By Charlotte Adams
In 2016 multiple press reports covered the ending of Boeing’s arrangement with Spirit AeroSystems, under which the former Boeing unit had produced and sold Boeing-intellectual property (IP) parts directly to the airlines.
Boeing is hungry for aftermarket revenue, as signaled by its choice of the former head of GE Aviation Services Kevin McAllister – perhaps the largest player in the commercial aftermarket – as chief executive officer to lead its commercial airplanes business and its merging of commercial and military support into a new Boeing Global Services unit with a $50-billion revenues mandate.
Rival Airbus also is expanding its aftermarket footprint, with license-holding, ‘build-to-print firms most at risk’ in each case, according to a 2016 report on commercial aviation MRO by Cannacord Genuity.
Boeing’s pullback from licensed parts manufacturer approval (PMA) was anticipated in the industry as far back as October 2011, said Michael Rennick, manager of component engineering with Delta TechOps, the MRO arm of Delta Air Lines. “Spirit AeroSystems was one of the last ones left,” he noted.
Another company affected by the intensification of OEM pressure is Triumph Group, a player in PMA, component design and manufacture, and MRO. Triumph has experienced impact in its ‘build-to-print’ OEM businesses, but not in its product support business, stated Joe Greenwood, vice president of business development at Triumph Product Support.
“Outside of Boeing and Airbus we are unaware of any one else pulling back licensed PMA,” Greenwood said. “We have noticed that OEMs are more aggressively seeking to capture aftermarket, which does put pressure on our business. You have to partner with the OEM or face being locked out.”
Boeing personnel also seem to be encouraging smaller PMA companies to sell through Boeing’s distribution units, noted Jason Dickstein, president of the Modification and Replacement Parts Association (MARPA). “They are especially interested in finding sources for older parts that they might not regularly obtain from their own suppliers. This allows them to support their air carrier customers who fly older models without having to directly produce those parts themselves under their PC 700 [production certificate].”
Jeff Dark, vice president of sales and marketing for Jet Parts Engineering, one of the ‘big four’ independent PMA companies that develop their own IP, said that the OEMs have been trying to capture the market for a long time. And with new aircraft, “[the OEMs] are definitely trying to get more ‘total care’ agreements from the operators.”
“But there are always ways to get around that – to provide competition to those [OEM] packages,” Dark argued. That’s what PMA is here for – “to provide competition so that they can’t just charge whatever they want.” Jet Parts Engineering designs and produces about 100 test and computation PMA parts a year.
Independent PMA companies see Boeing’s cancellation of licensed PMA agreements as an opportunity. “Their customers are coming to us,” looking for solutions, added Dark. “Right now Boeing is honoring Spirit AeroSystems’ pricing, but that’s not going to last very long,” he predicted.
“A lot of the [test and computation] guys are going out and trying to PMA some of the important Spirit AeroSystems licenses,” he said. Jet Parts Engineering is “definitely dabbling in some of those…We’re trying to fill the gap.”
That seems to be happening already. According to the FAA’s PMA database, Seal Dynamics, a HEICO company, PMA’d four Spirit AeroSystems seals for the 737-300, -400, and -500 during 2014 and 2015.
But closer alignment with the OEMs is also an option. “Based on our relationships with large OEMs, we see [the current aftermarket situation] as a huge opportunity to partner and bolster our current OEM support programs,” Triumph’s Greenwood observed. “We want to align with OEMs because they don’t have the capability, footprint, or MRO knowledge we have.”
Critical Turn Time
The independents’ products perform the same functions as OEM parts – with the same or greater reliability but at a lower price. More important than price, however, are availability, turn times and responsiveness to customers.
Even if Spirit Aerosystems’ parts prices rise, the immediate impact on Delta probably will be small, since the PMA parts the airline bought from that company, such as thrust reverser components, were purchased in fairly low volumes, Rennick said.
But the long-term impact is not yet known. According to Rennick Boeing has said that the move won’t affect turn times, but timing is crucial, especially in an AOG (aircraft on ground) situation. One of the things that Delta will be watching closely is how Boeing ‘manages the time to get material to us,’ Rennick said. “Right now it’s an open question.” Delta has a strong, well established PMA base, he confirmed. “So if we lose supply from one area, we can hopefully make it up in another.”
OEM pricing continues to be a sore point with the airlines. In March 2016 the International Air Transport Association (IATA), which represents some 200 airlines, said that it had ‘become a complainant’ in an investigation by the European Commission ‘into alleged abuses of dominant positions by manufacturers of aviation equipment’ through the OEMs’ control of aftermarket repairs, including parts and services.
The move to pull back licensed PMAs is part of a bigger trend; the effort by the OEMs “to centralize all maintenance actions, from an airplane to a component, and get those back to the OEM MROs” said Rennick. Delta’s philosophy is to keep its options open, he added, whether the channel is PMA, repair, or making the part per FAA regulations. And that means keeping the PMA market healthy.
Parts from the major sub-tier manufacturers like Honeywell and Hamilton Sundstrand are also getting more difficult to buy from third parties on the open market, as the rest of the industry tightens down on components.
Delta is unusual in having only about 150 leased aircraft in its some-850-strong mainline fleet. So far the airline has built the availability of the PMA option into its lease contracts, Rennick said. The airline doesn’t restrict PMAs from consideration in any area of the aircraft. It’s more of a question of whether the market for a part is large enough for PMA companies to get involved.
Spur to Growth?
In Rennick’s opinion PMA providers are “absolutely” more responsive than OEMs if the airline has an issue with a part. In the past the PMA industry typically has been involved in expendable and repairable parts within mechanical systems. But he sees possible growth opportunities for PMAs as components in aircraft electrical and avionics systems.
PMA has thrived, thanks to the demand by the airlines for competition in the parts market. PMA replacement parts prices are 20 to 40 percent less expensive than OEM list prices, according to ICF International (ICFI). The concept is compelling enough to have been copied in other countries, using the U.S. regulations as a basis, Dickstein said. China, for example, has a big PMA program. It has no bilateral agreement with the U.S. but the Chinese ‘PMA’ parts are useful within the latter country’s large domestic market, he concluded.