Airlines increasingly obtain spare parts under agreements with maintenance providers, or from manufacturers, which can supply parts under terms of initial acquisition agreements for fees per hour. Traders offer used parts or PMA alternatives to OEM parts at discounts. Exchanges and pooling agreements offer access to parts without holding costs. Asset managers can offer access without investment as well.

Airlines demand quality, balancing price with security and prompt access. Legacy airlines have more options due to size and in-house expertise. Startups and low-cost carriers run lean but may need more spares to support operations.

Four-fifths of SR Technics' part sales are now under long-term maintenance contracts, mostly for fixed fees per hour. Part sales are 30% of revenue and stocks total $1 billion. Executive VP Torsten Tamm says his firm offers high-quality parts, well maintained and accompanied by all required technical data, services hard for independent brokers to duplicate. Prompt delivery is the most important consideration in AOG transactions. Under long-term integrated contracts, customers pay chiefly for immediate access to serviceable parts if a component fails.

SUPPLYING DEMAND

SR Technics purchases parts from OEMs, replacing them as customers turn in broken parts, which are repaired and stored for future requirements. Price and availability are challenging when manufacturers have supply-chain problems, often due to shortages of raw materials like titanium.

Tamm sees a continuing shift toward part provision by maintenance providers, which guarantee price and availability. He believes North American airlines will join Europe and Asia in using this approach more aggressively. But this pooling approach is less suitable for interiors, which are customized for each carrier.

HEICO Aerospace repairs and sells parts, its own and those made by other OEMs, under long-term contracts and in individual transactions. Once a specialist in engines, it rapidly is increasing its airframe component sales.

"For repairs, we do fee-per-hour or charge per repair," explains Robb Baumann, adviser to HEICO's CEO. "We offer alternative parts to replace OEM parts, do extended-life repairs or provide new parts."

Under exchanges, HEICO repairs or replaces a faulty part at its discretion. "We might have a machine up and make a new part," Baumann notes. Or the company can fix the faulty part and resell it later. A subsidiary that trades in surplus parts can sell unrepaired parts to airlines that repair them in-house.

Quality, price and turn-time are key. Customers' choices also turn on reputation, confidence and ease in working with a part supplier. "Can they rely on that supplier if they need extra-fast turn-time?" He sees a shift from "all-encompassing" fee-per-hour deals to similar deals for smaller packages. "Power-by-hour is insurance, the higher the level the higher the premium." HEICO also manages component assets, purchasing airline inventories and leasing them back for flat rates. "We're willing to do more of that if it makes sense," he says.

PMA parts offer better pricing than OEMs, but only if airlines buy them. Carriers that use PMAs only to bargain teach OEMs to delay making best offers. "OEMs are smart and learn to play that game if you do not follow through," Baumann says. Small carriers are cautious about PMAs because they rely on OEMs for technical expertise. Large airlines are comfortable with this source.

Rockwell Collins provides piece parts, shop and line replaceable units for its products plus those from other manufacturers. Materials VP LeAnn Ridgeway says deals run the gamut, with pieces sold in transactions or bundled with maintenance and LRUs covered under extended warranties or priced per-flight-hour. She sees a trend toward long-term deals. Rockwell recently began leasing parts.

Senior Business Development Director Craig Elliott sees a shift to OEM part supplies, "even in the RJ market." New aircraft may require an OEM's gear for equipment like flight computers. "But for communication and navigation, the airline has choices," he notes. Airframe manufacturers or component suppliers offer fee-per-hour deals, with pools backing supplies. Airlines guarantee operating costs and avoid dealing with many suppliers. "They get a single invoice instead of 50 and no upgrades are included," he explains.

Rockwell stocks parts in London, Singapore, Iowa and Memphis. Repairs take less than 50 hr. in the shop, plus transit. Rockwell may partner with a logistics company to cut transit times.

OEMs guarantee quality and superior delivery, according to Elliott. "We deliver on average in six days. Small distributors cannot carry inventory to do that." The company does AOG deliveries by the next business day. "We don't charge expedite fees, we handle import and export forms and customers get a full complement of engineering support."

Volvo Aero Services provides rotable parts for engines and airframes from Rolls-Royce, Pratt & Whitney, GE, Boeing and Honeywell. It is shifting toward long-term relationships, says Senior VP Hank Gibson. These are 20% of revenue, including fees per hour, exchanges and leasing pools. Specialization brings expertise and better asset utilization. The firm manages Boeing inventories of 300,000 part numbers, plus surplus parts for British Airways and American Airlines. The carriers shed redundancy and asset-value risks.

Buying on the aftermarket lets Aero Services offer lower prices for initial provisioning of major fleets than manufacturers. Because it also sells parts, it gets higher residual values and can lease for less than pure leasing companies. Spares are stored in Seattle, American Airlines' shops, in Boca Raton and now in Dubai, which will tap into Volvo's worldwide part network. "We will be doing more of these in the future, close to customers," Gibson says.

JetBlue Airways' point-to-point system requires maintenance centers at 11 of 54 destinations. The carrier keeps deferred maintenance items below 0.35 per jet versus 1.2 to 2.0 common in the industry. These demands mean very large part stocks$2.5 million per A320 versus an airline average of $1 million, and a hefty $3.4 million for each ERJ. Indeed, JetBlue often lends parts to other ERJ operators, traditionally a free mutual service among regionals but a transaction at pre-set rates for major airlines.

Robust stocks keep the LCC's dispatch reliability at 99.7% and parts waiting at the door for mechanics 99% of the time they are needed. "Most airlines are at 85% for rotables and 95% for expendables," notes Materials Director Terry Inglis. JetBlue gets almost all parts from OEMs, often with credits from initial purchases. A four-member team ensures full recovery of warranty claims. And Airbus guarantees its vendors will repair avionics in 10 shop days, 15 days for other components. Engines are under a 10-year flight-hour deal with MTU. Most other components also are covered by flight-hour contracts, with a few still out on time-and-material contracts.

Although used parts sell for 30% less than new, Inglis says young fleets do better buying new. "It is cheaper, especially if you drive your planes hard." He has avoided PMA parts for fear of hurting aircraft resale values but is considering them for interiors, which are changed out on sale. He wants to get his inventories down. But except for consumables like paint, he has not found the right asset manager with the cash and secure capacity to replenish inventories over the long term. He is implementing Trax to forecast part requirements better.

AirTran Airways is also under pressure to drive inventory levels down. Maintenance VP Kirk Thornberg has talked to asset managers. "We would like to have benefits but are reluctant to relinquish control. We would need to find the right partner." The carrier mostly buys brakes, tires, interior parts and routine items for heavy maintenance. It balances price against reliability and remaining life in choosing new versus used parts. MRO shops buy the nonroutine parts required in heavy checks.

Power-by-hour agreements cover engines, APUs and avionics, reducing overhead. "The disadvantage of these deals is putting all your eggs in one basket in case of financial problems or management changes," Thornberg notes. The airline makes limited use of supplier pools for larger components. "We have dealt mostly with Boeing loaners for flight controls and doors, but we are talking to other people," he says.

AirTran has used PMA parts for interiors and expects to use more this year. As the airline grows, it can hire design engineers to get approvals on these parts, an option that was not so affordable when it was smaller. Thornberg also is interested in independent firms that can get PMAs approved for aircraft.

He sees part prices continuing to rise, especially for titanium materials. Other changes will be driven by airline customers under intense cost pressures. "We like power-by-hour and would like to see that on interiors and landing gear," he concludes.