FROM GECOMMERCIAL AVIATION Services' perspective, acquiring The Memphis Group and entering into the aircraft parts market in October 2006 seemed like a natural progression of good business. After all, GECAS had been a TMG customer for many years. It understood firsthand the scope of the company's distribution and the quality of its service.

For well over three decades, TMG had been supplying recertified rotable components for Airbus, Boeing and McDonnell Douglas aircraft. It also offered inventory management, purchasing and dismantling services. Therefore GECAS, the commercial aircraft financing and leasing business of GE, saw the company as a "very good fit," according to Sean Flannery, a former GECAS senior VP.

And it has been. Joining GECAS has allowed TMG to expand its product offering to secured debt and lease financing as well as aircraft component management services. In 2007 it saw some $100 million in sales, contributing to the $428 million revenue increase from 2006 that GECAS realized last year. In March, TMG was renamed GECAS Asset Management Services.

"TMG's alignment with GECAS offers some significant benefits," explains Flannery, who is now GM of GECAS AMS. "The first obvious benefit is that it gives the company access to the GECAS fleet rolloff aircraft that are being retired. It also gains access to capital to invest in aircraft. So where we see a customer need for future inventory, we will go out and forward-purchase that aircraft for feedstock. We are also integrating all of GE's methodology into how we do things, and that in itself is driving efficiency into the business."

FINDING ITS PLACE

AMS, which serves more than 1,000 airlines, aircraft leasing companies and aviation manufacturers, now represents one of four business units within GECAS. The others are Commercial Aircraft Leasing & Finance, Airport Infrastructure and Transportation Finance.

The leasing and finance operation is the core business and largest revenue producer. Boasting a portfolio of more than $45 billion, it has more than 1,775 owned and managed aircraft, 28 offices and more than 225 customers around the world. Last year it signed a $5.34 billion deal with Boeing for 15 777s and 24 737-800s. Deliveries are slated to begin this year and continue through 2010.

The infrastructure business, which comprises AviaSolutions, Lynxs Group and Global Infrastructure Partners, invests in the enhancement and modernization of various airports throughout the world. AviaSolutions' focus concerns the development of regional airports and terminals while Lynxs Group concentrates on acquiring and modernizing air cargo facilities. GIP, a joint venture between GE Infrastructure and Credit Suisse, seeks investments in the transportation, energy and water sectors. In addition to airports, it pursues assets in air traffic control, ports, railroads, toll roads, pipelines, power generation and transmission as well as various water systems.

Leveraging some 30 years of experience in the marine, rail and intermodal industries, the transportation finance group offers capital and funding structures such as senior debt and tax-based and synthetic leases. Some of its customers include Ship & Container Finance, Port Finance and Equity Investments, Ship Bareboat and Time Chartering, Rail Equipment and Rail Infrastructure Financing.

AMS currently has 130 employees and offices in Asia, Europe and North America. A good share of its component distribution includes flight controls, avionics and line-replaceable units. The company procures aircraft for dismantling and sells the airframe parts, while GE Aviation offers the engines to its used serviceable material customers.

"We've seen quarter-on-quarter growth since The Memphis Group became a GECAS company," adds Flannery. "Historically, over two-thirds of TMG's trading activity was in North America. We see a lot of growth opportunities outside the Americas at the moment, and we are working actively to increase our reach and offerings to customers around the globe."

AMS, which still relies heavily on its original warehouse in Memphis, is currently in the process of opening depots in Singapore, Hamburg and Moscow. "Our people are aligned with GECAS people who are already in the region actively leasing aircraft and engines to airlines," Flannery notes. "And so we have aligned the parts trading sales team with the other sales teams within GECAS."

MORE THAN JUST PARTS

AMS aims to continue TMG's efforts to ensure a high level of quality and reliability. Compliant with EN9120 and FAA Advisory Circular 00-56, the company works closely with OEMs and approved repair facilities for the overhaul, repair and modification of its components, which typically are stored in climate-controlled warehouses. Its spares distribution includes recertified rotables and repairables for A300, A310, A320, 737, 747, 757, 767, 777, DC-10, A330, A340, MD-11 and MD-80 aircraft.

"We have strong ties with Airbus and Boeing," says Flannery. "We feel we can support their aircraft in the field very well. We're also always open to providing initial provisioning and whatever services are necessary to support the initial operation of an aircraft."

Sourcing inventory from operators worldwide, AMS currently stores parts from more than 200 dismantled and recertified aircraft. It aims to help airlines optimize parts inventory levels and plan provisioning for fleets over the long term. In addition to minimizing the capital investments of its customers, it works to improve ontime performance through sales and leaseback programs, procurement strategies and consignment. For customers who choose to finance spare parts, it offers loans and other funding options.

"One of our main strategies is to secure long-term provisioning deals with airlines," explains Flannery. "The idea is to reach an agreement that has a projected growth strategy within a carrier's business or fleet. So we would procure on a long-term basis to support expansion and enter into a forward sales support partnership."

AMS also provides repair management services to third parties. Swift turn times, competitive rates and quality assurance are essential, according to Flannery, to growing business in this area. "We don't repair any components or recertify any components ourselves," he adds. "We buy that service on the open market. We have an internal repairs management group, but it's only for internal consumption."

The company's AOG service is backed with an inventory of more than 90,000 parts that can be shipped 24/7 to locations worldwide. "We are very well positioned to handle this," Flannery points out. "We have inventory strategically placed in numerous countries to cover every location. We see this as a bigger part of our service offerings going forward."

MANAGING THE LIFECYCLE

One of the big benefits of the acquisition is that it extends GECAS's ability to manage another element of the aircraft lifecycle. Prior to TMG's arrival, GECAS only used aircraft that approached retirement age. "Now we are able to manage right out to retirement and ramp up our recycling as well," Flannery says. "This adds another string to our bow and another capability to GECAS."

The company is targeting acquisitions of A300-600, A310, A320, A330, A340, 737-300/-400/-500, 747-400, 757, 767, 777, DC-10 and MD-11 aircraft. The disassembly process has been streamlined to maintain part quality and maximize sales potential. "The process runs very smoothly," Flannery adds. "If the engines have utility remaining on them, we will route them back to GE's engine leasing company. We'll store the parts in our warehouse in Memphis and then offer them to the market."

AMS is a member of the Aircraft Fleet Recycling Assn., an international group focused on improving aircraft industry sustainability by promoting safe and environmentally proactive management of the world's aging fleet. Founded by Boeing and other industrial partners, AFRA also promotes the safe return of aircraft to revenue service, engines and parts to the world fleet and reclaimed materials back into commercial manufacturing.

"We live in a cyclic market," observes Flannery. "If you look at when aircraft have been retired in the past, you notice a pattern. Once you have a slight downturn in the market, retirees tend to accelerate. Then the market picks up again and you see more of a balance. We see every opportunity to recycle material back into the system as offering a benefit to the industry. This ultimately will reduce the demand on global infrastructure."

AMS's proactive approach to recycling is also in keeping with Airbus's partnership in Tarbes Advanced Recycling & Maintenance Aircraft Co., an end-of-life dismantling firm aimed at recycling aircraft parts in an environmentally friendly way. Between 50% and 70% of dismantled parts can be recycled, specialists at TARMAC Aerosave claim.

To better accommodate its growing pool of customers, AMS currently is pursuing a globalization initiative focused on expanding its presence in Europe and Asia. It also intends to establish a site in Latin America that will allow it to handle demand more efficiently in that region.

"The company has migrated from kind of an opportunistic trading company to a strategic business supplier and partner to the industry," recognizes Flannery. "Our goal is to ensure reliability of supply for the current and future needs of our customers. Of course we will always seek to supply a very wide customer base, but our strategy is to align our service offerings with global demand."