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Adrien Daste / Safran

Aftermarket Adjusts To Lower Spare And Replacement Volumes

With more-reliable parts and higher aircraft utilization, MRO providers seek new ways to grow aftermarket demand.

Aircraft components and engines increasingly need repairs far less frequently. Moreover, carriers increasingly cover their repair needs from pools of spare components, rather than internal stocks. The net result is far fewer spare parts required per aircraft per period. That in turn means fewer components sold, both for initial provisioning and over time as replacement parts.

These trends seem to be general across many types of components. There are some distinctions, however. Purchasers of avionics, electronic and software components are enjoying the continuing revolution in all high-tech markets: continually improving performance often at stable or even declining prices per unit. Avionics OEMs can provide airlines with better, more reliable boxes that do more and need less frequent replacement without necessarily increasing costs and prices by much.

In contrast, in the case of engines and other more traditional aviation hardware, major investments must often be made to increase performance and reliability. For example, the next generation of engines will be dramatically better in terms of both fuel efficiency and time on-wing. But these extensively redesigned powerplants also will cost more initially, as will their replacement parts. More complex engineering and higher-performing materials must be paid for, even if life-cycle costs are constrained.

In both cases—the almost automatically improving electronics and the hard-won gains in metal components—OEMs must find ways to stay alive in the new aftermarkets of reduced spares and replacement volumes.

Start with those lucky, or perhaps challenged, avionics manufacturers. Initial provisioning of avionics parts for a new Airbus A350 costs only one-half to one-third as much as it did for an Airbus A320 10 years ago, notes Briac-Yves Kerihuel, marketing and sales vice president for avionics services at Thales.  

Prior to the economic crisis of 2008- 09, Thales’s component business had been growing steadily. But the crisis made airlines much more cost-conscious, as they sought to cut maintenance costs by an aggressive 15-25%.

These ambitious goals required reducing spares wherever feasible, and that was very possible due to several factors. First, avionics components are becoming steadily more reliable and need fixing less often. And the new avionics systems, especially on the largest jets, are more integrated, using much less hardware and more software. Fewer separate boxes means fewer spares. “That trend will continue on the new aircraft programs,” Kerihuel predicts.

In addition to these technical changes, airline parts stocks were reduced because of the increasing availability of spares from pools offered by MROs and now even by airframe OEMs. These pools have been growing at even faster rates since 2009. Also important has been the increase in used parts offered at substantial discounts from new-part prices. Thales itself began trading in used avionics in 2012, to recapture some market share.

RISKY BUSINESS

Kerihuel acknowledges that this used-parts market is a risky business, with highly volatile prices. The Thales marketer says the used-parts market has not grown as fast as was predicted five years ago. Nevertheless, it has become quite significant as an alternative source of replacement parts.

As for those expanding parts pools, if you can’t fight them, join them. Thales was one of the first non-engine OEMs to offer flight-hour repair programs, starting two decades ago. Other OEMs have joined the move to pooling, as have major MROs. The big global shops have added exchanges to repairs to come up with complete asset management for flight-hour offers. Predictable costs attracted airlines.

The ability of major MROs to offer nose-to-tail solutions prompted Thales to broaden in its flight-hour offer. In 2006, it joined Diehl, Liebherr and Zodiac to offer flight-hour support as OEM Services, chiefly for Airbus models but also for other makes. Some airlines prefer to deal with the separate units, while others still take flight-hour support from Thales. Indigo uses Thales, and AJW backs its flight-hour support of EasyJet with a Thales program.

Kerihuel says flight-hour support has been most popular with the new low-cost carriers of Europe and Asia and less attractive for U.S. and European major carriers. But he sees a trend among U.S. majors toward flight-hour programs for new aircraft.

Thales’s yearly component sales reflect the same factors that are reducing initial provisioning: intensely cost-conscious airlines, much more reliable components, less hardware with more software and more pools offered by many competitors including OEMs. And sales of components have tended to lag behind fleet growth, which itself tracks economic growth, which has been highest in Latin America and Asia.

BIG COST-SAVINGS

For airline customers, the cost-savings have been dramatic. Kerihuel estimates that flight-hour avionics repair costs for an A350 are about one-third as much as for an A320. And unlike some other component markets, these sharp reductions in maintenance costs are not offset by higher prices for initial equipment. Thales has thus sought to expand its business into high-value services to airlines, including electronic flight bags, data management, rotable software and connectivity.

Other avionics OEMs are experiencing similar trends. All airlines are trying to improve utilization of capital and assets, and that strongly affects their spares strategies, notes Carrie Kendrick, senior marketing and product management director at Honeywell Aerospace. Some airlines pool, while others maintain their own spares. Honeywell must help streamline airline procurement by offering more choices, including comprehensive service options and asset-management programs.

Kendrick says component demand reflects the dynamics of fleets in each region. Over the past few years, asset utilization has increased in all regions, with Asia-Pacific airlines the most recent to achieve improvement in utilization by changing their strategies for buying and stocking components.

Generally, demand for Honeywell components tracks with fleet size and asset utilization. Since use has increased, demand for components per aircraft has decreased. “Our business forecasts have been reset to reflect the new normal of asset pooling and improved utilization, and we track with fleet growth at a consistent, lower rate,” Kendrick explains. She notes that airlines have returned to profit by being much more aware of ownership costs and returns on assets. So Honeywell must work to keep its airline customers both safe and competitive.

Initial provisioning of Rockwell Collins components reflects fleet sizes, flight hours, reliability and criticality, says Bob Haag, senior director of business development for services. In addition, operators are continually looking for ways to lean out their operations, so suppliers must provide inventory alternatives. Carriers view asset management as an alternative to traditional buying and holding of inventory.

Haag says Rockwell enjoys growing success in its own flight-hour programs with airlines. He predicts these will continue to grow, as they address constraints on capital and cash flow. The trend to flight-hour support is strongest for components necessary to meet minimum dispatch requirements such as displays, control panels, communications, and surveillance and connectivity equipment. And these flight-hour programs are also attractive for highly complex, integrated components.

Regionally, Rockwell’s component demand reflects the introduction of new aircraft and new technologies in each region. Demand is most concentrated in Asia-Pacific and the Middle East and is weighted heavily toward single-aisle and medium-range twin-aisle aircraft.

SHIFTING BEHAVIORS

Landing gear, wheels and brakes are subject to the same changes. Jean-Luc Etcheverry, Messier-Bugatti-Dowty (MBD) director of equipment services, sees airline behavior changing, shifting from initial provisioning to last-minute emergency support from OEMs or from pool providers. MBD is adapting its own services to this shift, tailoring different services to different airline needs. “Flight-hour procurement is one solution for either new programs such as the A350 or for airlines with limited engineering and procurement capacity,” Etcheverry says. His company’s components are mainly essential, “no-go” items and thus top candidates for flight-hour support. And most airlines ordering new aircraft seek flight-hour support, at least for a limited period after entry into service, to limit their risks. He says demand for MBD components is strongest in Asia, then Europe and to a lesser extent the Americas.

Engine makers foresee similar trends. Pratt & Whitney expects its geared turbofan (GTF) engines to have lower removal rates than previous engines and has tailored initial provision volumes accordingly, says Liping Xie, vice president of the OEM’s commercial aftermarket.

Pratt is seeing continued growth in flight-hour and material agreements. About 40% of PW4000s are under fleet-maintenance programs, as well as 60% of V2500s and fully 80% of GTFs. “Engines managed under P&W agreements stay on wing 20% longer, have the highest levels of in-service reliability and retain strong residual value by incorporating the most up-to-date build standards,” says Liping.

The company expects the strongest demand for engine components to come from the Asia-Pacific region and Europe in the next five years. The GTF will account for a large portion of this growth, as Pratt has more than 7,000 orders for the new engines. In the short term, Liping expects “flattish, low single-digit growth,” as a decline in legacy products is offset by demand for V2500 components. Longer term, the company looks for steady aftermarket growth for the GTF. 

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