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Scrapping planes in a pandemic isn’t easy

A ‘double whammy’ of low demand and high prices is hitting the aerospace metals sector, according to experts at a recent webinar on the aviation sector. But, the Argus Media event heard, there are signs of a rebound in demand from China – especially ‘good demand’ for stainless steel.

The global market for recycled aircraft parts is expected to be worth around US$ 6 billion (EUR 4.9 billion) by 2022, according to analysts at the World Economic Forum although it’s unclear what the future holds as far fewer aircraft are taking to the skies in the post-coronavirus age.

Market contractions

It’s not been an easy year for most industries and the aviation sector is no exception. It lost almost US$ 360 billion by November due to a sharp decline in passenger flights, according to latest figures by the International Civil Aviation Organization. The reduction in air traffic compared to 2019 is 59%. The number of active single-aisle fleet aircraft dropped 81% when comparing year-on-year data for April 2019 and April 2020.

The International Monetary Fund (IMF) has projected a contraction in world GDP in 2020 of between 4.4% and 5.2% contraction – far worse than during the 2008 financial crisis. 

Shrinking fleet

For airlines, this means one thing: aircraft will go into early retirement. Argus Media minor metals & alloys specialist Nicholas Bell anticipates a replacement rate for major airliners this year of 58% instead of the typical 40%. Aircraft will leave the active fleet before they’ve been in operation for 13 years. He argues this trend is ‘unlikely to cause a boom in demand for new aircraft; this is kind of already baked into unfulfilled orders’. 

After crashes and incidents involving Boeing aircraft over the past two years, the manufacturer’s plans to ramp up global production in 2021 actually became a fall from 57 to 42 and then 31. The US Federal Aviation Administration finished its technical investigation in mid-November, after which it rescinded the order to ground all planes of the Boeing Max 737.

Scrap is tight

Alloy producers have been hit particularly hard during the pandemic. Cobalt and nickel price gains are said to have pushed the alloys market in the second half of this year. Small and medium aircraft recyclers are also going through a tough time. ‘There is scrap on the ground but not as readily available as beginning of the year – in the US or elsewhere,’ Bell observes. ‘As aircraft dismantlers undoubtedly know, scrap is much tighter now.’

He doesn’t expect demand for secondary titanium to return until the third quarter of 2021. ‘It’s down on the ground, both in the US and in Europe; hardly surprising since aircraft production is only just ramping up again,’ Bell points out. ‘It’s not enough to be a really strong driver for recycling. At the moment, there is a big disconnect between the scrap market, traders and parties on the production side.’

The question remains whether small and medium recycling companies will be able to stick it out if the situation doesn’t change. Bell says many US recyclers benefited from the government loan system to cover employees’ salaries in the short term. He anticipates a trend for companies to consolidate in the near future.

‘Recycling aircraft takes a lot of time, tools and money. First, the company must have enough funds to purchase an end-of-life plane. Then it must have a large facility where it can be stored and taken apart; and a crew that can dismantle the aircraft efficiently. We’ll have to see how the market for scrap and aerospace alloys develops as we enter the New Year.’

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