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Mark Gregory sifts through the mangled remains of a seven-year-old Boeing (BA) 737-700. Traces of orange on the tail betray the plane’s prior life as a member of EasyJet’s (EZJ) fleet. His gray ponytail bobbing in the wind of the Cotswolds countryside, Gregory rests his hand on a cylindrical piece of metal the size of a hula hoop in the engine casing. The part, a thrust reverser, will fetch $1.5 million, he says. Need an auxiliary power unit? Gregory can get you one for $25,000. He’ll even track down an in-flight service cart for $230. “It’s kind of sad, but I’ve gotten used to it,” says the 50-year-old Englishman, as workers behind him tear into planes that would easily have another decade or two of service in their aluminum bones. “But the parts companies we’re dealing with like that we’re dismantling newer aircraft.”
The secondhand market for aircraft parts is booming, as airlines snap up spare engines and other components from cannibalized planes, which are cheaper than new parts from original equipment makers. From 2009 to 2011 about $2.5 billion worth of spare parts entered the market, according to aviation data provider Ascend Worldwide.
Photograph by Chris Ratcliffe/Bloomberg
Since paying a few thousand pounds for a beat-up Hawker Siddeley 748 turboprop 15 years ago, Gregory has transformed his Air Salvage International into the largest plane dismantler in Europe. The aircraft mechanic, a former employee of bygone U.K. carrier Dan Air, set up shop on a decommissioned military airfield in this picturesque area of southern England whose quaint limestone villages and proximity to London have long been draws for tourists, as well as celebrities from poet Alexander Pope to supermodel Kate Moss. It took Gregory four months to carefully dismember his first plane using a set of hand tools, doubling his money after selling the door to a company training flight attendants and selling the rest for scrap. Nowadays his team of 40 aircraft mechanics “part out” 35 to 45 planes annually.
There’s no shortage of cadavers. Leasing companies pay Gregory approximately $50,000 per plane to tear apart their aircraft and separate the engines to re-lease or sell them and consign the remains to parts companies. Much of the yard’s work last year involved Airbus (EAD) A320s and Boeing 737 Classics. An engine coming off a Boeing 737-700 can also be used on a more popular 737-800. “The primary driver for gutting aircraft used to be mechanical obsolescence,” says Robert Mann, a Port Washington (N.Y.) aviation consultant and former fleet manager for American Airlines (AMR). “More recently, it’s become early economic obsolescence.”
In the decade and a half that Gregory has been in business, the average age of planes he has pieced apart has dropped by more than a third, to 18 years. Blame it on rising fuel prices, which have made kerosene-guzzling old-timers unpopular with carriers. Fuel can make up 30 percent of the operating expenses for an aircraft. United Continental Holdings (UAL), which burns $25,000 of fuel every minute, said last year it may ground its Boeing 737-500 and 767-200ER jets from its fleet of more than 1,200.
Government support has made it easier for airlines to snap up factory-fresh models, which are more fuel-efficient. U.S. and European guarantees for bank loans to support the sale of Boeing and Airbus planes have doubled, to about 30 percent, from 15 percent before 2008. Countries, such as Mexico and Indonesia, that once served as retirement homes for planes discarded by Western carriers are also increasingly choosing new over used, prodded by safety and environmental concerns. The combination of factors has spurred production of single-aisle jets, the most widely used type in the industry, to an all-time high. “Too few institutions are willing to finance aircraft aged more than seven, eight years old,” says Bertrand Grabowski, managing director for aviation at DVB Bank (DVB) in Frankfurt, one of the biggest lenders for aircraft finance.
In the salvage trade, by far the hottest commodity is the plane’s engine. The turbines house rotating parts such as disks or blades that operate at temperatures as high as 2,700F (1,400C) and require routine replacement in accordance with safety regulations. “Replacing the disks and blades alone could cost $4.4 million, and you can easily save half of that by buying them used,” says David Treitel, managing director at Apollo Aviation Group, which has spent $213 million since 2004 to buy 50 planes and an additional 19 engines so the componets can be sold to the airlines.
One reason used engines are in such demand is that manufacturers Rolls-Royce and General Electric (GE) are increasingly offering buyers cradle-to-grave packages that include guaranteed maintenance and spare parts. So an airline that buys Rolls-Royce engines without signing on for the company’s TotalCare package has only two choices when it needs to replace a set of fan blades: It can go to the manufacturer and pay a steep price for the part or it can get one from an independent parts distributor—in which case there’s a good chance it came from a dissected plane. “This is contributing to scrapping of relatively new aircraft to get control of their engines,” says Kostya Zolotusky, managing director for leasing at Boeing Capital, the planemaker’s finance unit.
It’s a good business. In recognition, Gregory dispatches some of his dismembered jets in style. A few years ago his crew threw a Christmas party in a Boeing 747 before the tools came out. “We dressed it all up and had a fancy-dress party with an aviation theme to give it a good farewell sendoff,” he says.
The bottom line: Some $2.5 billion in aircraft engines and parts has flowed into the market since 2009, as carriers cannibalize newer planes to save money.