Mothballing Definition
What Is Mothballing?
Mothballing is the deactivation and preservation of equipment or a production facility for possible future use or sale. It can also mean the setting aside of an object or idea for possible reuse or revisiting in the future. Mothballing is common with expensive capital goodsmachinery, aircraft, ships, properties, and other assets that are costly to create, have long useful lives, and may be subject to unpredictable market disruptions.
Key Takeaways
- Mothballing refers to the deactivation, storing, and preservation of equipment or production facilities for later use or sale.
- Common items in business that are mothballed include aircraft, ships, oil rigs, and machinery.
- Manufacturers can reduce operating costs and manage market downturns with the flexibility that mothballing provides.
How Mothballing Works
The term “mothballing” is derived from the use of pesticides to prevent damage to clothing or other goods that are stored for a long time and may be subject to damage from moths or moth larvae. Mothballing can offer production flexibility to manufacturers that have high operating costsas it allows them to quickly re-open a factory to produce goods based on temporary spikes in demand instead of keeping a factory open on a continual basis at a potentially lower margin.
In production plant assets, mothballing requires considerable planning to ensure that production can resume quickly. Mothballing may lead to assets being put back into use, their updating and refurbishment, disassembly for resale and reuse of their parts, or outright scrapping for their salvage value (steel, aluminum, and other valuable metals).
Mothballing is often neglected when companies are under financial duress. During the Great Recessioncompanies frequently shut down plants simply by removing dangerous materials and other hazards and then locking the doors, leaving expensive and sensitive equipment to deteriorate. In short order, much equipment had become scrap. If work had been done to deactivate and properly mothball equipment much of their value could have been preserved for later use or sale.
Mothballing Tips
- Think for the long term; chances are a market dislocation won’t last forever.
- Set aside money for mothballing.
- Appoint a person to be in charge of mothballing and to create a strategy for executing it.
- Maintain permits.
- Handle hazardous materials early on; cleanup later will be far more expensive.
- Enlist experienced workers (operators and mechanics) to assist with mothballing.
- Keep good records of what was done and what is maintained and when.
Example of Mothballing
A cyclical business that benefits from proper mothballing is oil exploration and drilling. Well-drilling equipment is expensive and oil prices have proven to be unpredictable, not to mention the boom/bust nature of the oil business. When prices fall, wells in some locations may become unprofitable and the demand for new wells will fall. That equates to lots of idle drilling rigs. Properly mothballed rigs can allow drillers to go back to work once a cycle has turned in their favor. The difference in restarting a properly mothballed rig vs. an inadequately mothballed rig can be three or more times the replacement cost.
One of the most common uses of mothballing involves aircraft (commercial and military). Such mothballing, or long-term storage awaiting possible future use, happens at aircraft boneyards or graveyards. Mothballing is also common with seagoing vessels, which are stored and maintained as “ghost fleets” for possible reconditioning, updating, and recommissioning. The cyclical nature of the shipping business, the unpredictability of energy prices, as well as the tight margins of the airline business, means that mothballing these assets is common.