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passengerpigeon
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Why would a brand new plane be scrapped?

Sun Aug 14, 2016 11:35 am

Dear Airliners.net (and sorry if I am posting this in the wrong forum):

I recently read an interesting trip report about Saudi domestic flights on a FlyNAS Embraer 190 and a Saudia 747-300, which can be found here. After reading the report, I looked up the EMB-190's registration, VP-CQW, and was perplexed to see photos of it lying on the ground cut into two pieces. Upon further investigation on planespotters.net, I found out that the airplane, built in 2009, had in fact been stored at Exeter in 2014 and later scrapped. My question is: why would the leasing company do that? Why scrap a brand new plane which, according to the internet, had not been damaged let alone written off in any incidents?
 
bgm
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Re: Why would a brand new plane be scrapped?

Sun Aug 14, 2016 7:23 pm

If it was built in 2009, then it's hardly brand new. That's 7 years ago.

It was probably more useful as parts. Happens a lot these days.
 
VSMUT
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Re: Why would a brand new plane be scrapped?

Sun Aug 14, 2016 9:00 pm

bgm wrote:
If it was built in 2009, then it's hardly brand new. That's 7 years ago.

It was probably more useful as parts. Happens a lot these days.


Yep, but it arrived at the storage facility in 2014, so thats only 5 years of service.
 
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Stitch
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Re: Why would a brand new plane be scrapped?

Mon Aug 15, 2016 4:18 am

Could be weak demand for used frames of that model and strong demand for parts.
 
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lightsaber
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Re: Why would a brand new plane be scrapped?

Mon Aug 15, 2016 8:24 pm

As already noted, this is a 7 year old airframe. While it only has 5 years of duty, depreciation is based on age and then adjusted for cycles and condition. (Similar to automobiles in a fashion). Aircraft above or below 'the optimum size' depreciate faster.

Stitch wrote:
Could be weak demand for used frames of that model and strong demand for parts.

To expand on that:

We've exited the period of time where aircraft have a low depreciation rate. Today we're seeing higher depreciation rates on widebodies, large narrowbodies, small narrowbodies (such as this E190), and business jets. Much of this is due to the recent entry of 'new generation aircraft' (C-series, NEO) or the expected entry of new aircraft (E2, MRJ, MC-21, C919, and MAX). All improvements that apply only to new build aircraft reduce the resale market for used and thus push down used pricing. Because of all the new entrants, new prior-generation aircraft are being sold at steep discounts (UA 73G order, DL C-series, G4 A320CEO) and I suspect

The E190 also has an issue with a surplus of A319s being available. Currently, A319s trade at about parts value. A little above some months (they are sold to a new operator) and sometimes a little below (the A319s become parts). This will push down E190 resale values and thus make it more likely the highest bidder was a scrapper.

One the other hand, vendors are 'holding the line' on part pricing. This results in it being quite possible for a 'new ish' aircraft to have higher resale for parts than as an assembled aircraft. It could be this one example wasn't stored well and thus quite a bit of disassembly was required for inspection anyway, so why not just package up the parts and sell them?

All aircraft are sold as an auction. Oh, buyers and sellers know the going values, so many trade on negotiated rates, but enough aircraft go to auction that the real sales prices are known on popular/often traded airframes. This airframe when it went to auction was purchased for scrap. Cest la vie. Considering how much Embraer and GE charge for spares, the parts will have no trouble finding a new home.

DL just bought used E190s and decided to just turn around and sell them. That cannot be helping E190 resale values right now... (Part of the c-series order)
http://news.delta.com/delta-orders-stat ... r-c-series.

Lightsaber

Ps, if you think there is a depreciation change in commercial aircraft, look at business jets. The G550 used to sell at 5 years for what it was bought for. Now it depreciates 10% "off the lot" and 6% to 10% per year (A five year old G550 is worth 40% less than it was bought for):
http://www.avbuyer.com/articles/busines ... gust-2016/


The market (in particular leasing companies) are working to find the new commercial aircraft depreciation rate. The old 5% per year isn't enough. But what is the new commercial aircraft depreciation rate? 5% is too low, 10% is too high...

We should keep it in perspective, only about 22% of commercial jets built have been scrapped (includes 707s, 727s, A300s, etc.
http://www.avbuyer.com/articles/busines ... ly-retire/

But the 'razor blade' business model has caught up. By that I mean aircraft are sold at low profits with ancillary sales at high profits. Airlines are buying more used parts

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