Due a reduced number of actual shop visits many OEMs were forced to adjust their expectations with regard to spare parts sales several times last year. This year the period when airlines are destocking spares and deferring maintenance services is drawing to a close. As a result, the demand for spares and repairs is expected to increase and the predicted aftermarket revenue rate should reach 9%. However, industry experts believe that the performance of OEMs in the aftermarket might not improve significantly, naming a steady growth of the unused surplus material market as the main reason for the underperformance.
The surplus parts market is booming. In 2001, the aviation serviceable parts market was worth about $11 billion, with only 10%, or $1.1 billion, claimed by surplus parts, according to SH&E data. Today, surplus parts account for about 18% of the $15 billion market, and the share may increase to 20% by 2015. The largest share of those surplus parts (65%) accounts for the segment of engines, since engine MRO makes up about 40% of the global MRO market. Although this category is largely comprised of the surplus material (90%) for older engines such as the General Electric CF6-80C2, the CFM International CFM56-3B and the Pratt & Whitney JT8D, the availability of surplus parts for new narrowbody engines is gradually increasing. Currently various components account for 30% of the surplus business. Occupying 21% of the global MRO market, they rank second to engines in terms of the total spending within the industry segment.
“Many different factors are driving the demand for surplus inventory. One of the major ones is related to an increasing availability of feedstock for teardown, buoyed by the retirement of popular modern aircraft types and the increasing cost-effectiveness of part harvesting processes. In 2007 half of the surplus parts came straight from airlines or brokers, while the other half were harvested directly from aircraft. Now, as the useful life of various aircraft models is continuously getting shorter, the share of surplus parts being sourced directly from part-outs is about 82%. Moreover, the increase in surplus parts availability is altering the strategies of both airlines and maintenance providers, providing them with more options other than simply going to the OEM,” comments Zilvinas Sadauskas, the CEO of Locatory.com.
A recent survey conducted by Oliver Wyman has revealed that a vast majority of airlines (84%) tend to opt for an “active serviceable materials strategy” since OEM emergence. The resulting growth in demand has been effectively met by MROs, with almost 80% of the questioned carriers reporting the use of an “active” or “comprehensive” program and 60% - a rise in the usage of such programs during the past three years. Naturally, the increasing prevalence of unused serviceable material has largely affected the pricing strategies of OEMs. The Canaccord survey has found that in the last quarter the prices of new spares were about 3% higher than those observed during the same period a year ago. While this is in line with the historical average, there is evidence to believe that some OEMs are throttling back due to the pricing pressures introduced by unused surplus parts.
“When surplus material isn’t readily available, many operators are forced to purchase new parts. However, the latter are 30-50% more expensive, not mentioning the fact that that can have long lead-times and import delays, which is unaffordable in case of an AOG. Meantime, currently there is an excess of surplus materials in the market, and the MROs are still in the process of figuring out the best ways to utilize it. Most of this surplus comes from the consumables, which are acquired by the MROs for C-checks in large quantities. However, the providers actually use 50-80% of these parts, and the rest of them remain in their storages. If independent MROs will manage to hone and expand these capabilities, they may yet successfully stem OEM momentum and defend their remaining market,” concludes the CEO of Locatory.com.
Locatory.com - is an IT company supporting the aviation industry with IT-based Supply Chain Optimisation solutions worldwide. The company develops and maintains its own trading platform catered specifically to the aircraft spare parts aftermarket while offering proactive customer support and enhancing the industry with effective supply chain management solutions.
Locatory.com is a part of Avia Solutions Group - a WSE-listed company with more than 17 subsidiaries providing global aviation business solutions covering everything from aircraft maintenance and repair, crew training, technical training to ground handling, crew leasing, and other aviation related services.
For further information please visit www.locatory.com