ISTAT Jetrader - Autumn 2021 - 29

T
he whole aviation
market is sharing
the pain of the
extraordinary industry
conditions wrought
by the pandemic. We
frequently hear the
perspectives from primary players in the
market, such as operators, lessors and
OEMs, but perhaps not so often from
the opposite end of the supply chain: the
" tertiary market. "
So, what is the tertiary market?
It's not a commonly used expression;
in fact, I may be the only user. We
are all very familiar with the OEM and
aftermarket sectors, which form the
foundation of the industry, providing
the airlines with the products and
services to support their operations.
These can also be considered the
primary and secondary markets and
have been serving the airlines since
the outset of the industry. However,
less recognized is another market that
serves all members of the supply chain
but, to a large extent, has only emerged
as a major force over the last 20 years.
I contend that the tertiary market is
comprised of the players involved in
optimizing the remaining life from midlife
or older assets, and generating and
selling used material for consumption
by the industry by disassembling
aircraft and/or engines.
These businesses are likely to be:
* Specialist investors in
mature assets
* Companies disassembling and
disposing of assets at the end
of their economic lives
* Spare parts trading businesses
* Engine repair shops focused
on delivering limited work
scopes by building to a life
or cost objective rather than
refurbishment for maximum
time on wing
Having operated in OEM, MRO and
end-of-life markets during my career,
it seems to me there is a natural
hierarchy in the industry, with tertiary
activities perceived to be at the bottom
of the supply chain. However, my recent
experience in the tertiary market has
led me to a recognition that there is an
interdependency linking all sectors of
the industry, and a growing realization
that aviation has far more circularity
than may be immediately obvious.
The subject of circularity is an issue
for another day, but on this occasion, I
would like to offer a perspective on the
current pandemic business environment
and the ripple effects throughout
industry supply chains as the volatility
in demand has devastated the
capability for any of us to confidently
plan our businesses.
As the pandemic unfolded, there
was an early reaction that there would
be a bow wave of aircraft retirements,
and capacity constraints in the
disassembly sector might be a limiting
factor. Over the last 12 months, it
has become clear that the assumed
correlation between lack of aircraft
utilization and permanent retirement is
too simplistic. Historically, disassembly
projects require a transaction to take
place. In the majority of cases, the
owner or operator has decided not to
invest further in the aircraft and that it
is an optimum time to trade out of the
asset. Clearly, this process requires a
willing buyer and willing seller, which,
until March 2020, were in ready supply
for virtually all assets. Since the start
of the pandemic, however, the notion of
a mutually agreeable value for an asset
has been extremely hard to find and,
consequently, the rate of transactions
has dramatically slowed. If an asset
owner is not prepared, or able, to
accept the depressed market rates for
acquiring their aircraft, then there are a
few alternatives to be explored:
* Park and store the aircraft for a
period to wait for a rebound in
asset value.
* Disassemble the aircraft,
removing and packaging all
parts of value, and store in
controlled environmental
conditions until the market
values for components have
Jetrader * AUTUMN 2021 * 2 9
ISTAT Jetrader - Autumn 2021

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