Circular financing gives aeroplane parts a second life

With cost efficiency and sustainability goals driving decision making, airlines are relying more and more on existing spare parts to maintain and service their fleets. Based in the Dutch town of Delft, APOC Aviation is giving spare parts reclaimed from decommissioned aircraft a new lease of life. ABN AMRO recently financed part of this new circular business’s working capital to help it fulfil its growth ambitions.

Since last year, one of ABN AMRO’s top priorities has been to promote the circular economy. In fact, the bank aims to have granted 100 circular financing packages by 2020. For Max Lutje Wooldrik, Managing Director of APOC Aviation, the solution couldn’t have come at a better time. He says, “After three successful early years, we wanted to take the next step as a company. Up to now, all our financing needs have been met by informal investors, one investment company and crowdfunding. So we were looking for an additional shot in the arm to help us grow faster.”

The Delft-based firm currently employs eighteen staff. Lutje Wooldrik says, “We launched the business back in August 2014, and in December we bought our very first plane. We subcontract the dismantling process out to a third party, who sends all the individual parts back to us, which are then sent to certified companies where they are thoroughly tested and reconditioned. After receiving them sealed and furnished with all the necessary certificates, just like new, we sell them on special international websites which function something like eBay, but cater specially for the aviation industry.”

The circle runs on smart algorithms

APOC is not the only supplier of parts from disassembled aircraft. Lutje Wooldrik explains: “The circular idea behind giving aircraft parts a second life isn’t new. In fact, there’s another company active in the Netherlands, too. The approach we’ve adopted is unique, though. Our business is founded on a software platform which uses smart algorithms to provide us with up-to-date information at all times. Even for parts we’ve never sold before, we know the turnover ratio and real price. We actually see ourselves as an IT company that delivers packages – just like [the leading web shop in the Netherlands for books, toys and electronics]. Sometimes they’re the size of a shoe box, sometimes a giant sea container. We can even deliver parts direct to customers in our own plane. At a price, of course.”

Having banked with ABN AMRO for some time, Lutje Wooldrik admits he hadn’t expected the bank to finance the business. “To be honest, I didn’t think the bank would even consider funding such a young start-up as ours. But it turns out there were plenty of options.” Nodding in agreement, Sonya Rahmani says, “In my discussions with Max, we talked about his company’s successful launch and his longer-term goals. After a successful start, many businesses are ready to take things to the next level. They’re looking to consolidate and secure their operations, and that takes working capital.”

Tailored circular financing

Both parties wanted a solution that worked for them. Rahmani says, “The process was unique. As a relationship manager, you look at the business, the entrepreneur, their vision and growth potential. But it’s also about trust and commitment. The fact that three of the business’s successful projects were among the crowdfunding top ten in 2017 was also a deciding factor. That tells us that its sustainability profile is popular with a wide cross section of the general public. APOC operates in a capital-intensive market. So we wanted a funding mechanism that was in line with the APOC business model and fundable by the bank.

Finding the right solution for both parties took time and energy, but it paid off in the end. Rahmani continues, “My colleagues at the Sustainable Finance Desk also took part in the process. Since APOC is active in the circular economy, it was nice getting a fresh look on things at times. We hit on the right financing solution after carrying out a detailed cash-flow analysis. On the expenditure side, a large chunk of financing is needed each time you buy an aircraft. The income generated by the spare parts then comes in over a certain period and in relatively small amounts. Once you’ve mapped out the process, you get a clear idea of the financing needs of the business. And then you can create a tailored solution to meet those needs.”

For APOC, 2018 is sure to be a very special year. Lutje Wooldrik says, “We’re planning to continue to expand our activities in the Americas this year. And we’re hoping to start buying entire planes, including the engines. That’s quite a step, since the value of the engines often amounts to between eighty and ninety per cent of the total investment. We’re also going to begin purchasing aircraft that are in the final phase of their lease term. The leasing company now requires that these be returned in a completely refurbished state at the end of that time. But often these planes are immediately dismantled subsequently, because a company like ours wants to sell the spare parts. Not only is that a waste of money, time and energy, but it’s also totally unsustainable. That’s why we want to get ahead of the game.”