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UTC's Used Serviceable Material Play

Intertrade's success sets stage for deeper UTAS push into used parts.

UTC Aerospace Systems's (UTAS) aftermarket business has been on a roll of late, despite the fact that it relies heavily on inconsistent (when viewed quarter by quarter) initial provisioning (IP). One reason for IP's variances: While all new aircraft require spares, more operators are turning to pooling to help offset the costs of supporting the newest-technology models, notably the Boeing 787 and Airbus A350, and their increasingly reliable—and increasingly expensive—parts. This cuts down on the number of new parts sold.

The trend, combined with operator demand for lower-cost options, is one reason UTAS, part of the United Technologies Corp. (UTC) conglomerate, has been looking to ramp up its used serviceable material (USM) business. The engine OEMs have led the way in the space, and many observers see component support as the next big USM frontier—in part because of the high cost of the newest aircraft and their parts. Among the leaders has been Rockwell Collins, with its Intertrade division. No surprise, then, that UTAS parent UTC sees access to Intertrade as one of the major ancillary benefits of acquiring Rockwell Collins.

"They have a great surplus capability, which we don't have," Akhil Johri, UTC CFO, said at a recent Morgan Stanley investor conference. "We are trying to build that in UTAS. We have opportunities to take advantage of that."

Murmurs of UTAS snapping up used inventory in preparation for a USM play have been heard for the better part of a year. Johri's comments both give substance to the speculation and lay out a strategy.

Rockwell Collins doesn't break out Intertrade's revenues publicly, but with the exception of a slow start in 2017 the business has been in steady-growth mode—high-single-digits and above—for the last few years. Launched as a Collins Avionics repair shop nearly 50 years ago, Intertrade's focus—to the tune of 80% of its business—is now non-Collins product. Engines have become more prevalent, with the venerable (and high-demand) CFM56s and V2500s high on the list. Demand for their parts makes narrowbody powerplants high on many lists, however—part of the reason about 60% of Intertrade's business supports airframes.

This fits squarely into UTAS's business, as the UTC unit is heavily invested in airframe-related parts and subsystems. If all goes as planned, by this time next year, UTC will be even more heavily invested in Intertrade.

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