City North Limited
Investment Opportunity
Proposed business
City North, a UK-registered limited company, is seeking to develop a facility for the parking, maintaining and recycling of commercial aircraft in Morocco at Errachidia on the edge of the Saharan desert. This is a unique opportunity as there are no directly comparable existing providers. Current facilities in the south-west USA are the most similar but even these do not offer the combination of the high value services proposed.
The Moroccan site offers a strong combination of three important characteristics that make the proposed business hard to replicate elsewhere. These are
i) an excellent climate for aircraft storage which is found in few places on the earth,
ii) low costs and
iii) proximity to Europe.
These factors underpin a strong business model which is protected by exclusive rights in Morocco.
At Errachidia, the company will provide secure aircraft parking, engineering maintenance facilities and a state of the art environmentally sensitive capability for the lucrative dismantling and recycling of redundant aircraft. The operation at Errachidia will be supported by a sister engineering facility located in Europe. The European facility will provide maintenance services to the local and regional market but also feed expertise and skilled labour into the developing facility at Errachidia.
Size of market and nature of opportunity
Out of the total worldwide fleet of 21,000 commercial aircraft, there were at least 2,300 stored at March 2009. These are scattered across several hundred locations around the world. Some are short term parked pending a return to service; others are unlikely ever to return to service. In Europe many are left at operating airports out of necessity because there is no purpose built facility. This is both expensive and increasingly resisted by airport operators and local authorities. The demand for Errachidia services has been proven by an earlier press release which generated enquiries about placing 61 aircraft even without any significant sales activity.
Before returning to service, a parked aircraft must undergo rigorous and detailed manufacturer defined engineering checks. These will be undertaken by the engineering services facility at Errachidia and by year three this is forecast to handle 117 major checks a year.
The demand for aircraft recycling is set to see a sharp increase as ever more aircraft become uneconomic to operate in the face of new environmental regulations that force the adoption of new more fuel efficient aircraft. Current dismantling operations are inefficient, losing much of the potential value. In contrast, City North's facilities will be leading edge and enable up to 95 percent of a modern aircraft to be recycled efficiently. Airbus, Boeing and Embraer estimate that between 500 and 600 aircraft worldwide will be scrapped each year between now and 2028. This equates to about 200 or so aircraft in Europe. City North anticipates recycling a realistic 44 aircraft a year by year three.
Operating model
In the first year City North will construct an engineering maintenance hangar and other related infrastructure at each of the Errachidia and European locations. Once these are completed, operations will ramp up, focussing initially on parking and engineering services but then quickly evolve to cover dismantling services by the end of the second year. As demand develops, the business has the potential to grow considerably beyond the levels assumed in the business plan. There is the capacity to double in size at the European location and an almost limitless capacity to grow in Morocco.
Key points
- Currently unmet and growing market demand
- Highly defendable proposition with physical barriers to competitor entry
- Ideal location for aircraft parking with an exclusive, binding 80-year agreement with the Moroccan authorities
- Strong margins and robust asset rich business model
- Scope for growth beyond that assumed in the business plan.
Contact
City North Ltd |
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