Aftermarket Parts Market Consolidation Likely To Increase

By Henry Canaday
Source: Aviation Week & Space Technology

Kellstrom had been divided into two segments, Musselwhite explains. Its defense business provides parts and logistics for military aircraft such as the Lockheed Martin C-130 Hercules and F-16 Falcon. The defense half also has a small maintenance shop that works on high-tech avionics and accessories. This shop has capabilities for both military and commercial repair, but has concentrated on defense work in the past.

“The other piece, commercial aero, is what acquired AirLiance,” Musselwhite explains. “Now consolidated as Kellstrom Commercial, it will move to Chicago.”

The new Kellstrom Commercial will maintain a sales office in south Florida, near Kellstrom's other businesses, and the two companies are still determining how many of the original staff will move to Chicago. The commercial portion of Kellstrom's business was never a manufacturer, but distributed new parts made by companies such as Britain's Meggitt. These included probes and sensors used on a wide variety of engines.

AirLiance, in contrast, was founded by airlines—originally United Airlines, Air Canada and Lufthansa—specifically to “understand what airlines need to run the supply chain and what they need from the maintenance perspective to keep flying,” Musselwhite summarizes.

The new Kellstrom executive thus describes the combination of Kellstrom and AirLiance as a “synergistic marriage.” AirLiance's airline heritage is joined to new part distribution by Kellstrom. “It's a textbook merger. There is very little overlap in products or major customers.” Musselwhite estimates the combined companies will be one of the Top-Five commercial supply-chain companies and will generate $150-200 million in annual revenue.

The combination also may show where financial strength is now, and it is not in airlines or Western MROs. LHT bought out Air Canada's and United's interest in AirLiance in 2011. Now LHT has sold its remaining interest. Musselwhite claims the sale was mostly a question of business emphasis. “Lufthansa Technik's major focus is repair of aircraft and engines. We were associated with that, but not part of their core business.”

The new partners are still considering whether to bring Kellstrom's repair shop over to the commercial side. In any case, the new commercial unit will offer repair management to customers as one of several services and levels of service. Musselwhite says his commercial business will offer a broad array of products attractive to airlines that are looking for something short of full cost-per-hour support.

And Musselwhite believes that larger companies offering broader service provide the clear direction of the aftermarket. “There will always be niche players, but scale is becoming more important. You can offer more services and in more places globally,” he says.

Scale is essential not only in selling parts, but in acquiring them. Competitive part providers must be able to acquire assets and break them down. Robust size and financial strength are needed to do that because airlines, which once sold one jet at a time, are now selling a dozen aircraft or a fleet in one deal. “Sheer size is important to stay in that game,” Musselwhite observes.


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