TEARDOWN & CONSIGNMENT Optionality Modelling
Exactly how much do you want to make?
Most end-of-life asset owners will have, or will have access to, optionality modelling. The modelling will give clarity on how best to monetise a full aircraft through different strategies across engines, airframe and sub-sections of both, such as QECs, Landing Gear and APUs. The missing piece of this puzzle has been component clarity and the varied options available to get the best from the different categories of components from a teardown. With the component data depth now available there is no excuse for not getting more.
First Step: Component Sales
Identify parts where the optimal returns will come through direct component sales and the condition through which it can be achieved. This is closely tied to the cash generation requirements to the point where that requirement may drive the condition decisions. Key components here would be high-value Tier 1 and Tier 2 parts.
Second Step: Component Exchanges
Identify parts where optimal returns can be generated through exchanges, often related to high yield rate, high repair cost and long repair lead times of particular components. Very often driven by high value Tier 3 material.
Third Step: Component Lease
An area of growing activity, driven by landing gear and APUs. However, it generally suits owners with lower early cash requirements and needs careful contracting and lease-term management.
Be in the Know Before You Go
Of course, it is not just the values it is the timing of those values and when they convert to cash. Teardown of an asset is not always seen as the quickest road to cash compared with a whole asset sale – perhaps unfairly. Full asset sale value can be achieved quite early through consignment and regularly compares well with the time it takes to sell an asset. There is often sufficient leeway allowing desired cash delivery and a higher return – however if it can’t be seen in the modelling the leeway is a more difficult “way” to go.
Full Asset Value Cash: Optionality modelling does not just give you the timing of returns it also models cash delivery across all options. Teardown has frequently delivered whole asset value in cash within 10 months of consignment initiation – including teardown lead time. Early decision-making is key – the right model gives you the ability to do just that.
Full Asset Value through Consignment & the Rest: Many decisions are borderline. When they are not built on fact, they will always default to the line of least risk. The more reliable the data the better probability of outcome. Until now consignment models have not fallen into the category of reliable data – integrated properly into full-aircraft modelling that has now changed.
De-risk your Consignment: We talk about options to optimise returns, let’s talk about options to minimise risk. Instead of selling your asset whole at market pricing how about you sell it 75% of market price and get an additional 50% of market price as the first recipient of consignment returns. What does that look like? Optionality modelling will tell you.
Until now the preference of asset owners, leasing companies and asset managers has been to sell the asset whole, and who could blame them? The expected asset returns have been made through leasing, they don’t have the internal expertise or resources to properly manage teardown and consignment, and consignment modelling is for the most part rudimentary.
Bottom line the risk-reward profile did not work.
Put yourself in a position to make better decisions, the risk–reward profile is changing.
More to Come
All the modelling and processes in the World are not worth much unless they deliver. So next week we are going to talk about one of the projects that has delivered, as well as other examples where outcomes using the modelling and processes have been successfully executed.
The Bottom Line
Nothing here changes the mission: squeeze enough extra value out of a retiring asset so that choosing SellUe/OPTIC is the obvious call — more money for you, more business for us. The only question is whether you believe we can deliver.
You decide if our next level is enough.
SellUe is a Teardown & Consignment (T&C) Project Management company with a dedicated T&C digital platform called OPTIC. If you would like more information, please visit www.sellue.com.