Analysis

Aero-Engines Americas preview: Adam Guthorn, senior manager, Aerospace & MRO Advisory - ICF International

With MRO Network’s Aero-Engines Americas starting in Fort Lauderdale this week, conference panelist Adam Guthorn of ICF International talks to James Pozzi about the event and wider issues of the component supply market.

What are you most looking forward to about the Aero Engines Americas event?

For me, one of the of the benefits is the crowd there; it’s a very focused event in terms of the agenda specific to the aero engine market with a lot of the major players from the Americas as well as a good European presence. Personally I benefit greatly from the networking opportunities and the chance to interact with a lot of our clients or long-term friends in one space. While the conference is well attended, it’s a very intimate crowd within the space. The focused agenda is a good chance to see some of the leaders of the industry that are there: there’s a nice turnout of executives and it’s a well-rounded crowd. It’s also a good opportunity to keep abreast of a lot of the industry trends affecting the aero engines market. It’s a nice change of pace from some of the bigger, broader conferences. It’s good to have focused panels and hear from the major OEMs what’s happening in the market, what’s in the pipeline and what we can expect for years to come.

You are moderating the panel: The Parts Supply Market – Are we in the Midst of a Bubble? What can you tell us about this bubble and how is it playing out in the parts market?

Interestingly there’s been a lot of money poured into the parts market in recent years particularly from private equity firms and now there’s an increasing amount of interest from the OEMs and some of the airlines as well. I don’t know if it’s so much a bubble because the demand is there for the used parts but what people are more concerned about is some of the effects on the pricing. There are likely some companies that got involved in the market in recent years, potentially having overpaid, meaning they now have assets on their books and not being able to clear them at a price that’s advantageous to them. While I hesitate to use the word bubble as demand is there for that material but it’s at what price is where some of the concerns are. 

What have been some of the key trends of the parts supply market in recent years?

Smarter procurement of parts is one. There’s a broader acceptance of the parts in some regions of the world where historically maybe they weren’t as accepting or as knowledgeable about them. One of the bigger trends is the increased cannibalisation of their own aircraft by airlines. Rather than selling off the assets, having them be parted out and potentially buying them back from the same source, the airline engineering teams now are even managing that themselves as they retire fleets. British Airways is a good example of this recently. They are retiring their 747s, salvaging material from the ones they are shutting down and using it to support the aircraft that continue flying. That’s a very new trend that a lot of airlines are starting to embrace as a cost-saving technique.

Is this new trend solely driven by cost reduction or are there other factors to consider?

It’s predominantly a cost issue as a well as a smarter way for airlines to procure or manage their supply chain which historically they hadn’t considered previously. One of the big benefits to that is for a historically conservative airline. Again, using the BA example, they’ve managed aircraft from the delivery stage and the repairables and materials have only ever been operated by them. These are truly back to birth parts that BA know the full history on so they are very comfortable salvaging and reusing these parts that have been under their maintenance programme for 20 years.

You also spoke of increased market participation for parts from certain regions that had been less accepting previously. What were some of these regions and what are examples of this change?

There are more partouts occurring in China, with companies like GE Telesis started managing some partouts in the country. As the DGAC gets more comfortable with the concept of parting out and managing used and serviceable materials, Chinese airlines may look to embrace it as a cost-saving measure. Historically, it hasn’t been a tool in China’s tool kit, but as they look around the rest of the world and see what other airlines are doing and the broad acceptance as the regulators begin to get comfortable with it we’ll start to see more of that activity there.

Why did countries like China take much longer than others in the world in accepting used serviceable materials?

Looking at Western airlines and using the US as an example, cost pressures for airlines in that region have maybe been at the forefront of some of these innovative supply chain techniques in terms of needing to get smarter about the way they procure. This is also due to not having the support of governments and being able to make losses year after year like has happened in other countries. Another reason some regions were slower to catch up is because there’s a more historically conservative way of procuring materials than we see in other parts of the world where they’re used to buying new material from OEMs and the regulators have always seen it that way. Countries like China are playing a little bit of catch up right now and realising how other airlines are doing. The catch up is definitely happening but it’ll take a bit of time.

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