In 2013, CFM’s new LEAP engine family booked almost 1 400 orders. This marked the first time that the new model surpassed CFM56 in annual order figures. However, while the LEAP’s future is bright, it will take some time for the model to become a real revenue-generator. In the meantime, with new engines rolling of the assembly line and many older power plants still facing second or third shop visits, the CFM56 spares market still has room for growth.

Demand for more efficient narrow-body lift drove Airbus and Boeing to develop new versions of their successful Airbus A320 and Boeing 737 families. As a result, with its exclusive position on the Boeing 737MAX, CFM has the lion’s share of the market with over 4 900 firm orders for its LEAP-1A/Bs, accounting for almost 60% of the combined NEO/MAX order book. However, as the demand for air travel continues to grow, aircraft manufacturers were pushed to raise their production rates on the current narrow-body versions as well, which means that the older popular series of CFM engines will stay around for a little longer.

“CFM56 family remains one of the most popular engine types both globally and regionally. Even as CFM is preparing to start the transition towards the next-generation LEAP family, it continues to look at upgrades to the current popular models. This has helped to push CFM56 deliveries to record levels, as in 2013 the manufacturer delivered its 8 500th engine of the type for Airbus, 10 000th for Boeing and 25 000th overall. As a result, the CFM56 family is expected to account for most of the global engine MRO growth – with a 6-7% annual growth rate over the next 5 years. Needless to say, the demand for spares can be expected to grow accordingly,” shares Zilvinas Sadauskas, the CEO of Locatory.com.

CFM56 family remains one of the most popular engine types both globally and regionally

CFM56 spares demand is expected to rise steadily until about 2025. First-generation spares demand will fade out much more quickly, as aircraft being parked make more used parts available for the earliest CFM56s still flying. Analysts at Canaccord Genuity estimate that as much as 90% of the spares demand for the early CFM56s is satisfied through used parts. At the same time, the market for newer CFM56 material is currently much smaller. It is forecasted that less than 5% of the CFM56-5B and -7B spares demand is filled by used parts, and should stay that way until A320neo and 737 MAX aircraft begin to outnumber in-service aircraft powered by the newer engines.

“For some time now, we have been observing the growth of used engine parts market via the Locatory.com marketplace. One of the trends is that an increasing number of older model – such as CFM56-3 – operators tend to move away from repairs to the use of reconditioned materials. At the same time, similar strategies have been emerging among the operators of the newer models as well, albeit on a smaller scale. However, there have been changes in how the spares are consumed, as operator behavior is starting to have much more influence on spares demand,” shares Zilvinas Sadauskas, the CEO of Locatory.com. “Specific variables range from the explosion of low-cost operators that use Boeing 737s, powered exclusively by CFM56s, or A320s with engines of the same family, to the increasing utilization of used parts. This will definitely bring new dynamics into the segment, as independent providers gain more opportunities to enter the competition, especially as engines mature.” 

At the end of June 2004, Airbus and Boeing shared a little more than 2 400 orders combined. So far in 2014, the two giants have a backlog that exceeds more than 10 600 aircraft, with Airbus’ orderbook for the A320neo alone heading towards 2 800. However, as more and more new generation aircraft are nearing their introduction, the real question is whether the suppliers are equipped enough to support such an expansion, given that both manufacturers are determined to push their manufacturing rates even further.

Currently Airbus and Boeing together are producing around 1000 narrow-bodies per month, and have announced plans to push the manufacturing rates even further. On the one hand, it seems that so far their suppliers are comfortable with such plans. However, while such attitude might be encouraging, according to Canaccord Genuity, the suppliers also express concerns that anything beyond could put too much pressure on the supply chain or even weaken the demand after a few years.

The survey found that currently the crucial higher-tier suppliers are confident that current and planned production rates are sustainable as well as aligned with the demand. For instance, structures firms believe that rates exceeding 100 per month are feasible, – optimism that is also echoed by material suppliers. Nevertheless, many others are in fact reluctant to invest in supporting further increases in manufacturing rates, as they fear that they would be capitalizing for a rate that is not sustainable.

Despite becoming more and more active in the aftermarket, aircraft OEMs still make most of their profit from production

“Despite becoming more and more active in the aftermarket, aircraft OEMs still make most of their profit from production. Therefore, higher production rates contribute to reduced unit costs and provide a broader base for investment amortization. As a result both, Boeing and Airbus, are currently accelerating the relevant processes. An added benefit of such a strategy is that it makes life difficult for such new aircraft as Bombardier CSeries, Mitsubishi MRJ and Comac C919, which will soon be entering the market. However, about 70% of the supply chain for all airframe manufacturers consists of the same companies. This means there is a possibility that common aerospace suppliers will face too much of the simultaneous demand pressure, resulting in a threat to the supply chain,” explains Zilvinas Sadauskas, the CEO of Locatory.com

According to Teal Group, such scenario is indeed quite probable, but not because of high volumes per se. For instance the consultancy agency argues the real challenge is learning to build new kinds of components, as well as to manage mass production of thousands of new subsystems and structures. Currently, interiors suppliers are one of the most concerned, since they face both record production rates and increasing demand for retrofits as carriers capitalize on innovations such as “slim-line seats” and new premium cabin offerings.

“At the same time, rising OEMs production rates provide opportunities for more suppliers to enter the supply chain. Even back here in Lithuania we have small manufacturers which produce parts for Boeing aircraft,” shares the CEO of Locatory.com. “But still, the pressure is constantly rising. This is also true of wide-body aircraft. For instance, while planning the transition to the new generation models, Boeing is producing its 777s at a rate of 8.3 per month, with almost a 100 to be delivered this year. In the meantime, the manufacturer doesn’t have a clear position on whether it will reduce the rates before transitioning to the 777X. So the real challenge for the supply chain is producing a massive number of newly designed parts made of innovative materials on budget, on time and at the very high-quality levels, and only time will show if the players can handle it,” concludes the CEO of Locatory.com.

As the air traffic continues to grow at an average of 5.6%, so does the carriers’ need for new capacity globally. As a result, despite the industry’s increasing concerns over possible overproduction, the leading manufacturers are determined to push their most popular aircraft production rates up to a combined total of 100 per month. Nevertheless, if some time ago this would mean the demand for spare parts will rise accordingly, the trends have changed for the aftermarket players.

As carriers worldwide are determined to benefit from the ever-growing demand, the largest aircraft manufacturers – Airbus and Boeing – have pushed their narrowbody production rates to 42 aircraft per month each, while announcing plans to go over 50 in the nearest future. Earlier, such developments within the industry would mean respective changes in airline spare parts stocking levels and parts demand, since increasing demand for air travel used to represent more flight hours and cycles across the global fleet, meaning that the parts in use wear out more quickly. However, some recent trends suggest that a significant structural shift is occurring.

“The recent uptick in traffic coincides with several new trends, which have emerged in the aviation aftermarket, namely the increased popularity of used serviceable material, greater reliability of components, improved aircraft utilization, as well as growing presence of the OEMs in the aftermarket processes. As a result, dependence of spare part sales on the demand for travel and aircraft use has become considerably weaker. In fact, part sales have been slower than suggested by the growth in global available seat kilometers,” shares Zilvinas Sadauskas, the CEO of Locatory.com.

While it may be too soon to draw definite conclusions, many industry players are inclined to believe that the increased used spares consumption is causing the most noticeable disruptions

While it may be too soon to draw definite conclusions, many industry players are inclined to believe that the increased used spares consumption is causing the most noticeable disruptions. After all, the worth of this considerably new market is currently heading towards $4 billion (a significant rise from slightly over $1 billion in 2001) at a rate of about 5.5%, as forecasted by IFC International. As a result, according to a recent survey conducted by Oliver Wyman, 84% of airlines are currently adopting an “active serviceable materials strategy”. In the meantime, Canaccord Genuity reports almost a third of parts bought from MROs and OEMs in the end of 2013 were used serviceable material.

As the demand for used materials grows, more and more airlines have been practicing buying entire aircraft for teardown, to get the most of the cost-cutting benefits surplus material provides. Moreover, some have even considered dismantling their own machines for own fleet support, as well as for sale. Consequently, roughly 80% of surplus parts in the aftermarket today come from part-outs. In addition, more and more carriers are requesting used parts support from their providers as a means of extending service lives of sunset fleet types, while becoming more efficient at managing their own spares.

“At the same time, PBH providers have also started offering used parts to lower the service costs, while some OEMs have been utilizing surplus material in order to make product overhauls more cost-effective. For instance, Boeing’s recent deal with GA Telesis on selling used airframe and engine parts on the manufacturer’s Boeing Part Page is the latest example of OEMs getting deeper into the aftermarket in search of revenue – even if it means selling used material. All in all, as more and more players see the aftermarket as an increasingly perspective segment, it may well be expected that the familiar rules of the game will continue to change,” concludes the CEO of Locatory.com.

Locatory.com, an IT company supporting the aviation industry with IT-based Supply Chain Optimisation solutions worldwide, is delighted to team up with Unical Aviation, a USA-based global supplier of aircraft parts, components, and inventory-based solutions in offering industry professionals access to Unical Aviation’s parts inventory using one of the largest aviation inventory listing systems.

As of August 29, 2014, the Locatory.com trading platform launched the inclusion of Unical Aviation’s one million unique part numbers supporting commercial and military aircraft.  Through Locatory.com’s advanced web based platform, Unical Aviation provides operators and MROs worldwide with solutions for both routine and AOG requirements across a range of commercial aircraft including Boeing, McDonnell Douglas, Airbus, Embraer, and Bombardier as well as military platforms including the F5, F15, F16, and C130.   
“With such a major universal supplier as Unical Aviation, the community of our platform users gain access to an even more extended range of spare parts. What is more, all Unical Aviation parts and components will be covered by our Amber system thus ensuring that all the available parts are being offered literally in just a few seconds after an operator or an MRO sends an e-mail with the request,” comments Zilvinas Sadauskas, the CEO of Locatory.com.

“Unical Aviation’s cooperation with Locatory.com gives our customers a convenient source through which to locate and order critical aviation parts from our extensive inventory holding.  Combined with our comprehensive parts based solutions encompassing component exchanges & leasing, repair management, kitting services, our standard same-business-day shipping, and available 24/7 AOG Service, support is provided anytime, anywhere” shares Alex Tan, Executive Vice President, Sales.

While today’s commercial fleet of approximately 20 900 aircraft (acc. to Boeing data) is expected to almost double in the next 20 years, the retirement of older generation machines is also gaining momentum. During the upcoming decade, the retirement rate is expected to reach 1000 aircraft per year, thus raising the availability of surplus parts in the aftermarket and changing the business environment for all industry players.

While historically the retiring aircraft used to drive approximately 20% of all deliveries, the trend is rapidly changing. Since today more than 80% of surplus parts in the aftermarket come from part-outs (up from 55% a decade ago), ICF International forecasts that over the upcoming 10 years’ time up to 50% of new aircraft will be introduced to fleets as a result of the need to replace the retiring units. Naturally, the availability of spares will increase, pushing the current prices downwards and making the already tense aftermarket even more competitive. It is noteworthy that already today operators spend approximately $3.5 billion on aviation surplus components each year and the sum is expected to grow at a CAGR of 5.5% at least until 2023.

Needless to say, this spells good news for aircraft operators, as surplus spare parts allow to significantly cut maintenance-related expenses, especially for those reluctant to consider PMA alternatives. For instance, the ICF states that using surplus parts for MRO needs may bring up to 30% maintenance-related savings. As a result, Aviation Week reports that while PMAs still account for as little as 2% of the market share, surplus spares already represent a firm 12%. Nevertheless, the situation with independent MROs and OEMs is a little more ambiguous.

While historically the retiring aircraft used to drive approximately 20% of all deliveries, the trend is rapidly changing

“Currently several trends are shaping the surplus parts market. Alongside the growing demand for integrated component MRO solutions and the increasing retirement of younger aircraft models, lessors are acquiring an increasing share of the currently operated fleet. However, while the increasing use of surplus parts spells cost savings for operators, it might present news challenges for OEMs,” shares Zilvinas Sadauskas, the CEO of Locatory.com. “Since the trend has a direct effect on the demand for new parts in the aftermarket, manufacturers might be forced to re-think their spare parts-related strategies, especially as concerns the support of mature aircraft.”

According to the executive, currently over 60% of the segment is dominated by engine surplus parts, followed by 30% of surplus components. Moreover, the segment growth is affecting the nature of surplus parts business itself, as a number of relatively small players are looking into the opportunities stemming from the expansion beyond mere trading. As a result of such developments, some industry giants, such as GE, Pratt & Whitney, and AeroTurbine have already decided to join the race and started to practice aircraft dismantling to ensure the availability of inventory on offer.

“The situation is ambivalent for independent MROs as well. On the one hand, offering surplus parts can become a viable strategy in gaining a much-desired competitive edge. On the other hand, it may reduce the demand for maintenance services (and, in turn, the cost of certain maintenance works),” comments Zilvinas Sadauskas, the CEO of Locatory.com. “All in all, whether or not the new market segment will reach the forecasted estimates, it has already become a significant force in aviation MRO, and needs to be reckoned with by all industry representatives.”

Ryanair’s recent $22 billion order of 200 Boeing’s 737MAX aircraft is a clear sign that the growth of the global fleet isn’t going to slow down anytime soon. In the meantime, TeamSAI predicts that the global MRO-related spending can be expected to increase at a rate of 3.3% annually until 2022. Following an intense period of numerous mergers and acquisitions the number of players in the segment is shrinking and the remaining providers are forced to focus on their planning and data-sharing efforts in order to deal with the growing workload.

Various statistical data indicates that reducing MRO expenditures by as few as 10% could almost double a carrier’s profits. However, despite numerous efficiency benefits stemming from an integrated approach to maintenance operations, its adoption in the aviation industry to date has been rather slow.

Luckily, the industry players’ attitude towards maintenance planning, as well as supply chain execution and management is starting to change for the better. A recent survey performed by PwC revealed that maintenance organizations which had decided to change their attitude towards data-sharing (approximately 25% of all market players), were significantly outperforming their competitors. For instance, their internal shops generated 14% better turnaround times than the industry average. As for the on-time delivery of spare parts, the compliance observed in mature organizations was 72%, while the industry median is 68%.

Various statistical data indicates that reducing MRO expenditures by as few as 10% could almost double a carrier’s profits

“Up until now, the relationship among carriers, MROs and parts suppliers in the aviation industry has beendifficult to say the least. Thus, the lack of trust shared by  different industry players has been one of the most important obstacles when it comes to improving maintenance related processes,” shares Zilvinas Sadauskas, the CEO of Locatory.com “Moreover, many organizations are simply reluctant to share relevant information, which they consider an advantage in competition. However, those who do manage to step out of their comfort zone, usually don’t have to wait long in order to start enjoying improved results.”

According to AWIN, 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. Meanwhile, based on the results of a recent PwC’s survey, one of the global carriers, which has started sharing maintenance plans across all functional areas, has been able to reduce part delivery delays by 40%, while cutting the inventory by 50 million items.

According to the CEO of Locatory.com, if one is seeking better lead times, enhanced quality and reduced costs, communication between aircraft operators, MROs and spare parts suppliers needs to evolve. Ultimately, the more information is shared between the parties involved in the maintenance process, the greater the possibility that the relevant support operations will become less chaotic and more consistent. The first area to demonstrate the benefits of such an approach is the supply chain, where one should rather quickly observe increasing efficiency and part availability.

“Naturally, implementing an integrated approach in the aftermarket support can be way more complex than in manufacturing, where the strategy is applied widely, since different MRO scenarios are significantly more difficult to predict. Nevertheless, the benefits of such a decision are more than rewarding,” says Zilvinas Sadauskas. “However, pursuing an integrated system requires a respective change in attitude towards many processes. It is only by addressing those issues that the challenges integrated approach presents can be justified.”