Unarguably, aviation aftermarket today is a vital segment of the entire industry. Currently valued at over $28 billion dollars, it accounts for nearly half of the MRO market pie. Largely driven by the rapidly expanding global fleet, the development of spare parts market is now seen as a great area to squeeze some additional profit which is commonly scarce in the aviation industry. However, aftermarket is no place for amateurs. Even experienced players keep debating multiple issues the most important of which revolve around the pricing of parts.

All major aircraft manufacturers have reported receiving a record number of orders this year. With that in mind, it is safe to say that in the near future the global market will welcome an increasing number of new machines. In turn, more and more aircraft will be sent to retirement. According to Avolon, the need for spare parts nowadays is so vast that additional 150 to 200 aircraft a year could be retained instead. This does make even more sense taking into account the fact that fuel prices remain relatively low. Meanwhile, as the number of operated aircraft is expected to increase at the rate of 3.6% over the next 20 years, the demand for a reliable and transparent aftermarket will undoubtedly follow the upward trend too.

“Lately we have definitely observed the market shifting its focus to meet the demand of newer generation aircraft parts. Nonetheless, as operators themselves now opt to keep spare parts inventories as low as possible, the decision-making is left to the suppliers. They are the ones who have to decide on the best ways to accurately evaluate and determine the prices of much needed parts,” comments Zilvinas Sadauskas, the CEO of Locatory.com.

And here comes the tricky part. Determining the price of a part is a hard task, even for major companies. It involves numerous calculations regarding fleet size, transportation, internal and external repair times as well as maintenance cost. On top of this already hard-to-solve equation there is also the issue of market transparency.

“There are some who choose to take advantage of this obscurity. We often hear rumors that once companies send their parts for exchange, suppliers write them off without any proper explanation and sell the outright parts instead. However, some say that what they actually do is keep the ‘utilized’ parts, repair them for next to nothing and then just sell them for some nice profit,” explains the executive.

Cloudy is the word constantly surrounding the aviation aftermarket, as prices from different suppliers can also differ by tens of thousands of dollars for the same part. Not helping the translucency of the segment are the OEMs, whose prices for spares are often blown out of proportion. The issue stems from examples of such major manufacturers as Boeing overcharging some of its clients $8 million for parts or Sikorsky Aircraft paying up $3.5 million to settle the allegations of failing to share accurate prices for components.

“There’s a joke inside our industry that some prices are determined by simply adding a dollar sign in front of the part number and this shows just how grey this area is,” says Zilvinas Sadauskas, the CEO of Locatory.com. “All jokes aside, accurate price evaluation is critical for both, aftermarket players and operators as the latter are often forced to make decisions on the spot. Otherwise, the price of not finding the right part for adequate price can equal to an AOG, which may cost up to $20 000 a day for such an aircraft as Boeing 737. Taking that into account, it all comes down to data in hand. With the appropriate tools to determine all part-related data, such as historical fluctuation of certain prices and demand changes for particular components as well as other valuable information, everyone can much more easily determine the value and price of their spares in a proper and translucent way.”

During a recent DLD conference, Scott Galloway, founder of a benchmarking and education firm L2, shared an insight that the global e-commerce companies are either going to open stores or go out of business. For instance, Amazon can be expected to decline in value mostly due to its ineffective logistics system, which involves shipping products from a small number of major warehouses. In the meantime, Apple’s online retail strategy appears to be more viable, since it realizes the potential of multiple stores serving as a network of warehouses, making product purchase more convenient for its clients. According to Locatory.com, to a certain extent, this new trend in online retail is exactly what aviation aftermarket needs to pay attention to.

 Monitoring stock levels, as well as managing logistics and logistics costs has recently become a critical part of aircraft spare parts business. According to IBM, airlines spend more than $200 per flight hour on spare parts. However, the delays caused by technical faults and poorly managed logistics of spare parts still add up to $22 million per year in the U.S. alone. In the meantime, with most industry players relying on generally ineffective spare parts trade-related processes, the segment is less evolved than might at first be imagined.

 According to Locatory.com, even though the aviation spare parts market is forecasted to grow by 4% in the following three years’ time, since 2013 the number of AOGs, including those prolonged by the wait for a spare, has actually increased by 2%. As a result, seeking to avoid downtime-related losses, some players still choose to maintain huge stocks of spares and components just for insurance. However, even if a carrier is geared up with spare parts for ad hoc situations, there’s still the need to deal with such issues as the vast distances between part storages and airports, not to mention cumbersome procedures.

 For instance, since the aviation industry is deeply scattered, the chances of discovering a spare part when you are in a remote region without proper communication are close to zero. As a result, considering the increasingly complicated and fragmented nature of today’s supply chains, one is often left at the mercy of other people’s databases. In other words, today the aviation supply chain management and logistics systems are only as good as the data that feeds them. Thus, while opening a strategic warehouse in every country an airline operates in would technically solve the problem, a more effective way to avoid unexpected delays is simply to ensure accessibility of every existing stock. However, many industry representatives are unsuccessful even in making their stocks both, up-to-date and visible to potential users via search engines.

 “In today’s industry, it’s all about transparency and exchange of information. However, while parts distributors are generally well integrated with their customers’ IT systems, their relationship with the companies supplying parts is typically less developed, a situation even more pronounced with parts repairers. Therefore, if we compare the situation with the most recent trends in global e-commerce, we can say that we don’t need to tell the industry to open more warehouses, or where to open them. The thing is, the network is already out there. So what we need is to join forces and finally make use of it by fully embracing what modern e-commerce solutions have to offer,” comments Zilvinas Sadauskas, the CEO of Locatory.com.

The importance of spare parts trade in modern commercial aviation industry cannot be overstated. In fact, data provided by ICF SH&E indicates that the spare parts market has grown by over $5 billion in 12 years’ time, currently accounting for almost a half of the overall MRO market. Moreover, the carriers are increasingly adopting an active surplus materials strategy to become less dependent on the OEMs. In the meantime, according to data, collected by Locatory.com, most industry players are still relying on traditional channels in spare parts trade-related processes. However, this also means remaining blind to new opportunities.

In a market as competitive as aviation, it is obvious that a spare parts trading business has to be especially focused on keeping the margins high enough or making the operations as LEAN as possible. However, according to Locatory.com‘s recent market analysis, while ensuring stable spare parts supply is about the only reliable means of avoiding much of the maintenance-related downtime, many traditional spare parts trade channels are still unable to meet the demand. In fact, when it comes to aviation inventory trade, even such companies as Lufthansa Systems, Aviall, Boeing, Delta Airlines and Volga-Dnepr Airlines are often forced to use various additional marketing services, as well as search for spare parts in online search engines.

“Being incapable of efficiently integrating online search engines in one’s inventory trade processes currently is one of the most obvious obstacles in bringing the aftermarket services to a new level. Nevertheless, while the importance of such solutions is widely recognized, many suppliers are simply unable to create their own online public catalogues, which would be both, up-to-date and visible to potential users via search engines. Moreover, as more and more users are searching for relevant information and spare parts via mobile devices, adoptability to such technologies is becoming a new problem to address,” comments Zilvinas Sadauskas, the CEO of Locatory.com.

Recently an engine nozzle made aviation history by becoming the first 3D printed part certified by the US FAA to fly inside General Electric’s commercial jet engines. The metal component will first be retrofitted on more than 400 currently adopted GE90-94B jet engines, used mainly for Boeing’s 777 airliners. The next phase will see printed fuel nozzles built into the new LEAP 1A and 1B engines, which are going to power Boeing 737MAX and Airbus A320neo aircraft, as well as become a part of the GE9X engines. Nevertheless, despite obvious benefits, many industry players are still reluctant to actually implement 3D-printing technology in their processes.

Additive manufacturing has definitely captured the aviation industry’s imagination. GE and its partner Safran have already received 8 500 orders for the LEAP and 700 orders for the GE9X. This means that they are now faced with satisfying pre-orders totalling as much as a staggering $135 billion, with the backlog growing by 25% over the last two years. Moreover, Pratt & Whitney is also using the technique in making blades and vanes for compressors inside jet engines, while Honeywell exploits it to build heat exchangers and metal brackets.

In the meantime, however, the latest survey by Oliver Wyman revealed that the technology is not a prime candidate for implementation among respondents in the next five years. In fact, less than one in five respondents reported their companies had moved beyond internal discussions on additive manufacturing. A full 40% of respondents haven’t broached the subject at all.

“Although still in its early phases, additive manufacturing is sure to have a huge impact on future practices within the industry, aftermarket included. For instance, the ability to instantly manufacture parts could enormously reconfigure supply chains, change requirements for spares, upend the market for parts manufacturer approval, and alter the relationship between OEMs and customers. Of course, high cost and a lack of acceptance among aviation customers are still significant obstacles for the wider implementation of this technology. However, those issues could resolve more quickly than anyone anticipates,” comments Zilvinas Sadauskas, the CEO of Locatory.com

Multiple tests have shown that replacing a cast-steel nacelle hinge bracket on an Airbus A320 with an additively manufactured titanium part can cut down the raw-material consumption by 75%, thus saving 10 kg per shipset, reducing the energy and emissions in production. As for the cost-savings, after successfully using 3D-printed metal components on board of its Tornado aircraft in 2014, the Royal Air Force has reported that using this technology could reduce the maintenance and service bill by over $1.9 million over the next four years.

“Of course, OEMs and PMA holders would be most likely to benefit from the introduction of additive manufacturing. However, there’s also a significant upside for operators and MROs, as the technology could reduce OEM and PMA manufacturers’ roles to that of design and engineering specialist on some types of parts. Moreover, the technology provides the possibility to re-localize manufacturing of many items, as printers can be set up almost anywhere thus eliminating the costs of shipping and warehousing,” explains Zilvinas Sadauskas, the CEO of Locatory.com “Needless to say, the technological possibilities of the new technology are only just beginning to be realized. However, the necessity to adapt to such changes accordingly may be here sooner than some might expect.”

In the beginning of 2015 the aviation world entered the long-awaited A350 era, as Qatar Airways inducted the first A350-900 aircraft into its fleet. Similar to its competitor – Boeing 787 – the A350 brings not only new opportunities, but also a significant amount of new technologies to market. As a result, with almost 780 A350 aircraft on order, and over 840 more 787s expected to join the current fleet, there is a growing base of customers who will need aftermarket support for their newly acquired technologies. However, in order to compete as technology changes, MRO providers will have to first overcome their own reluctance to innovate.

Many industry representatives agree that aviation is currently on the brink of a significant technological change, which will have considerable impact on core elements of today’s aftermarket. According to results of Oliver Wyman’s latest annual MRO survey, by 2020, most companies in aviation MRO segment will use new technology in a way that fundamentally changes how the industry works. However, as the technology hits the aftermarket, some forecast that MRO providers might actually risk loosing profitable work. In fact, the on-going changes could amount to redistribution of up to 20% – or $15 billion – of value among current players in the segment, and entice new, non-traditional competitors to enter the MRO market aiming at high value revenue opportunities.

“Innovation has always been the key to being competitive in the MRO industry, with advances including LEAN processes, RFID tagging, and intermittent fault detection pushing the industry forward. However, the upcoming wave of innovative breakthroughs can be expected to be somewhat different. The word has it, that instead of focusing on cost cuts, the new advancements could result in disruption of existing aftermarkets and present new business models. If such a forecast will in fact be accurate, the capabilities that MROs will need to conduct business in five year’s time will naturally differ from the current ones,” comments Zilvinas Sadauskas, the CEO of Locatory.com.

The unprecedented numbers of commercial aircraft being produced as the industry grows at 4.7 per cent annually has seen an acceleration of a new trend in the aerospace supply chain. Companies at the top of the supply chain are shifting responsibilities for increased productivity and innovation to their smaller second tier suppliers to absorb the continuing price pressures from end-user customers. This means that smaller vendors will be forced to radically overhaul their operating costs while continuing to drive innovation in order to protect relationships with their major OEM customers.

In the meantime, while most Oliver Wyman’s respondents say they are investing in new technologies that use data to make better decisions, most of them admitted the companies are experiencing difficulty in actually bringing such visions to life. This reveals MROs experience a heightened demand for clarity and purposeful analysis, allowing successfully choosing and implementing relevant technologies, while developing beneficial business models.

“Unfortunately, while acknowledging the existing needs, MROs are still reluctant to innovate, when it comes to measurable actions. However, given the magnitude of change imposed by the race to innovate, MROs should reconsider the ability of their current organization to smoothly transform. This goes beyond natural organizational resistance to doing things that are unknown or writing a new set of objectives to capture new business. Embracing new directions requires actually reshaping reshape organization structures, processes, talent profiles, partnerships, and corporate culture,” concludes the CEO of Locatory.com

The value of predictive maintenance is already well recognized by the biggest players in the industry. For instance, Airbus’s Aircraft Maintenance Analysis (Airman), used by 106 customers, constantly monitors health and transmits faults or warning messages to ground control, providing rapid access to maintenance documents and troubleshooting steps prioritized by likelihood of success. Meanwhile, Boeing’s Airplane Health Management (AHM) is used on 2 000 aircraft for 53 customers. Experts estimate such approaches can increase aircraft availability by up to 35%. However, unlocking the secrets of big data in commercial aviation is still to be tackled. 

Harnessing and leveraging big data has lately become one of the most heavily discussed topics within the industry. More and more operators and maintenance providers become interested in using it to boost efficiency and spot issues before they become problems. Recently, GE Aviation has announced its plans of increasing investment in big data analytics to flag potential engine performance trouble spots and has used some of this learning to revamp its engine support portal. The data push follows parent company GE’s investment in a group-wide facility employing 1 100 data scientists who specialize in identifying signatures in big data flows. Reports claim that adopting predictive maintenance through the use of data analysis can reduce maintenance budgets by 30-40%. Yet ways of thinking and business processes also must change. 

“In commercial aviation there’s huge potential for using data to enable everything from predictive analytics to greater inventory optimization and better monitoring of health of equipment in real-time. But so far there has been little in the way of answers for its key uses, or more importantly, the means of identifying which data is useful, and which is not. By providing key data around asset failures, this can then be integrated into logistics systems to help inform and improve future designs, in order to optimize usage and lower the total life cycle cost,” comments Zilvinas Sadauskas, the CEO of Locatory.com. 

Most carriers already collect and share data through a Flight Operations Quality Assurance (FOQA) or other flight data monitoring system. The real opportunity, however, is leveraging such programs as more than safety-improvement tools. For instance, having performance parameters could help their technical services team troubleshoot problems more quickly and accurately, which translates into safely keeping aircraft in service without resorting to costly manual inspections. 

A recent incident with FlyBe’s Q400 provides a great example of such an approach. During one of the landings, the aircraft touched down hard enough to jar the passenger oxygen masks from the ceiling – an incident, which was written up as a possible hard landing. Normally, the aircraft would be pulled from service and given an examination by mechanics with input from the manufacturer. However, this aircraft was equipped to offload data automatically. So, after examining a number of parameters, such as the descent rate, the airline determined the incident was not a hard landing. As the manufacturer agreed, the aircraft was soon put back in service, thus sparing the carrier the cost of ferrying a replacement aircraft and mechanics to the scene.  

“Lack of data is usually not a problem. Carriers already use this data for flight-monitoring, as required by regulations, and some could also be used for predictive maintenance. However, while OEMs, MROs and operators all have aspects of this data, not all the information has the same relevance. For instance, different information has been shown to have a different level of correlation to spare parts forecasting. Additionally, the data is not consistently shared across the value chain, which could greatly enhance its performance. Therefore, it is essential that strong trust is built up between the MRO and the flight operations, engineering and technical departments of an airline in order to really put it to good use,” concludes the CEO of Locatory.com.