you add those costs up, the airlines and lease companies took a pass or bid less than the scrap value of the plane.

This hit the nail right on the head.

Aircraft lease financing is a mixture of accounting, tax, cash, borrowing and valuation driven alchemy which can be hideously complex. However, in a nutshell, leasing works due to costs of borrowing and value of the tax shield benefits that arise to the lessor. At the end of the lease when the tax shield benefits have been largely wrung out by the lessor, it is not financially efficient to keep the leasing structure unless the lessor finds another lessee who will pay enough to make it worthwhile at higher rates. If they sell the aircraft, and it is of low market value, they could end up taking an impairment charge on their entire fleet of aircraft of the same type that they still have, ending up with potentially huge accounting losses on their P&L (as will other lessors with the same aircraft). Hence, they prefer to "scrap" the aircraft which require significant sums for maintenance, rather than sell it for a lower value as the implications of that spread farther than just to the sale of the individual aircraft itself.
"Those who talk, do not know, and those who know, do not talk."
 
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hOMSaR
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RE: Now Boeing 737-800's Are Being Scrapped

Fri Jun 21, 2013 2:02 am

Quoting n471wn (Reply 22):
My point was that I find it incredible that with all the world-wide operators of the 737-800 that no one could see that you could do the overhauls and redo the interior and even install winglets and have an a/c like new with many years of service left.

Market dynamics aren't always a simple matter.

The fact that there are so many operators of the 737-800 (and other 737NG types with compatible parts) worldwide increases the demand for spares.

The common wisdom is that manufacturers often sell at deep discounts with the expectation that they'll make a lot more profit later on through parts sales. Given that 737-800s have been flying for 15+ years now, some planes have gone through a few maintenance checks, overhauls, etc. In that time, parts break, and airlines need spare parts to replace the broken parts on their plane. So, they can either go to Boeing and buy the part brand new, at some huge markup, or they can look for used parts off a compatible airplane. Where do you find used parts? Scrapped airplanes.

Given that the planes are 11 years old, their value as whole airplanes is significantly lower than it was when they were new. But if you consider the market for used parts, it is kept high because the only alternative for certified parts is to get them direct from the manufacturer, which would charge even more for that part.

If replacement part X costs $1000 new from Boeing, or $500 on the used market, and whatever benefit you get from buying new isn't worth the extra $500, then you get the used part. Add up all of those part values, and it's not hard to see how you might wind up with a plane that is worth more broken up than kept whole. It doesn't matter one bit that there might be some operator somewhere that would like to use an 11-year-old 737 and fly it for a few more years. Unless they're willing to pay higher than the scrap value (which, evidently, nobody was), the plane will get scrapped.

The hypothetical potential buyer then has another issue to deal with. Not only did they overpay for the airplane to acquire it, but now they have the added costs you mentioned, of overhauls, interior refits, winglet installation, etc., adding millions more to the cost of acquiring that plane. Not only that, but with a smaller worldwide supply of spare parts for the 737, maintenance will cost more if any of those parts needed replacing.

Bottom line is that scrapping planes with time left on them is just another example of economics at work, supply vs demand of many different components, and is necessary to keep the rest of the fleet flying in a cost-efficient manner.
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n471wn
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RE: Now Boeing 737-800's Are Being Scrapped

Fri Jun 21, 2013 4:18 pm

Quoting HOmSaR (Reply 30):
Market dynamics aren't always a simple matter.

The fact that there are so many operators of the 737-800 (and other 737NG types with compatible parts) worldwide increases the demand for spares.

The common wisdom is that manufacturers often sell at deep discounts with the expectation that they'll make a lot more profit later on through parts sales. Given that 737-800s have been flying for 15+ years now, some planes have gone through a few maintenance checks, overhauls, etc. In that time, parts break, and airlines need spare parts to replace the broken parts on their plane. So, they can either go to Boeing and buy the part brand new, at some huge markup, or they can look for used parts off a compatible airplane. Where do you find used parts? Scrapped airplanes.

Given that the planes are 11 years old, their value as whole airplanes is significantly lower than it was when they were new. But if you consider the market for used parts, it is kept high because the only alternative for certified parts is to get them direct from the manufacturer, which would charge even more for that part.

If replacement part X costs $1000 new from Boeing, or $500 on the used market, and whatever benefit you get from buying new isn't worth the extra $500, then you get the used part. Add up all of those part values, and it's not hard to see how you might wind up with a plane that is worth more broken up than kept whole. It doesn't matter one bit that there might be some operator somewhere that would like to use an 11-year-old 737 and fly it for a few more years. Unless they're willing to pay higher than the scrap value (which, evidently, nobody was), the plane will get scrapped.

The hypothetical potential buyer then has another issue to deal with. Not only did they overpay for the airplane to acquire it, but now they have the added costs you mentioned, of overhauls, interior refits, winglet installation, etc., adding millions more to the cost of acquiring that plane. Not only that, but with a smaller worldwide supply of spare parts for the 737, maintenance will cost more if any of those parts needed replacing.

Bottom line is that scrapping planes with time left on them is just another example of economics at work, supply vs demand of many different components, and is necessary to keep the rest of the fleet flying in a cost-efficient manner.

An excellent and thoughtful explanation and I appreciate so much the fact that you took the time to write it!!

MODERATORS: On this note you may wish to lock this thread
 
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TVNWZ
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RE: Now Boeing 737-800's Are Being Scrapped

Fri Jun 21, 2013 5:00 pm

Quoting n471wn (Reply 22):
My point was that I find it incredible that with all the world-wide operators of the 737-800 that no one could see that you could do the overhauls and redo the interior and even install winglets and have an a/c like new with many years of service left

We don't know , operators could have made offers. The offers may not have been good enough.
 
xdlx
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RE: Now Boeing 737-800's Are Being Scrapped

Fri Jun 21, 2013 7:44 pm

Quoting airlineaddict (Reply 19):

DL could use these all day long on sub400nm runs from Worldport.
 
cschleic
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RE: Now Boeing 737-800's Are Being Scrapped

Sat Jun 22, 2013 2:56 pm

Quoting xdlx (Reply 15):
DL should buy them for cheap

Ha ha. I was thinking that, too.
 
 
cornutt
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RE: Now Boeing 737-800's Are Being Scrapped

Sat Jun 22, 2013 4:10 pm

I'm with the others. This is the sort of thing Delta would look at, so I assumed that they did look at them and decided they wouldn't work. I'm guessing that not all of the concern is the specification of the aircraft. Further, since DL would be putting new interiors in them anyway if they went for it, I'm guessing that the condition of the interior is not the factor.

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Cargo Aircraft Pictures of great freighter aircraft

Government Aircraft Aircraft flying government officials

Helicopters Our large helicopter section. Both military and civil versions

Blimps / Airships Everything from the Goodyear blimp to the Zeppelin

Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos