Firms that acquire, repair and resell used parts reduce the cost burdens of airlines in several ways. Parts move efficiently from where they are expensive excess to where they are affordable requirements. Lifetime value of old parts is exploited fully. Airlines need not stock inventories for exceptional events when parts can be obtained reliably. And the value of retired aircraft is maximized as all useful components are extracted.

Firms that provide this value take risks. Controlling risk requires acquiring the right parts on the right terms, having the financial strength to ride out market shifts, selling energetically and maintaining a solid reputation for prompt delivery of quality components.

Seven-year-old Aventure Aviation has received consignments of rotables for a wide variety of Airbus and Boeing models from several airlines and maintenance companies and expects to open a $2 million warehouse and offices near Hartsfield-Jackson Atlanta International in May. President Zaheer Faruqi acknowledges that his parts stock is still small, perhaps $10 million in value, compared with assets of larger firms. But all Aventure parts have been taken on consignment or purchased with cash. Companies that finance purchases with debt may grow fast but not weather weak markets, as several major dealers failed to do after 9/11.

WORKING THE BUSINESS

Parts owners get immediate payments of cash from a purchase or continuing revenue streams from consignments, which are agreements to let traders store and sell parts for a portion of the proceeds. Sales earn owners 5%-10% of original purchase price. Consignment terms vary, with owners typically getting 70% of proceeds on a new aircraft part that moves quickly and a lower percentage for slow-moving components on older models. Faruqi estimates that consignments net owners anywhere from 15% to 40% of original prices over two years, but only for parts actually sold.

Aventure does free evaluations of inventories held by any airline or maintenance shop, advising on market value. Complete trace documentation is necessary to secure the full market value. Aventure then refurbishes, retags and upgrades its acquisitions as necessary. Whether consigned or purchased, all parts are stored in Atlanta, so the quality is visible to Aventure's sales staff and parts can be shipped immediately around the world via FedEx or local freight forwarders.

Of course airlines could sell unneeded parts themselves, but their employees have other responsibilities, are not fulltime traders and are unlikely to do as well as specialists like Aventure. These specialists move especially fast when a potential buyer needs a part in an emergency.

The company sells through personal contacts and data servers such as Inventory Locator Service. Faruqi does not use reverse-auction websites, which he says are useful mostly for slow-moving parts.

About a fifth of Aventure sales are for aircraft-on-ground incidents (priced slightly higher to compensate for extra efforts), half are for routine maintenance and the remainder are for provisioning new equipment. In emergency sales, the buyer gets an airplane back in revenue service quickly without stocking parts that might be needed rarely. In routine and provisioning purchases, buyers get serviceable used parts rather than more expensive new OEM parts. Aventure also provides exchange partstemporary loans that usually cost about 10% of purchase price.

ACCEPTING RISK

To handle their own risks, part specialists must know which parts will be in demand and which are available. Aventure supplements ILS data on part markets with the experience of its staff and its records of part requests received since 2001.

Airlines can limit their risks by looking for reliable specialists that are approved by the Aviation Suppliers Assn. and regulators such as FAA. Dealers must have adequate warehouse space, experienced staff, data on market trends and a network of maintenance shops to test, repair and certify parts. Faruqi warns against consigning parts to a specialist that has taken too many similar parts on consignment from other owners, which may create conflicts in the sales queue.

AAR has survived all the risks of part trading. The company started 55 years ago and now employs 600 people who do $350--$400 million a year in aftermarket supply chain sales. John Holmes, president of AAR Allen Asset Management, estimates the worldwide market is "multiples of a billion" dollars per year.

"Most of the time an airline has an inventory package that may have been written down," Holmes explains. "We estimate market value and can turn it into cash now with a sale or cash later with a consignment." For consignments, AAR estimates sales value over 24, 36 or 60 months.

In addition to obtaining cash, part owners often want to free up space for other materials or simply to close a warehouse. AAR moves very quickly: It once listed a new inventory online before it even had left the seller's warehouse.

In the last two years, Holmes's unit has invested the bulk of its funds in another part source: Teardowns of aircraft and engines. Sometimes AAR puts a purchased aircraft out on lease for awhile and then disassembles it when it comes off lease.

Like Aventure, AAR sells components for AOG events, emergencies and provisioning of new jets and fleets. It sometimes uses reverse-auction websites, where sellers compete to offer the lowest price. Buyers get low prices on these sites but may be disappointed in quality or delivery. "They may not get the best trace paperwork," Holmes notes. "Some sellers bid counting on being able to get the part but they cannot deliver immediately." AAR sometimes has lost its first bid only to find a disappointed buyer returning to look for a more secure offer.

GROWING THE GAME

AAR's scale and diversification allow it to offer a wide range of services beyond simple sales. It also can lease parts, offer them on exchange or manage a part pool.

A fee per flight hour guarantees access to pool parts within specified hours or days depending upon how critical the part is. Some portion of pool inventory is dedicated and located at airline sites, with the remainder kept in centralized reserves in Chicago, New York, Phoenix, London, Amsterdam and Hong Kong. If a pool member needs a rotable, the member takes it from inventory and replaces it with the bad part, which then is repaired and returned to inventory.

Exchange agreements list the covered parts and charges. The customer airline pays only for parts taken and may get no guarantee of availability. AAR frequently acquires new aircraft parts for exchanges. "This is more popular in Europe and becoming popular elsewhere," Holmes says.

These various arrangements offer significant savings to customer airlines, especially for high-dollar parts. "If it has a list price of $50,000, we may sell an overhauled version for $35,000," Holmes explains. Avionics, pneumatic and hydraulic components, line replaceable units and core engine parts are good candidates for ad hoc or provisioning purchases. AAR also stocks Parts Manufacturer Approval items, less expensive alternatives to OEM parts. It has its own PMA engineers who work with customers to obtain approvals for their use.

Holmes says airline part inventories are leaner now than in the late 1990s, "but there is room for considerable improvement." He notes that Asian carriers are beginning to tap used-part markets more aggressively while North American airlines still are split between the active and more cautious. For AAR, "the key is making smart buys," he emphasizes. "We know what can move and the right price so we can make a return."

Located 10 mi. from London Heathrow, Aerospares 2000 provides $7 million a year in spare parts for Boeing, Airbus and ATR aircraft, with two-thirds of sales for ATR components. Pool customers come to the company for an alternative to higher-cost manufacturer pools, according to Commercial Director Adam Nemenyi. It offers both individual parts and a fee-per-month service.

Aerospares customers stock inventories for predictable needs. "Then if something unusual comes up they come to us, saving significantly on investment and holding costs," Nemenyi explains. Speed is the prime advantage: "We can move very fast. If you have a grounded aircraft, we can act in a matter of minutes." The company is used by ATR to help fulfill total support agreements.

Exchanges are an important part of the business. An engine starter that might cost $50,000 if purchased can be obtained temporarily for 10%-15% of that price while Aerospares arranges for repair of the bad starter, billing repair costs to the customer. It sends most repair work to the US because lower costs more than offset shipping charges. With revenue up 50% from 2006, Nemenyi expects double-digit growth for years to come. In seeking parts, he looks chiefly for variability in demand. It is unpredictable needs that Aerospares serves best.