Turbine Technology Feature: Asset Management

Operators no longer need to own expensive spare parts

Maintenance departments no longer are viewed only as the group that maintains aircraft. Today they play a pivotal role in the financial aspects of any operation. Major spare components such as engines, landing gears, and propeller assemblies are expensive capital intensive assets that present a major investment decision.

What was once a less challenged decision just 10 years ago, the decision to buy, lease, and exchange high value assets today deserves thorough technical and business case review.

With continued pressure to preserve cash and contain costs, operators and service centers look for resourceful ways to invest less on spare parts while improving service recovery response time. The opportunity exists for asset management companies to play a vital role; one which provides timely, cost-effective spare parts support through exchanges, leases and sale/leasebacks. To learn more about spare part asset management, I sat down with Steve Hendrickson and Newcastle Aviation.

AMT: How can a company like yours manage expensive spares more economically than the operator or service center?

SH: Well, our core business is asset management and we do it very well. For example, an operator’s removal forecast may call for needing one spare engine, landing gear, or prop assembly over a two-year period. Depending on the asset, the value could be millions of U.S. dollars.

Many operators view spares as necessary to support their operations. However, if an asset is sitting idle on the shelf, there’s an opportunity cost associated with it. If the asset is financed, it is most likely accruing interest expense. Or if the asset is free and clear, it could be sold to free up capital needed to run the company’s core business. Through spares pooling we combine the demand forecasts of multiple operators, and provision our spares pool to cover those needs accordingly. We custom tailor a spares support program that meets the needs of our customers.

AMT: How do you manage your spares level?

SH: It’s a dynamic process that requires constant monitoring. We use statistical Poisson distribution modeling to determine the number of spares required to meet specified service levels and the needs of the pool. When properly managed, the pool concept is economically more advantageous to its members because fewer per-capita spares are required to achieve the same service level than if they were not in the pool, and the pool spares are being utilized more steadily. As we add customers to the pool, the same modeling is used to determine when we buy additional assets.

AMT: How else does the pool concept benefit the operator or service center customer?

SH: We also offer repair management services. We utilize the economies of scale leverage of our spares pool to negotiate favorable repair/overhaul terms with the repair agencies we use — not with just one, but a minimum of two shops. Quality being equal (uncompromising), we’re able to keep our shop visit costs and turn-around times competitive, which translate to lower operating costs for our pool customers.

AMT: Explain the difference between short-term leasing and exchanges?

SH: They both provide one common objective; immediate access to expensive spare components on demand. Short-term leases are used by operators and service centers that have a short-term operational (versus financial) need for the spare. Reasons for leasing vary, but most often it provides operational coverage while the operator’s component is in repair or overhaul. Following repair, the leased component is removed from wing and returned. This option is more desirable for operators or service centers that need to have their original component back after the shop visit. The primary difference with exchanges is title to the asset is swapped at the point of exchange and the operator or service center will not get their original core back.

AMT: Are there different kinds of leases?

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