April 15, 2013
Credit: Photo: International Aircraft Associates
Airlines can save significantly by mining the parts aftermarket, and the avenues that beget those savings just keep getting wider.
The demand for particular parts is pegged to their purpose. Those perpetually in high demand are essential Code 1 parts—ones that if unserviceable keep an aircraft from pushing back, says John Avery, AJ Walter Aviation's director of supply chain solutions. In somewhat lesser demand are essential Code 2s, which, if unserviceable, will not prevent flight dispatch, within certain limitations. Avery says Code 1s and 2s comprise “around half” of the company's business.
“Avionics, all the black boxes, the navigation equipment—they're always in demand,” he says, and none more so than air data and inertial reference units. The combination navigation and autoflight component “is a very expensive part,” says Avery, carrying a manufacturer's list price, sans airline discount, of about $1.5 million.
If AJ Walter were to sell such a component, and “we probably wouldn't,” says Avery, the price would be “north of a million dollars.” His company, and some others, would much prefer that customers enter into exchange agreements for such components, “because the item is so expensive, most [carriers] will hold minimum stock, if any.”
Avery contends exchange is good for AJ Walter and for the carrier. Customers could buy a hypothetical part that sells at a manufacturer's catalog list price of $100,000. Or, Avery could sell a used part for 60% of list, and realize $60,000 from the sale in what the executive terms “my one big hit.” That same $100,000 component, however, might be exchanged as many as four times per year, at $10,000 per pop. “Each time we manage a transaction,” it comes replete with a repair—a cost rechargeable to the customer. “We get smaller bites of the cherry, but we get a lot more bites.”
International Aircraft Associates (IAA), which specializes in powerplant parts, often advocates a similar portion-controlled approach when pitching customers. What IAA is after is core life-limited parts, with some life left. The operator can either sell the engine to IAA for part-out, or “work with someone like us and receive a higher return on [the] asset,” says President Mitch Weinberg. Instead of selling outright, the customer can exercise a bit of patience and enter into a deal where, over time, IAA refurbishes the parts and sells them, with the former engine owner reaping the rewards. Weinberg says such an arrangement can yield those former owners “at least 20% more” than a sale per se.
Weinberg says IAA has offered the option, dubbed “Managed Disassembly Consignment,” to customers on a trial basis. One- or two-engine trials have had a way of leading to more comprehensive pacts. As a result, some former operators ended up “giving you their whole fleet,” he says. The keys to making the arrangement work are “due-diligence . . . and trust.”