When a new aircraft is delivered, it is likely the operator has contracted for OEM fee-per-flight-hour support. However, as those aircraft mature and transition to smaller carriers, OEM maintenance plans do not always follow.
“Operators of pre-owned, mature aircraft may seek cheaper solutions from independent MROs that are more likely to incorporate serviceable material, DER (designated engineering representative) repairs, reduced workscopes, and possibly PMA (parts manufacturer approval) parts,” says Richard Brown, London-based principal consultant with ICF International. “But there are some carriers, with mature fleets, that focus more on reliability and time-on-wing than costs, especially if maintenance is done in-house. Those operators will favor an OEM support solution,” he says.
The competitive environment for older aircraft support at smaller carriers becomes even more interesting, considering a shift in the market dynamics for used airliners.
According to ICF International, from now until 2023, airlines worldwide will take delivery of 17,700 new aircraft, of which 45-50% will replace existing equipment. Historically, replacements have accounted for just 20%.
“This means there is less chance that older aircraft will find a home with second- and third-tier operators, or even startups” says Brown. “Many new startups in the last decade have ordered new, instead of used, aircraft, which was how the startup model once worked.”
Brown attributes this to readily available credit at low interest rates, government-backed financing for some operators, along with fuel hikes that have made older aircraft more costly to operate. Yet he adds that despite accelerated retirements and emerging replacement trends, there is still an active market for the support of mature and sunset aircraft—those with a few operating years left—especially among price-sensitive carriers.
The result is a growing competition between the independent service providers and the OEMs, who see new opportunities to offer lucrative power by the hour (PBH) maintenance support contracts to second- and third-tier carriers flying mature aircraft.
Scott Brensike, general manager of mature fleet solutions for GE Aviation, reports that operators of current production models usually prefer long-term, risk-based maintenance programs. But as those airplanes move from one airline to another, subsequent operators will select either a risk-based plan, a time and material approach, or a hybrid incorporating selected features from both. At the same time, used serviceable parts are increasingly in demand and are becoming more prevalent with mature fleets that are rapidly approaching retirement.
“GE and CFM have been the largest suppliers of used serviceable materials for the GE and CFM engine families, even though third-party vendors have been very active in this market,” notes Brensike. “We’re working hard to continue to be a market leader by creating more customer value.”
That has mandated the introduction of new, creative materials-support products. For example, GE introduced its Firm Fixed Price-Plus (FFP-Plus) program, which eliminates scrap rate exclusions.
“GE is taking 100% risk on scrap rate, versus the industry practice of putting a cap on the scrap rate—after which the customer pays,” says Bill Dwyer, GE Aviation’s marketing leader of the services business. “FFP-Plus addresses the desire for a true firm fixed price, and it has been especially popular with small carriers that are even more sensitive to surprises in maintenance costs.” FFP-Plus is offered on the CF34, CFM56 and CF6-802C.
Dwyer specifically cites the CF6 family as an emerging maintenance market opportunity in the mature aircraft realm, noting that there are about 3,000 CF6 engines installed, with about one-third in a “mature phase.” GE defines the mature phase as the period when retirements for an engine or airframe begin to accelerate and fleet size declines rapidly. “The mature phase for the CF6-80C2, for instance, started in 2010,” he says.
Another program -Dwyer cites is LRU In A Box, which he says is “especially attractive” to small operators for rotable pool management. “LRU In A Box allows GE engine operators—and MROs—to send a line replaceable unit to GE,” which manages the complexity of that LRU’s repair supply chain.”
John Holmes, group vice president, of AAR’s Supply Chain Group, reports that operators of mature aircraft have indicated an increasing demand for materials management programs, including power-by-the-hour plans, which can be stepped down at declining costs as a fleet approaches retirement. Another option, he says, is used serviceable and surplus parts.
“A lot of inventory is available now and prices are coming down,” he says. “With this in mind, there are operators of mature aircraft who are finding it a lot cheaper to replace parts with used serviceable material rather than having the parts repaired.”
Holmes says the market opportunities in legacy aircraft support will be with the Bombardier CRJ200; the Boeing 737 Classics; and early production Airbus A320s, for which considerable surplus material is available. “We are also beginning to see some opportunities with the Boeing 747-400, although not to as great an extent,” he notes.
Engines account for a greater share of surplus and used serviceable parts, particularly for the CFM56-5A, PW 2000, and the V2500-A1, says Holmes.
At a time when OEMs are becoming more active in aircraft support, there is not only room for third-party suppliers to grow but also opportunities to partner with the OEMs. “The more a third party can partner with an OEM, the better position it will be in to -offer a logistics and support solution for the operator of mature aircraft,” says Holmes.
For mature aircraft, providers of engine services will need to develop maintenance solutions to reduce ownership costs for the remaining time those engines are operated. Typically, that is a 1-3-year time horizon, reports Rudiger Heinrich-De Stefano, vice president of material management for MTU Maintenance Lease Services. “Smaller carriers operating older fleets tend to select time and material solutions, because they do not want to commit themselves to long-term [PBH] contracts,” he notes.
Among the more promising markets for mature engine support is the CFM56-3, used on the 737 Classics. “A lot of startups, especially in developing countries are using that aircraft,” Heinrich-De Stefano explains. “There is also a pretty good size market for the CF6-80C2, Pratt & Whitney PW2000 and the GE CF34-3. The V2500-A1 and V2500-D5 also represent opportunities, although they are niche markets.”
Heinrich-De Stefano cites airlines in Africa, Russia and the Commonwealth of Independent States countries among the emerging mature aircraft support markets, since “they do not have internal engineering capabilities and are relying on maintenance providers” that offer materials management, spares support and on-site services, as well as MRO. He argues that independents may be in a better position than the OEMs to tender tailored maintenance solutions, especially for these smaller carriers. “The OEMs are concentrating on putting the newer fleets under long-term power-by-the-hour contracts,” he says.
But as Peter Saywell, CEO of U.K. parts supplier Saywell International, notes, OEMs will see opportunities to work with independent material sources, especially in cases of dwindling fleets. As an example, the company holds distribution rights from BAE Systems on rotables and consumables for the Jetstream 31/32, and the BAe 748 turboprops. “OEMs might realize it is more cost-effective for them to outsource material distribution when they are dealing with operators of small legacy fleets of four to five aircraft,” he explains.
Where OEMs have an advantage with fleet support is access to a part’s complete history. “A part from a non-OEM-approved source may be sold as-removed with no guarantees as to how long it will last,” says Sean -McGovern, business director-support for BAE Regional Aircraft Systems. For that reason—along with technical direction and inventory support—the [legacy aircraft] operators have more of a relationship with the OEMs than they had a decade ago.”
McGovern also notes that since small airlines—many flying two to four aircraft—usually do not have the staff to search the global spares market, that will continue to be an opportunity for OEMs. An example he gave is the BAe 146 and Avro RJ 85/100 regional jets, long out of production, and transitioning to what he termed “niche” operators.
One of the niches for the BAe 146 is an airtanker role in wildland firefighting. Missoula, Montana-based Neptune Aviation Services operates five of the former regional airliners, modified for fire-retardant dispersal. The company expects to grow the BAe 146 fleet to replace its remaining ex-U.S. Navy P2V Neptunes, built by Lockheed in the post-World War II years, and no longer supported by the OEM.
“OEM support was a driving force behind our selection of the BAe 146, after having to provide all support in-house for the P2Vs,” says Dan Snyder, the company’s chief operating officer. “Also, BAE Systems was one of the few OEMs willing to support the aircraft as an airtanker.”
Snyder explains that prior to selecting the BAe 146, Neptune needed to determine if rotable components were readily available and facilities were in place to maintain them. What the company found was that since the BAe 146 has a diminished North American presence, items specific to the aircraft had to be procured primarily in Europe, where the airplane is still in regional airline service. “This meant we had to carry larger inventories to address any lead-time issues, particularly for high-utilization components,” he says.
While BAE Systems support is with engineering data licensing and engineering orders for various inspections and life limits, along with repairs, Neptune Aviation Services procures airframe parts and avionics from its long-established vendor networks. The parts, Snyder reports, include totally overhauled items, as well as serviceable-as-removed, with repairs predicated on time and material. “With many vendors parting out BAe 146s, a lot of rotables for the aircraft are showing up on the surplus market.”
For SA Airlink, bundled PBH plans make more sense. The Johannesburg-based, regional affiliate of South African Airways, runs a mixed fleet of 12 Avro 85s, 14 Embraer ERJ 135s, one Embraer ERJ 145, and eight BAe Jetstream 41 twin turboprops. All of the airframes are covered by OEM support packages, reports Neil Wilson, executive manager, fleet support. The exception is the Honeywell TPE 3331‑14 powering the Jetstream 41s, which SA Airlink concluded was more economical to maintain on a time and material basis.
“We have found OEM and independent support plans to be very similar, but the OEMs have shown themselves to be a little more reliable,” Wilson says. “One of the big advantages the OEMs offer is the degree of engineering support, which is extremely important for a small airline like SA Airlink.”
Closely related to this, says Wilson, is that the OEMs “are in a better position” to carry out reliability improvements on components, which Airlink does not do in-house. “Basically, the engineering and rotable control is taken care of and managed by the OEMs. Working with them is a very simple process with respect to getting the parts we need to have, when we need them.”
A version of this article appears in the October 6 issue of Aviation Week & Space Technology.