Recently the Indian MRO association has addressed the government demanding to place the spare parts import for the aftermarket sector under the ‘deemed exports’ category, enabling service providers to benefit from a tax holiday, thus easing up the intensive logistics of aftermarket spare parts. Despite the constant complaints voiced by airlines and MROs worldwide, import taxation on spare parts is still an issue in most countries across the world. Moreover, the tax burden comes on top of the already pricey service. According to IBM, airlines spend an average of $218 per flight hour on spare parts. In the meantime, the delays caused by technical faults and poorly managed logistics of spare parts add up to $22 million per year in the U.S. alone. With that in mind, there’s no wonder that the urgency to improve spare parts logistics is on top of the airlines and MRO’s priority list.

Naturally, carriers have been always eager to reduce AOG-related downtimes to a minimum. After all, every hour that an aircraft spends on the ground costs thousands of dollars. Although the aviation spare parts market is forecasted to grow by 4% in the following three years’ time (acc. to Research and Markets report), the percentage of flight delays caused by technical failures is still rising. For instance, since 2013 the number of AOGs, including those prolonged by the wait for a spare, has increased by a solid 2%. Seeking to avoid mountainous losses, some players choose to maintain huge stocks of spares and components ‘just in case’. However, industry experts are highly sceptical about such a strategy and their scepticism is well-grounded.  In fact, 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 customs procedures.

“Every now and then we observe the situation when solving an AOG is taking longer than expected due to logistics-related hassle or bureaucratic delays in customs clearance. For instance, last year a journey of 200 passengers on board of the Norwegian Air’s Boeing 787-7 Dreamliner travelling from Orlando to Oslo was disturbed by a more than 40 hour-long delay, as the aircraft was waiting for a spare part to arrive from Norway. This only comes to show that logistics still remains a very pressing issue when it comes to the successful management of any airline’s aftermarket supply chain,” says Zilvinas Sadauskas, the CEO of Locatory.com.

Spare parts supply chain is a huge part of any airline’s business strategy. According to Oliver Wyman consultancy, each year companies spend more than 5 billion dollars on the insurance policies against component failures alone. And while the developed markets are somewhat capable of coping with the management of spares, the emerging regions such as India are still struggling with underdeveloped aftermarket logistics and heavy taxation. For instance, newly imported replacement parts in India are subject to 35% tax, meaning that airlines have to pay up to $3 million for importing A320 and Boeing 737 replacement engines alone. Other emerging markets suffer from similar or even higher customs duties, so there’s no wonder that local carriers and MROs are struggling to make ends meet.

“Without any doubt, coming up with flexible policies that would facilitate spare parts delivery is crucial to the industry. Meanwhile, one of the ways to avoid unexpected delays is to ensure that every part that one might need can be found in every country an airline operates in.  After all, 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 slim to none. In this case, the ability to access different offers from reliable suppliers with the help of innovative IT solutions can be a matter of saving thousands of dollars. Moreover, web solutions are irreplaceable when it comes to developing and maintaining tighter connections with other industry players, not to mention the benefit of a more transparent aftermarket process,” concludes the CEO of Locatory.com Zilvinas Sadauskas.

Modern OEMs are not what they used to be just several decades ago, as today they aren‘t limiting their activities to aircraft manufacturing only. As new technologies are increasingly introduced into the aviation, in recent years its players have seen the manufacturers exert more influence not only in engine, but also in airframe aftermarket processes. As a result, some MRO providers and airlines increasingly fear this will lead to less choice and higher costs.

With the annual value of the aircraft MRO expected market to top $83 billion in less than 10 years, no wonder manufacturers are increasingly interested in benefitting from the aftermarket’s potential. However, while they surely can guarantee quality and timely services, the trend may eventually lead to the downgrade of the aircraft aftermarket‘s competitiveness as OEMs tend to dictate their rules to other market players too aggressively.

Independent aftermarket providers have already started to feel the squeeze. According to a recent Canaccord survey, over 60% of third-party MRO providers feel that OEM competition is increasing. Moreover, respondents state these dynamics have gradually reduced opportunities for airlines to find cost-competitive maintenance and spare parts support following aircraft delivery, where MROs and OEMs once fiercely competed. As a result, many independents have been left with a diminishing share of work tied to maturing fleets, not dominated by OEMs. In the meantime, however this market may already be endangered as well.

For instance, Boeing, although a considerably young entrant in the aftermarket, is already considered to be its third largest player after GE and Lufthansa Technik. Nevertheless, the manufacturer currently supports only 15% of its fleet. Thus, there are reasons to believe that the OEM is getting more direct in trying to capture a larger piece of the pie, setting limits on the price increases suppliers can pass onto the aftermarket. For instance, if in the past spares often sold for as much as three times more expensive they have in the OEM supply chain, now Boeing may be looking to limit the escalations to twice the price.

According to Zilvinas Sadauskas, the CEO of Locatory.com, while bigger MROs have the resources and the potential to co-exist with the growing OEMs’ appetite, the on-going market developments are likely to cut the possibilities for independent development of smaller MRO providers thus potentially placing the industry’s inner-competition at risk. However, it is worth mentioning that the prospects of the OEMs’ expansion may not be as gloomy as it may seem. “MROs are still well positioned to address such strategies as reducing inventory levels, developing serviceable material programs and alternative repairs to reduce part replacement costs. In each of these, OEMs are fundamentally motivated to oppose these options, as each reduces demand for new parts, which carry robust margins for manufacturers,” the executive states.

“Encouragingly, airlines want a more robust maintenance market that includes MROs in a meaningful way. This is especially relevant, as many operators are seeking ways to cut costs by seeking alternatives to buying new spares from the manufacturers. While these are still pretty expensive – even for the more mature aircraft types – they also tend to have long lead-times and import delays, which is unaffordable in case of an AOG,” shares the CEO of Locatory.com. “Meanwhile, currently there is an excess of surplus materials in the market, most of which comes from the consumables, acquired by the MROs for C-checks in large quantities. However, the providers actually use only 50-80% of these parts, while the rest of them remain in their storages, so utilizing the surplus by selling is a viable strategy for many of them. Moreover, while the OEMs are in a good position to tie their clients with long-term support contracts, they usually don’t have supply networks that are wide enough. Meanwhile, as logistics account for a major share of the airline’s expenses, partnering with third-party providers might solve the issue in a mutually-beneficial way. Therefore, if independent MROs will manage to hone and expand these capabilities, they may yet successfully stem OEM momentum and defend their remaining market.”

Given the numbers of aircraft in service today, MRO has evolved to become a major market differentiator within aviation. Visiongain predicts that the value of the commercial aircraft MRO market in will top $80 billion in a decade. However, it also expects the market to face many new challenges, including those stemming from some OEMs (e.g. Boeing) looking to increase their market share. As a result, traditional third party MRO providers and airlines will need to adapt to this changing market in order to remain competitive.

From the advent of new manufacturing materials to ever more complex engines and new entertainment systems, commercial aviation is changing dramatically. Naturally, these changes also affect the MRO providers and component repair shops, as well as OEMs, especially cost-wise. As a result, The Wall Street Journal recently revealed that, in many cases, 99% of the revenue received per flight by airlines is needed simply to break even on the high costs incurred in operation and maintenance.

Naturally, organizations in the field are increasingly focusing on advanced enterprise support systems to manage, track and optimize relevant MRO processes. In fact, up to 39% of airlines across the globe are planning to replace their ERP systems, while about 58% are expecting to enhance them over the next 5 years, AWIN reports.

“Whether it’s composite materials, complex avionics or new engines – each new technology introduced into aviation brings with it widely different MRO demands. Naturally, the need for supporting IT solutions and specialty training to enable such organizations to perform and manage complex repairs also increases in importance ” says Zilvinas Sadauskas, the CEO of Locatory.com. “As a result, with market demands and technology rapidly changing, any MRO solution is increasingly required to be equally agile and adopting specialized industry functionality within a full ERP business supporting capability.”

Currently delays and data transfers cost the airline industry around $5 billion annually. For instance, an average wide-body aircraft generates around 8 000 sheets of paper from MRO activity annually. In the mean time, the cost of paper, including its distribution, faxing, shipping and storage accounts to approximately $5 000 per aircraft per year. Not to mention the headache for engineers filling out known data on paper forms, labour productivity, aircraft cycle time and the duplication of effort between paper and IT systems.

Meanwhile, according to Zilvinas Sadauskas, by ensuring a more holistic approach to MRO operations, it’s possible to achieve increased value from IT investments. This is especially important for those airlines and organizations managing multiple fleets of aircraft, aircraft types, and engine types. For instance, Emirates chose a holistic solution to manage its new 90 000 sq. m. engine overhaul facility in Dubai. In addition, it also delivers Corporate Performance Management to ensure strategy is driven into business operations. Such support systems enable communicating information between business, maintenance, operations and supply chain more quickly and efficiently. In the meantime, statistical data indicates that if operators can reduce their maintenance costs by as little as 10%, they could double their profits.

“Third party MRO providers can also benefit from such an approach, as it provides them with better access to vital information, improving safety and efficiency. Add to this the development of wearable technology, context aware solutions and predictive analytics, and we could see significant reductions in complexity and workload for civil aviation MRO operators. Organizations that embrace the technology now will see just how smart and agile their services become,” concludes Zilvinas Sadauskas, the CEO of Locatory.com. 

Spare parts supply represents an especially large part of aviation business. According to Oliver Wyman consultancy agency, the global aviation industry spends more than $5 billion annually to replenish and maintain an insurance policy against the inevitable failure of component parts alone. For airlines, this translates to a collective balance sheet item of $19 billion. At the same time, although the demand for spare parts is constant, recently a trend of airlines wanting smaller inventories has become apparent. However, is the industry ready for such a change?

Although maintaining a spare parts stock has long been a routine part of any airline’s life, it seems the situation has been gradually changing for a while now. Under competitive pressure more and more airlines have actually been abandoning the strategy of holding huge and expensive parts stocks to support their operations.

In fact, according to the industry experts, the airlines have been reducing their stocks for about 10 years now, if not more. If such a pace remains, it is said that by 2020, the operators will abandon inventory stocking at all, thus switching solely to the offerings from third-party providers. Nevertheless, if this scenario in fact proves to be true, the industry has still a lot to do in order to improve the efficiency, transparency and reliability of such services.

“Most companies think of spare parts as regular inventory. But spare parts are a very different class of asset – insurance against costly downtime – and require a different set of tools and analysis to manage. Companies that rely on spares need to determine the best insurance coverage, figure out the right amount of spares, and ensure the parts are in the right place at the right price,” shares Zilvinas Sadauskas, the CEO of Locatory.com. “Needless to say, failure to understand this can result in the nightmarish phenomenon of carrying high levels of spare parts while, at the same time, experiencing costly delays and downtime of critical production equipment.”

According to the executive, this is exactly why many companies have begun hiring third party parts providers to provision spare parts on the airlines’ behalf. If managed properly, this may actually help improve access to spares while reducing the amount of capital tied up in inventory. For instance, Oliver Wyman states that by streamlining and eliminating redundant inventory management and logistics processes internal cycle times can be reduced by as much as 60%.

Naturally, as airlines downsize on inventory investment the competition for spare parts providers gets fiercer, with each company offering tailored services to help operators forecast what stock they may need, as well as ensuring that those parts are readily available. At the same time, however, the airline industry still has a lot to learn about improvements that are made possible for inventory management with proper forecasting and some relatively simple software changes.

“Appropriate application of IT tools enables to provide a better service level for parts and more reliability for maintenance operations. Nevertheless, if industry players are seeking to significantly cut the currently excessive supply chain-related costs, closer collaboration between OEMs and suppliers must be accompanied by the overall increased openness and trust. Therefore, the ultimate question is whether the industry is finally ready to apply the kind of focus,” says Zilvinas Sadauskas, the CEO of Locatory.com.

Whether it’s composite materials, complex avionics or new engines – each new technology introduced into aviation brings in widely different MRO demands. Naturally, with the nearing introduction of new generation aircraft, the demand for solutions that enable data handling to ensure efficiency of maintenance operations increases accordingly. However, choosing the appropriate solution for such a need still remains a matter of debate.

From the introduction of new manufacturing materials to complex technologies, commercial aviation is changing dramatically. Needless to say, these changes also affect the MRO providers and component repair shops, especially cost-wise. With market demands and technology rapidly changing, any maintenance solution is increasingly required to be equally agile and adopting specialized industry functionality. As a result, lately more and more players have been moving toward data digitization and transmission solutions in order to enhance efficiency of their operations. Nevertheless, the industry is still only half-way there.

“There are many reasons for different data to be moved through the aviation ecosystem. For instance, there are strategic needs to share data on performance and reliability to improve safety, performance and maintenance efficiency. Therefore, as currently delays and data transfers cost the airline industry around $5 billion annually, automating data transmission between airlines and MRO providers can cut costs as well as improve accuracy speed up collaboration, thus reducing turnaround times,” shares Zilvinas Sadauskas, the CEO of Locatory.com.

While this issue has been discussed for a long time, achieving the transmission and sharing of the maintenance data is not that easy. For instance, usually in order to share data two companies must use the same standards, which isn’t always the case. Other reasons behind the data-sharing gaps are incompatibility of older maintenance-management systems and ERP systems within airlines. Another challenge is maximizing the benefits of the new RFID tags on pars, as conformity with such standards will be essential for different companies to share RFID-tagged rotables. Thus, despite the fact that most of the players acknowledge the importance of enhanced data-sharing, few agree on a common strategy that should be implemented in order to reach this goal.

For instance, some representatives of the MRO segment believe the key is standardizing. Others, however, believe that there is no such force which could regulate the entire global aftermarket, and thus the industry can and will have to work with data standards that are somewhat different. Moreover, as new aircraft types enter into service, data-sharing challenges may be well expected to only expand. If that is indeed the case, it is IT solutions able to understand and structure different types of data from different sources that will shape the future of efficient maintenance operations.

“Establishing universal data standards and updating them might take decades. Meanwhile, comprehensive interfaces that enable the exchange despite incomplete data standardization can be developed considerably faster. Nevertheless, the major obstacle remaining is not only the industry players’ willingness to share, but also their willingness to find resources to support the entire process. Needless to say, those who will manage to step out of their comfort zone, won’t have to wait long in order to start enjoying improved results,” concludes Zilvinas Sadauskas, the CEO of Locatory.com.

Despite the fact, that reducing MRO expenditures by as few as 10% could almost double a carrier’s profits, adoption of an appropriate integrated approach to maintenance operations in the aviation industry to date has been rather slow. Nevertheless, as the competition in the MRO segment intensifies along with the growing global fleet, more and more players are expected to focus on their planning and data-sharing efforts in order to gain the necessary competitive edge.

This September Ryanair announced its plans to increase C-check intervals of its fleet (around 300 Boeing 737-800s) from the current 22 months to three years by the end of 2014. Eventually, the company hopes to be able to increase the eight-year C-check to every nine years. To achieve that, the carrier is closely cooperating with Boeing to assess all the maintenance work carried out so that it is able to justify why some tasks can be escalated.

Airbus, on the other hand, has also been encouraging operators of its aircraft to report in-service data continuously in order to support their inspection interval optimization. As a result, the manufacturer has been steadily moving from fixed intervals between maintenance events to a less rigid schedule aimed at increasing aircraft availability and reducing maintenance costs.

“Lately, the lack of trust shared by different aviation industry players has been one of the most important obstacles for improving maintenance related processes. Luckily, as the largest manufacturers have acknowledged the benefits of a more holistic approach towards MRO works, the industry players’ attitude towards maintenance planning, as well as supply chain management is also slowly starting to change for the better,” shares Zilvinas Sadauskas, the CEO of Locatory.com. 

As a result of the implemented data-sharing strategy Airbus had been able to increase heavy maintenance visit intervals for the A320 family by 25%, while operators performing C-checks every 24 months are flying more than 50% longer between such events than when A320 first entered service. Moreover, next year the manufacturer expects to extend scheduled maintenance requirements to support the operation of the A321 to up to 120 000 flight hours, increasing the threshold from 60 000 flight hours respectively. 

The same is true for A330/A340 customers. If the operators provide more information about in-service engineering experience with the wide-bodies, Airbus plans to extend the intervals between structural inspections and other tasks on the aircraft. Moreover, airlines which report data will have the possibility to benchmark task-findings and statistics against other reported data.

MRO industry players attitude towards maintenance planning is also slowly starting to change for the better