We’ve all seen the pictures. Row upon row of derelict aircraft very slowly rusting away in the desert.
Aircraft graveyards might be spectacular, but they’re just a small cog in the fascinating industry that takes care of commercial aircraft once they’re taken out of service.
As soon as an airliner is approaching the end of its operational life, a whole financial and industrial ecosystem, spanning from hedge funds to specialized recycling firms, springs into action.
A Hidden Treasure
Even those aircraft deemed too old to fly can hide a large amount of value in their interiors.
"The decision to dismantle an aircraft most often depends on whether the value of its parts and components is higher than that of the aircraft as a flying machine," says Mark Gregory, managing director of Air Salvage International, an aviation services firm based at the UK’s Cotswolds Airport.
But many aircraft do not even reach old age. "The average age of the aircraft we scrap is 18 years," Gregory tells CNN Travel. "This is already well below the theoretical operational life they have been designed for, but in some occasions we have dismantled aircraft that were not even 10 years old," adds Gregory, whose firm has dismantled some 730 commercial aircraft of all types over the last couple of decades.
The potential of aircraft parts as an asset class has drawn the attention of specialized investment firms as well as some hedge funds.
"It is a very sizable industry," explains David Treitel, a former executive at Apollo Aviation Group, a Miami-based financial services firm that is active in this market.
"Most of the value is in the engines, but there is an active market for all sorts of used parts and spares. It is often more interesting for an airline to replace a broken part with a used one, rather than repair it."
As the supply for certain components is rather rigid, a surge in demand can prompt a global scramble and drive accordingly the relative value of aircraft and their constituent parts.
Despite the safeguards in place and regulatory oversight — all parts should be properly tracked and accounted for — the global nature of this market and its myriad intermediaries means some counterfeits end up eventually in the supply chain.
An issue that perhaps the nascent blockchain technology industry can help tackle.
"It is estimated that at least 2% of parts are counterfeit. Given the large number of parts in every aircraft, you get an idea of the size of this issue," says Eleanor Mitch, founder of SafeFlights, a Paris-based start-up that is developing smart contract technologies to certify aerospace parts.
From Retirement to Scrap
If properly taken care of, airliners can have a long operative life spanning several decades.
Some airlines may even prefer older aircraft types for operational reasons.
Take, for example, Alliance Airlines, a niche carrier that services mining outposts throughout Australia. This Brisbane-based airline has been snapping up second-hand Fokker 100 aircraft as soon as European airlines take them out of service. The ruggedness and reliability of the old Fokkers make them ideal to operate in the hot, dusty airports Alliance flies to.
However, most aging aircraft do not get a chance to enjoy a second youth in Australia. For them the beginning of the end is a flight to a storage airport.
There are a handful of such facilities around the world. Quite a few of them are located in the southwestern United States, to take advantage of the dry climate and land availability. In Europe, similar facilities exist in the Cotswolds (UK), Tarbes and Francazal (France) and Teruel (Spain).
Very often storage is just temporary while an aircraft is changing hands and until it’s transferred to its new owners, but for some aircraft it is the step prior to de-registration and scrapping.
When the decision is taken that an aircraft won’t be flying again, it is, first of all, stripped bare of any valuable components.
"The amount of components that can be reused depends on the age of the aircraft. We may remove some 1,200 parts and components from a fairly newish A320-type aircraft. The engines make 80% to 90% of the value and it is always the first thing to go," says Gregory.
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