About 60% of today’s avionics component-support revenue comes via transactional deals. This, says Rockwell Collins, is changing—and fast. By 2020, the ratio is expected to flip, putting 60% of avionics under long-term support agreements.
The trend is a microcosm of what is happening across commercial MRO, as operators seek more efficient ways to keep parts at the ready—but not necessarily on the books—and assets in service. And the market is responding.
But the bottom-line breakdown—in this case, long-term agreements versus service as you go—is only part of the story. As operators push to cut maintenance costs and increase options, service providers are molding programs to fit customers’ needs.
At Rockwell Collins, this means offering myriad versions of its Dispatch long-term component-support agreement program, explains Thierry Tosi, the avionics specialist’s vice president for service solutions. Dispatch can be customized, and the top level—Dispatch 100—offers everything from inventory management to repairs, wrapped in a long-term agreement. But some operators want a hybrid approach, buying only the most essential spares and putting the rest under a full-service plan.
“Someone can buy [minimum equipment list] spares, and for the rest, they go for Dispatch 100,” Tosi says.
Rockwell Collins also offers Dispatch 100 to MRO providers, some of which turn around and offer full support to their customers.
“It’s not for everyone,” Tosi says, noting that some prefer to control their own spares pool. “But we’re starting to see some of these contracts, and we want to have more of them with the MRO aggregators.”
While all operators crave cost certainty, they take different approaches to seek it out. Ultra-low-cost carrier Allegiant Air is partial to nonexclusive engine-support agreements and multiple providers, says Asad Shaikh, the carrier’s manager of fleet planning. “We find there is more leverage. That outweighs the savings we’d get with exclusive providers,” he says.
The carrier, which is shifting to an all-Airbus narrowbody fleet that will include its first-ever new aircraft, is aggressive in the used serviceable materials (USM) market. It sources aircraft to tear down and feed its fleet, which includes MD-80s and Boeing 757s as well as Airbus A319s and A320s.
Allegiant looks far down the road for cost savings, eyeing the biggest cost-driver for engine overhauls: life-limited parts (LLP).
“We’re seeing operators moving toward deals with the OEMs to get discounted LLPs that you can feed into your shop visits for 5-10 years,” says Shaikh. “We’re moving in that direction as well.”
Another Allegiant agreement underscores the available flexibility on parts sourcing. The carrier has a “repair power-by-the-hour” (PBH) deal on Airbus rotables, Shaikh says. It follows a standard PBH, unless a component cannot be repaired by the vendor. In those cases, Allegiant can look elsewhere for a replacement component and avoid paying a markup.
Demand for USM is changing MRO strategies, creating opportunities for suppliers. The cooperation between SR Technics and VAS Aero Services is a prime example. VAS acquires engines and positions them at SR Technics facilities to serve as spares and teardown candidates, helping SR Technics support customers without laying out capital for green-time spares or inventory.
“Partnerships are vital,” says Chris Rauch, SR Technics head of global trading, adding that the MRO provider is looking for similar arrangements with component suppliers.
USM demand is creating challenges as well, especially for suppliers that may not have a presence on the used-parts side. While forecasts can paint smooth demand curves for mature products, fluctuations in major operating-cost drivers such as fuel can disrupt even the most insightful projections.
The CFM56-5C-powered A340 fleet is a case in point. Written off as destined for retirement, many aircraft are flying on, thanks in large part to sustained low fuel prices. Carriers are using them to bridge gaps to new widebodies or stand in for new aircraft plagued by delivery delays or in-service technical issues.
“The A340 has had some strong lift in the last 12 months,” says Matt Jessee, director of commercial engines at Aviall Services, a CFM parts distributor. “The customers that are still flying are going ahead and doing a few more shop visits.”
But sudden spikes in demand for sunsetting models can create unforeseen challenges, Jessee notes. While high-value parts are easy to source, plenty of others needed for overhauls are not.
“We’ll get an order for 5,000 pieces of a part we haven’t sold in five years,” he says.
His request: Loop the OEM supply chain in on fleet plans, even if you don’t plan on buying many new parts.
“We understand it’s not economical to buy a $1.5 million LLP when you’re only going to fly it for two years,” Jessee says. “But we need to have a conversation about things like tubes and brackets that brokers aren’t going to retain, because availability of those parts will affect shop visits.”