Parts management, as opposed to merely transactional parts sales, began with engine OEMs several decades ago. Component manufacturers and third-party firms became active in this market. Now, airframe OEMs have entered it aggressively.
Engine and airframe OEMs can deliver integrated parts management programs covering thousands of rotable and expendable parts. But the business is tricky, requiring a careful balancing of cost and risk, collaboration with airlines and suppliers and sophisticated planning. Some carriers are eager to pursue IPM programs. Others are still wary of this approach. Pratt & Whitney has a broad range of programs. Fleet Management offers complete engine support including materials for per-hour fees while Material Management covers specific parts. There are also Material Kits and Tailored New Material programs. Pratt's Serviceable Material contracts provide alternatives to new parts for its own and competitive product lines, and Global Material Solutions offer alternative solutions for CFM56-3s.
Material Management includes new and used parts, usually with Pratt staff on-site. "We have been doing this for two decades," emphasizes Jill Albertelli, VP-Commercial Engines Materials Management. Pratt offers 75%-85% of material needed in overhauls, including some life-limited parts. About half the engines coming through its network of repair shops are under Material Management and this share is growing steadily.
Many material programs have long terms, so OEMs and airlines share information and pursue best practices. This tends to work seamlessly when the carrier uses SAP Enterprise Resource Planning software, as Pratt does. Service guarantees depend on the program: Overhaul turnaround, for example, or part delivery to airline shops. Help desks respond to AOG events 24/7 and SAP gives Pratt visibility into all its stored parts.
Since the end of the 1990s, Embraer has offered an exchange pool for 500-600 rotable parts for all of its regional jets, charging per flight hour. Airlines accept a standard list of rotables, including computers, electronics and black boxes, with options on items like landing gear and APUs. The OEM arranges for repairs of defects, sending serviceable parts in the meantime. For additional availability fees, carriers can have stocks at their major hubs.
Airlines get a predicable cost per hour including transportation, plus guaranteed availability and turn-time (24 to 72 hr. depending on region). All parts are modified according to regulation. Embraer also is responsible for purchasing and warranty management. This exchange program is especially attractive to airlines with fewer than 30 ERJs, according to VP-Aviation Services Edson Mallaco, but includes some larger carriers and now has 28 customers.
Since 2003, the OEM has collaborated on inventory management of more than 5,000 expendable parts. It replenishes airline stocks when minimums are reached and guarantees delivery in 2-5 days about 98% of the time. Airlines pay for parts needed at pre-specified prices, plus management fees. A couple of dozen carriers use this service and some have OEM inventory stored on-site under consignment. Embraer gets lower prices by ordering in volume from its suppliers, passing savings on to customers.
Mallaco says both programs have proven popular and have grown every year. He expects material management to account for half of Embraer part sales in the near future.
MATERIALS, SERVICE, RELIABILITY
Boeing launched Integrated Materials Management in 2004 even though Japan Airlines has been engaged with it since 2001. IMM now has 21 customers signed up, including SAS, Cathay Pacific, Delta Air Lines and ANA, and 15 are operational. JAL extended its original contract for 10 years.
IMM can include just expendables, or rotables like landing gear and anything else, except engine parts. "The sky is the limit," says IMM Director Joe Brummitt, who sees many opportunities to improve airline economics. The program can support non-Boeing airframes including RJs, and it supports Airbus jets in Asia. It can supply PMA parts if customers desire. It is available to independent MRO shops, though none have signed up. Service Level Agreements run a gamut. Some guarantee part availability 99% of the times that mechanics come to shop windows. Others commit to 92%--94% part readiness but delivery within 24-48 hr. when not available. IMM is billed either per transaction or per flight hour. It could be combined with airframe checks under Goldcare for 787s.
Brummitt estimates IMM can reduce material cost 10%--30% through administrative savings, service levels and reliability improvements. He originally expected savings from scale economies, "but there is not much commonality between parts used by different fleets. The real economy is having good demand information all the way up the supply chain. If suppliers know what is happening, they can be ready."
Other airframe OEMs see opportunities. Bombardier Aerospace has managed parts for business aircraft for two decades and now is doing it for commercial models. It recently signed Luxair Luxembourg Airlines to a Smart Services five-year flight-hour agreement for repair and exchange of 250 Q400 components. Other Q400 operators have signed up. VP Mike Kanaley says regional jet operators will be offered Smart Services and all nonengine parts for the CSeries will be covered.
Smart Services covers rotable repairs, administrative costs, exchanges, pool access and on-site inventories. SLAs specify availability, reliability and dispatch metrics. The first step is initial provisioning, but the program can be extended to all expendables and rotables. Lufthansa Technik has partnered with Bombardier to support CRJs, but "it is very hard for third parties alone to provide extensive coverage like an OEM," Kanaley notes.
He expects Smart Services to grow. "We think 20%-30% of our customer base is ready for this product," he says. "Large commercial airlines arrange pools among themselves. We can bring small customers together easier than they can get together themselves."
"Airlines are looking to save money, and maintenance is one of the few costs they can control," summarizes Morris Cohen, chairman of MCA Solutions. "But this is one of the toughest management challenges you can find." MCA has helped Boeing's Integrated Defense Systems, Rockwell Collins and the US Navy deal with the challenge.
For OEMs to manage materials economically, they must have the right parts in the right places at the right times. MCA's Service Planning and Optimization software handles inventory optimization in three steps: Assigning parts to each location regularly, redeploying parts daily and hourly, and assigning customers to each location. Cohen says doing all three steps just right in a multilevel distribution network can cut part inventories 10%-20%. But he cautions that pricing the risks borne by OEMs is very complex.
And price is critical. Midwest Airlines has used material management from Honeywell on MD-80 APUs for 10 years and has power-by-hour support of 717 engines from Rolls-Royce. Apart from these two deals, "we find power-by-hour is generally too expensive," explains Clark Leonhardt, director-purchasing and materials management. "We stick with time and materials on most components."
The Rolls deal was signed at purchase and does not include life-limited parts, which have not been needed yet. "For JT8Ds on our MD-80s we found it in our best interest to go time and materials," he says. "We have two vendors. We give them the work scope and put work out to whoever comes in least expensive."
Material management choices partly depend on vendors. Although MD-80 APUs are managed, the same components on 717s are not. "The APU for the 717 is from Hamilton Sundstrand," Leonhardt points out. He says Midwest generally manages rotables more economically than under pool or exchange agreements. "We found we can go out to various vendors, get repairs on more favorable terms and have more control. We are not spending for parts that do not come off wing."
For consumables, the carrier has software that is updated regularly and reviewed constantly. "We turn inventory fairly fast, not as fast as I would like but it is moving, and we do not carry excess inventory," he says.
Midwest discussed material management of rotables with Boeing in 2003 and again recently. "The first thing they wanted was to buy back our inventory and position staff on-site to handle shipping," recalls Leonhardt. "We found the buy-back option not very attractive, so we did not pursue it." He also has considered material management by third-party firms and found the terms unattractive.
Some airlines want predictability in part spending but Midwest prefers to control this expense. "Then we can reduce costs, rather than just stabilize them," he says. He prefers having choices if service level or reliability are not adequate. What about those service level guarantees from OEMs? "You pay for everything, including having stocks close by."