How much can business jet or turboprop operators expect to get for their retired aircraft? And what drives a decision to scrap an aircraft? Dave Higdon considers these questions for when an aircraft reaches the end of its useful life…
An acquaintance of mine acquired an old (early 1970s) business jet many years ago with thoughts of restoring it to service and selling it as an operational, airworthy aircraft. Then came the Great Recession. Only this summer did my acquaintance find a salvage company willing to take that Light jet off his hands.
His struggle involved finding an MRO shop familiar enough with the aircraft type to dismantle it into its component parts without damaging them and rendering them scrap metal instead of yellow-tag-eligible spare parts for resale.
The buyer cares about the condition of those salvageable parts because outside the US the model continues to be utilized in roles where age, beauty and noise levels aren't deal-breakers.
Bad timing killed my acquaintance's prospects on this jet. The salvage company, however, stands to do well, given the price paid for the little jet and the sum value of its salvageable parts. A landing gear strut, perhaps; an engine carry-through spar, perchance; maybe a tip tank or a whole wing, aileron, flap – or even some of the electronics and panel instruments that can slide into slots in another cockpit.
“I'm satisfied with what I'm being paid because it ends years of tie-down and hangar fees, liability insurance and enough hull insurance to protect me in case a tornado swept the jet away,” my acquaintance told me. “But the guy buying the jet seemed happy too, which tells me he already knows he'll make money, even after the labor of pulling and inspecting the salvageable parts.”
New Factors Pushing Aircraft Retirements
Between the mandate for Automatic Dependent Surveillance-Broadcast (ADS-B) and the approaching economically damning Airworthiness Directive on a series of engines powering hundreds of jets, analysts expect a surge in aircraft retirements starting next year.
Some operators saw the writing on the wall months or even years ago and disposed of their jets before their values fell for lack of ADS-B solutions or economically-sound solutions to engine issues.
But what is an airworthy business aircraft facing obsolescence worth today as a valuable salvage item? While only an experienced salvage business can render an estimate for a specific airplane of a specific age, many factors go into determining a salvage value, and key among them is knowing what drives the retirement.
Many elements factor into a retirement decision. And multiple elements play into determining an aircraft's salvage value, among them relevance and popularity, as we’ll discover…
Aged Out Before Wearing Out
Thanks to a vast difference in utilization practices, business aircraft tend to fly many years longer than airliners. Business aircraft average use runs in the range of 350-500 hours annually, varying due to factors specific to the operator, whereas airliner average use runs between 1,500-2,000 hours, with a couple of months down for progressively more in-depth inspections.
It's flight cycles that factor most in assessing an aircraft's life expectancy. A pressurized jet or turboprop experiences one pressurization cycle per flight, whether the flight lasts one hour or 15. Pressurization cycles swell the fuselage.
That swelling, along with the concomitant shrinkage back to normal (the effects of exposure to extreme cold) are the collective sources of the metal fatigue that most threatens the structural integrity of an airframe.
Most OEMs set a number of flight cycles by which an airplane must endure the most-invasive and detailed inspection, or retire. Airliners can easily reach their flight-cycle limits in 30 years or less. But it's not unheard of to find a business jet still flying for its operator 40, perhaps 50 years after emerging from the factory.
Comply or Retire?
The opening question holds more relevance than usual today, largely due to that well-publicized January 1, 2020 ADS-B compliance mandate. For some business aircraft operators, the cost of compliance may exceed the value of the airworthy aircraft.
The clock is running on all aircraft, but for some jets dating back to the cathode ray-tube (CRT) era the clock will time out on January 1, 2020. This makes understanding the elements of a salvage valuation an important step in planning for its future.
Finding a compliance solution gets more difficult with increasing aircraft age – at least for aircraft older than 10 years before the FAA published its final ADS-B rule.
In addition to an ADS-B Out transponder – a 1090 MHz Extended Squitter type since the aircraft flies above 18,000 feet msl – an ADS-B solution requires an approved position source. The final rule specifies only the performance level the position source must meet, not the technology to use. But economics helped drive most solutions toward a GPS position source enhanced by the Wide Area Augmentation System (WAAS).
The WAAS GPS solution with the most utility comes in the form of either a WAAS GPS navigator or a flight management system employing a WAAS GPS engine for its navigation function. Ring Laser Gyro position sources meet the performance standard required by the FAA and international standards, but WAAS GPS is far less expensive – and offers the added benefit of GPS-guided approaches.
Blind WAAS GPS position sources can also fulfill the need for ADS-B Out, a solution lower in cost than the navigator, but lacking the utility of being a navigator.
It's no secret that some of the earliest jet and turboprop powerplants carry hefty overhaul costs, even by the standards of their day. But as the aircraft's value declines and overhaul prices at best stay the same, or more likely increase, a time comes when the lines cross.
When the cost of powerplant overhaul exceeds the decline in aircraft value two options emerge. Several third-party companies have invested in STCs to upgrade older-aircraft powerplants with newer engines, offering lower operating and overhaul costs, plus long-term benefits of higher performance and improved fuel efficiency.
An FAA airworthiness directive (AD) applied against a certain series of Honeywell TFE731 engines threatens the long-term outlook for a significant number of older Dassault Falcons, Hawkers and Cessna Citations not currently enrolled in hourly engine programs, warns Engine Assurance Program (EAP), a Dallas-based hourly maintenance specialist. The AD requires replacement of the LPT1 rotor assembly on certain TFE731-4 and -5 engines by 2020.
EAP estimates that with an average aircraft value of about $800k for many of the affected models, the expected cost of ADS-B compliance (~$90k) combined with a per-engine AD compliance cost of $325k puts the cost of keeping those planes flying after 2020 at about $740k – with little hope of recovering those costs in a later sale.
The combined financial impact of the powerplant AD and the ADS-B mandate could prompt the retirement of up to 20% of those models' fleets, EAP predicts. Beyond the prospect of retirement, the only remaining choices are overhaul or sourcing lower-time engines.
The same challenges face other important components on those older aircraft – components aged out by the calendar, obsolete technologically, or unobtainable save cannibalizing another aircraft. Autopilot servos or drivers, pressurization valves or landing gear – all parts become scarcer with time and, thus, more expensive.
Cathode Ray Tubes (CRTs) used in the original glass cockpits provide an apt example. Heavy, hot-running and power hungry, CRTs – television tubes sized for the cockpit – reached their zenith more than a decade ago when solid-state display screens began taking over.
Today, unless a CRT glass cockpit has a flat-panel STC available, locating a serviceable replacement CRT or retirement are the only options available to operators.
Salvage Valuation Factors
Age and flight cycles may be less important for the parts a scrapped aircraft delivers. If the active fleet numbers in the hundreds, for example, and the aircraft is out of production the salvage value of engines, avionics and many airframe parts will support a good value for the scrapped aircraft.
Conversely, if competitively priced STC’d upgrades are available for that aircraft fleet, the salvage value of engines and avionics may well run lower. Either way, serviceable airframe parts help push up a retired airframe’s value – especially for out-of-production aircraft.
But for an aircraft aged over 40, out of production, and with only a small percentage of the original fleet still flying, the salvage value may render little more than the scrap value of the materials that comprise the airplane – the aluminum, steel, copper, rubber and other materials.
Old radios will render scrap value, the same as for analog instruments and autopilot controllers and servos. There is, however, some market for refurbishing and reusing interior components in other aircraft.
Ultimately, it’s the yard which invests in salvaging components that will drive the value of the retired aircraft.
For the owner it's a matter of shopping for the best deal possible for the aircraft in question with a realistic understanding and expectation of their specific model.
The value could vary as widely as the number of makes and models and the existing fleet still flying. Shop around.