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Boeing To Enter The Scrap-Aircraft Market

Boeing seeks to acquire an aircraft recycling company to exploit the used-parts market, as more airlines upgrade to newer jets. The Boeing Company’s (BA) Senior Vice President for Global Sales and Marketing, John Wojick, recently stated that the company is looking to acquire an aviation used-parts company that can recycle engines and other components of aircrafts scrapped by airlines.  
The aircraft used-parts market is valued at $3.2 billion and is growing rapidly, and Boeing seeks to exploit the opportunity. As airlines are now opting for more fuel-efficient models, they are replacing older jets much earlier than their expected lives. Airlines scrap aircrafts almost 10 years before the jet’s expected useful life of 30 years.
Boeing buys back its old jetliners from airlines and then outsources the disassembling of these aircrafts. This is part of the company’s strategy to encourage airlines to upgrade and increase orders for Boeing’s newer models, such as the 747-8. Wojick stated that the initiative had been profitable for the company, and believes that Boeing should now consider venturing into the disassembling business itself.

According to the Aircraft Fleet Recycling Association, over the decade around 6,000 jetliners are expected to be replaced for more fuel economical ones. A study from consultanting firm TeamSAI states that, on average, components of a narrow-body aircraft are worth $1.5 million, while those of a wide-body aircraft are worth $2.5 million. Engines for wide-body aircrafts sell for an average of $6 million.

Components sold in the used-parts market include black boxes, cockpit instruments, as well as windshields.
Even though entering the used-parts market might be highly profitable, there is the possibility of cannibalization of the sales of Aviall, Inc., which is Boeing’s subsidiary responsible for the distribution of new aircraft parts and after-sale services. Used parts that are sold are generally pitched as cheaper and to be in equally good condition as the new ones. Hence, this may tae away some of the demand for Aviall’s new components.
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