Hard To Find Young Narrowbody Engines For Teardown
Used powerplant parts procurement is still very competitive, but evolving.
The turbine engine teardown business is evolving as older fleets retire and more operators and investors see the value of life-limited parts (LLP) that have remaining life.
“Over the past few years, quality used serviceable material has gained greater acceptance worldwide, thanks to cost savings and accredited suppliers,” says Mitch Weinberg, president of International Aircraft Associates, a Miramar, Florida-based turbine engine materials specialist. At the same time, he adds, more material is becoming available through engine teardowns, rather than from inventory on the shelf. “With a lot of money looking for a home, the market to procure engines for teardown has gotten very competitive.”
This is taking place at a time when the focus of teardown activity is shifting in terms of engine type, in tandem with a slowdown in the engine retirement rate. Patrick Holzkamp, head of purchasing for engines and used parts for MTU Maintenance in Germany, says that low fuel prices are a reason. “The amount of yearly engine retirements has slowed significantly in the past few years, as mature engines are being flown longer,” he says.LOW FUEL PRICES SLOWING ENGINE RETIREMENTS, RESTRICTING SUPPLIES OF USED PARTS
CFM6-3 parts readily available, but not so for other CFM types
Next teardown market is likely to be GE90, but still years away
Citing statistics supplied by Ascend, Holzkamp explains that for airliners with more than 100 seats, about 800 engines were retired in 2015 and 2016—down from the 2013 and 2014 numbers of 1,300, and 1,100, respectively. The engine types most affected, through March 2016, were CFM56-2/5A/C, Pratt & Whitney JT8D and JT8D-200, CF6-50, CFM56-3 and GE CF6-80C. “For the next decade, retirements will remain cyclical, with a probable peak at around 1,800,” he says.
Holzkamp also reports that the highest levels of teardown activity have involved narrowbody engines with fast retirement rates such as the CFM56-3. While CFM56-3 part-out activity is now declining, the CFM56-5B/-7B and newer variants of the IAE V2500 family, such as the V2500-A5, are increasingly being parted out.
“This should peak in the next decade, when [Airbus] A320ceos and [Boeing] 737NGs retire in large numbers and are replaced by the A320neo and 737 MAX. The secondhand airframe market has run out of older single-aisles powered by CFM56-3 or JT8D engines,” Holzkamp says.
At this time, there is an excess of parts and green-time CFM56-3 engines due to declining demand. In fact, according to Rudy Bryce, general manager of TrueChoice Transitions and GE Aviation’s materials business, there are now 350 CFM56-3-equipped aircraft that are parked.
Used serviceable CFM56-3 material is readily available, according to Amanda Gower, senior manager of powerplant supply chain for Southwest Airlines. The Dallas-based carrier has stopped repairing all CFM56-3s as its remaining 737 Classics head for retirement in September, she notes.
“While there is a surplus of CFM56-3 engines, we are still consigning them with PTS Aviation, Avioserv and NTE Aviation for part-out; and selling whole green-time—and run-out—engines on the open market,” she explains. “Along with the engines, we are seeing fast-moving piece parts such as high-pressure turbine (HPT) blades and nozzle segments, high-pressure compressor (HPC) vane assemblies, HPC 3D blades—some of which are CFM56-7- interchangeable—and core/HPT/LPT/ LLP with at least 5,000-7,000 cycles remaining.”
Gower adds that while the U.S. market for these engines and parts has declined, Southwest is still seeing demand for them in Europe, China and South America.
The CFM56-7 is a different story, according to Gower, who reports a parts scarcity, especially for half-time LLPs, including HPT front shafts, front air seals, disks, and rear shafts. Some half- time LLPs are selling for 95% of catalog list price largely due to high demand of forecasted shop visits. “Carriers such as Southwest have purchased or leased many used 737-700s over the past two years, which has affected the number of CFM56-7 engine part-outs that may have occurred,” she says. “Also, there have not been a lot of retirements to date of the 737NG fleet.”
At the same time, the number of shop visits for the CFM56-7 is at an industry high, and this is projected to continue through 2019, says Gower. A large number of 737-700 and -800 lease returns will take place starting in 2020, but “until then, the part-out market on the CFM56-7 may suffer unless airlines slow their growth.”
In the used serviceable parts business, Pratt & Whitney has noted some interesting dynamics involving the V2500 family.
“There was a lot of exuberance, 3-5 years ago, regarding the part-out opportunities for the V2500, and for a short time, that exuberance was justified,” says Adam King, Pratt & Whitney’s general manager of asset management. “However, the growth in part-outs did not happen as anticipated, thanks to low oil prices and demand for spare engines.”
Nonetheless, King sees an emerging market for V2500 part-outs, considering that nearly 6,000 installed units are flying today. “There is a growing surplus business for V2500 engines as some older aircraft retire,” he says. “At the same time, some operators plan to continue operating V2500-powered aircraft for the long term. For example, the bulk of the V2500-D5-powered MD90 fleet today is operated by Delta Air Lines, and Pratt & Whitney anticipates that Delta will continue to fly these aircraft over the long term.” If this is true, the V2500-D5 aftermarket should remain steady for a while.
The major focus of Pratt & Whitney’s part-out strategy, King notes, will be on the PW2000 that powers the Boeing 757, as well as the PW4000, which powers the Boeing 747-400, 767, 777 and Airbus A330 families.
“Those airplanes are projected to remain in service at least over the next 10 years,” he says. “There will be retirements involving some of the older models in those fleets, but some will be redeployed in cargo service. So we’re looking at a stable surplus-parts business for them.”
Part of the stability derives from the fact that Pratt & Whitney is not producing high volumes of engines for those fleets, even though utilization of them is not expected to decrease sharply due to passenger-to-cargo conversion opportunities, says King.
He notes that Pratt & Whitney has integrated its engine-leasing business with its surplus-parts and used-material business. Under this arrangement, the OEM will buy an engine and lease it out to an operator for the time remaining before it has to be pulled for a major overhaul. When that happens, “we will take the engine, tear it down and make its components available as used parts,” he says. “This reduces material costs.”
With nearly 6,000 V2500 engines in service, such as this one at Pratt & Whitney’s facility in Middletown, Connecticut, the company sees a growing part-out market, as older aircraft are retired. Credit: Air France Industries-KLM Engineering & Maintenance/Patrick Delapierre
Daniel Watson, chief commercial officer for AJW Aviation in London, reports that the engine teardown market is more oriented to the CFM56-5B, the V2500-A5 and CFM56-7B—and away from the CFM56-3, for which “inventory is now at its highest levels,” he says.
“The retail pricing of HPT material has, over the past five years, shifted from approximately 75-80% of catalog list price [CLP] to the 60-70% range,” he explains. “HPC and LPT airfoils have had an even steeper decline, while LLPs have seen a decline in relative value and no longer garner 100% of CLP pro-rates for cycles remaining.”
In contrast, Watson reports a healthy teardown market for the CFM56-7B and the V2500-A5, where “overall relative value” has remained steady. “However, core LLP values are increasing lately by about 5-10% for LLP and HPT materials, with half-life LLP often resulting in premium prices versus the pro-rated CLP,” he says. “The macro demand curve is likely to hold steady for the upcoming five to eight years, as the number of overall CFM and V2500 shop visits move toward their peaks in 2021-22.”
For the GE CF6-80C2, it’s a cyclical market in which there was a high availability of surplus materials just 2-3 years ago. “Now we forecast the market to ease up, with improved supply of available lease and teardown engines in the near term with continued 747 and 767 retirements,” Watson notes.
He adds that the “next logical engine teardown market” will be the GE90-115B. “Many GE90s are starting to go through their second overhauls, so a strong teardown market for that engine is at least five years away,” he says. However, a high number of those engines are still under OEM support contracts, which will affect the teardown market.
Very few “notable” part-outs have taken place on the GE90, says Carl Glover, vice president of parts supply-Americas for AAR Corp. “The challenges with that engine relate to the ability to sell material in the market, and some of the repair solutions that do (or don’t) exist in the engine manual,” he says.
As is the case for mature engine types such as the CFM56-3, Glover notes downward pricing pressure on PW4000 and CF6-80C2 components, as major carriers retire their 747 fleets. However, he also points out that due to relatively low fuel prices, some of those engines are being redeployed among the residual 767 and 747 operators. Most “younger engines in their life cycles” remain scarce with respect to availability for sale or part-out, says Glover. In that regard, he says that recent activities in the V2500 market have pushed the demand for spare engines up and, therefore, the availability of some engines to support the used content market through part-out.
“We have seen similar trends in the 737NG family,” he says. “As the engine stays on-wing, operators have been looking to fill demand for thrust through short-term lease engines to prevent or defer engine shop visit spending.” 0 COMMENTS