On a dusty airfield in a remote outback town, Tom Vincent is pursuing his entrepreneurial dream to create one of the world’s largest aircraft storage and boneyard facilities in Australia’s “Red Centre”.
“It has low humidity, low rainfall, it’s the ideal desert climate for asset preservation,” said the former Deutsche Bank debt analyst, as he inspects one of eight Boeing 737 Max planes stored at its facility in Alice Springs.
“We can store up to 30 aircraft depending on wide-body, narrow-body combination. In our second stage we will bringing that up to about 70 aircraft.”
Asia Pacific Aircraft Storage is modelled on some of the large boneyards in California and Arizona, which refurbish and return aircraft to active service or break them up and sell their parts.
It is based next to Alice Springs airport, which has a runway able to accommodate large aircraft, including the Airbus A380. The company’s entire landholdings, when fully developed, could potentially store 250 aircraft.
Apas aims to tap into booming aircraft orders in the Asia Pacific region, where demand for aviation services is predicted to expand 5.1 per cent or $3.48tn over the next two decades, according to Boeing. About 40 per cent of all new commercial aeroplane deliveries will go to the region, which analysts say should create demand for storage and salvage services, as airlines upgrade their fleets and phase out older planes.
“Airlines are renewing their fleets by replacing four-engine aircraft with more modern, fuel-efficient models, which is creating demand for older aircraft to be recycled,” said Juan Manuel Gallego, chief executive of Icarum, a Madrid-based aviation consultancy.
“The collapse of Thomas Cook, XL Airways and Air Berlin has also created demand for storage and now some Max aircraft are being moved to storage facilities,” he said.
The grounding of Boeing’s 737 Max in March following two deadly crashes in Ethiopia and Indonesia has forced airlines to seek storage solutions that preserve these aircraft, which have a list price of just over $120m each.
Southwest Airlines has moved 34 of its 737 Max aircraft to the ComAv aircraft storage facility about 90 miles north-east of Los Angeles in the Mojave desert. In August United Airlines said it was moving its 14 Max planes to storage facilities at Phoenix Goodyear Airport in Arizona, owned by the city of Phoenix.
In the Asia Pacific region, Apas has won contracts from SilkAir, a subsidiary of Singapore Airlines, and Fiji Airways to store their Boeing 737 Max aircraft. Both airlines received special approval from Australia’s civil aviation authorities to fly the jets into the country’s airspace.
“The ferry to Alice Springs is to allow the aircraft to be stored in a dry environment as the climate changes to the wet season in Fiji, with heightened chance of corrosion and cyclone activity in the region,” a Fiji Airways spokesman told the Financial Times.
A dozen aircraft worth more than $1bn are lined up at the Apas facility in Alice Springs, a desert town where temperatures regularly soar above 40 degrees Celsius in summer and rainfall is rare.
“Coming back to Alice Springs to set up this facility has definitely been quite a journey, very different from sitting behind a desk, but I’d always wanted to be involved in building a business from scratch,’ said Mr Vincent, who got the idea for the business while studying for his pilot’s licence.
Apas has raised A$6m ($4.1m) from private investors so far, mainly from his hometown of Brisbane, to develop the business and build storage infrastructure, which has accommodated 40 aircraft since mid-2014. The company has recently been approved by the Northern Territory government for a A$3m low-cost loan to co-fund its A$6m stage two expansion, which would enable it to store 70 aircraft at a time.
“We will probably make a decision and move relatively quickly in the first quarter of 2020,” said Mr Vincent.
When an aircraft arrives at Apas for storage, within the first 24 hours engineers preserve the oil and fuel systems and desiccants, or drying agents, are placed inside the engines to absorb any moisture before they are sealed. Lubricants are attached to the surfaces of the wings and vertical fins to protect them from the elements and windows are taped up to prevent the strong desert sun from damaging the internal furnishings.
Every aircraft is checked at least once a week under a business model that can generate healthy margins. For example a 13-month contract with global leasing company AerCap to maintain a single Boeing 777 derived A$500,000 in revenues.
Almost 70 per cent of the revenue was maintenance related, delivering gross margins of about 40 per cent, according to Apas’s 2019 annual report, which shows the company generated revenues of A$1.09m and posted an after-tax loss of A$370,219 in the year ending June 2019.
There are challenges in operating in remote desert environments, including the cost of retaining experienced engineers and the need to obtain regulatory approvals in the US, Europe and other foreign jurisdictions where potential customers are based.
The remote location of Alice Springs is a particular challenge, given that most aircraft parts suppliers and traders are based in North America or Europe, according to Mark Gregory, chief executive of Air Salvage International, a competitor based in the UK. “I’m not saying this won’t change but it is tricky,” said Mr Gregory, who notes most of the big storage and salvage operators are based in the US, Spain, France and the UK.
Chrystal Zhang, an aviation expert at RMIT University in Melbourne, said: “It requires technical proficiency and expertise to run a storage facility and expert technicians to do the list of work.”
Ms Zhang said storage businesses require an airport runway large enough to accommodate different types of planes, air traffic control and constant interaction with parts suppliers, manufacturers, airlines and aircraft owners to co-ordinate any work required. “It is a business that requires entrepreneurship, vision to run and strategies to be implemented,” she said.
The US Air Force’s 309th Aerospace Maintenance and Regeneration Group on the Davis-Monthan base in Tucson, Arizona, stores more than 4,000 mainly military aircraft, which makes it the world’s largest boneyard.
The Southern California Logistics Airport in the Mojave Desert, about 140km north-east of Los Angeles, has capacity for more than 500 aircraft.
Tarmac Aerosave operates Europe’s largest salvage and storage facility at Teruel Airport in Aragón, 300km east of Madrid, with capacity to handle 225 aircraft. It has smaller storage sites in Toulouse and Tarbes in France.
Air Salvage International provides engine and component storage at Cotswold Airport near Cirencester, 160km west of London, with parking facilities for up to 50 narrow-body aeroplanes, and aircraft disassembly and parts supply.
On the grounding of the Boeing Max aircraft, which makes up most of Apas’s current business, certification for a return to service would be likely to help rather than harm the operation, said Mr Vincent.
“We would have far more aircraft here in the facility if the Max had not been grounded,” he said.
In early 2019, Apas was in talks with aircraft leasing companies about storing up to 30 Boeing 737 aircraft repossessed from India’s financially troubled Jet Airways. But the grounding of the 737 Max created a shortage of narrow-body aircraft in the market, which resulted in these older aircraft being placed with operators, rather than stored.
Despite this setback, Mr Vincent is confident Apas has a bright future and can establish itself as one of the world’s largest aircraft storage facilities and boneyards.
“The biggest challenge was that everyone said it couldn’t be done from the word go. But we went through securing the [space] here at Alice Springs airport, designing the engineering pavement, raising capital and then [gaining] all the regulatory approvals,” Mr Vincent said.
“And then finally, gaining the industry’s confidence of placing these valuable assets with us to maintain.”