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The influence of the aftermarket services on today’s commercial aviation industry is undeniable. The most recent statistical data indicates that the spare parts market has grown by over $5 billion in 12 years’ time and now accounts for almost half of $54 billion worth MRO market. However, despite the impressive growth, the segment has still a lot of challenges to overcome, especially the ones related to spare parts pricing transparency.

With the introduction of new generation aircraft as well as increasing retirement of the older ones, the aircraft spare parts market has changed profoundly over the last years. With the OEMs gaining an increasingly large share of the MRO market on the one hand, and increased availability of spare parts from dismantled aircraft on the other, the segment currently comprises a variety of different types of players acting as suppliers. At the same tame, however, the market is still very scattered and thus remains largely opaque and insular to both buyers and suppliers.

With the introduction of new generation aircraft as well as increasing retirement of the older ones, the aircraft spare parts market has changed profoundly over the last years

According to Zilvinas Sadauskas, the CEO of Locatory.com, this has contributed to the fact that there is still lack of a proper spare part pricing strategy within the market: “As a result, nearly everyone has an example of a part the size, technology or material of construction of which suggests one level of price but the invoice turns out to be quite expensive, leaving the customer perplexed.”

One of the most recent examples of issues stemming from such a lack of transparency is Sikorsky Aircraft, which has agreed to pay $3.5 million to settle allegations that the company, which makes Black Hawk helicopters, failed to disclose accurate and current prices for parts. This resulted in the government paying artificially high prices for helicopter repairs for more than 3.5 years.

Of course, as the new generation aircraft gradually replace the older ones spare parts represent an important profit area for OEMs. According to Accenture, it makes up approximately 10% of total sales and up to 50% of net income and the numbers are constantly growing. As a result, it is natural that during the early phase of new product introduction most competitors will follow the price set by the manufacturer. However, later on much of the cost is usually caused by the lack of competition and availability of alternate sources, as well as lack of relevant information on particular parts. “Therefore, currently the goal is to align thousands of parts with a price that meets the customers’ perception of value,” says the CEO of Locatory.com.

Since the OEMs have recently been increasingly relying on aftermarket support to offset their declining revenues from new product sales, it has resulted in significant year-on-year price increases for original spare parts, as well as in restrictions on use of PMA parts. Moreover, some have even tried to buy back used products in order to reduce the possible competition. However, the OEMs unwillingness to disclose relevant information on component prices often leads to suppliers simply being unable to set the prices adequately.

This is not the only reason why price-relates issues may arise. For instance, currently the increased availability of surplus parts has been having more impact in the spare parts market, accounting for $3 billion per year and growing at a rate that costs the overall aftermarket parts market 1% annually. While this certainly opens new opportunities for all the players of the aviation spare parts’ market, many suppliers are simply unaware of the real values of the parts they offer.

“Firstly, there are parts that are currently out of production and are simply circulating in the aftermarket. And then one has to keep in mind a large amount of different component modifications, which can be acquired through aircraft dismantling. If the supplier doesn’t have the data to evaluate a particular part, he might check its pricing in the market, but if it ranges from $5000 to $15 000 it is obvious the market cannot be trusted as well,” explains Zilvinas Sadauskas. “Therefore the industry must turn to appropriate ERP applications and other IT solutions, which would enable to store and manage all the relevant historical data. Various e-procurement platforms, offering the possibility to trace and provide such information to the potential buyers are also a viable option. In other words, ensuring traceability of all the component-related information is a top priority to all the industry players. Achieving that would contribute to a more balanced and beneficial market.”

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Ultra-fast smartphones, cutting-edge tablets and powerful PCs – today everyone has them, meaning that developing along with the market is not enough. You have to be at least one step ahead in order to ensure the competitiveness of your company and products.

For example, let’s take Japanese venture capital firm, Deep Knowledge, which, like many, has a Board of Directors. But the Board is quite unordinary, as one of the directors is… an artificial intelligence-based system. Can you imagine that one of the most important positions in a company is entrusted to software? The system is an equal member of a Hong Kong-based group and is the first ever software program to be appointed as a Board member. Such innovative cases prove that the world is unstoppably moving forward.   

And aviation is moving forward as well! Aviation spare parts procurement industry is a perfect case for artificial intelligence–based solutions. With this in mind, we are delighted to share that few days ago Zilvinas Sadauskas, the CEO of Locatory.com, presented Amber A.I. (an artificial intelligence spare parts search tool) to the Middle Eastern aviation community while speaking at the “Airline Engineering & Maintenance: Middle East” conference. Many of the conference’s attendees were pleasantly surprised to know that a unique artificial intelligence-based spare parts search tool is now available for aviation too.

Amber A.I. – an artificial intelligence-based tool which will help you to shrink your search processes to just one click. This tool will automatically examine your email as well as search for required parts through the global Locatory.com spare parts platform thus eliminating a large portion of steps that you encounter while manually searching for required parts.

Use the best tools available on the market. Use Amber A.I.

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Recently Locatory.com has launched Amber A.I., an artificial intelligence spare parts procurement assistant, capable of recognizing aircraft part numbers, conditions and quantities from any email. Today the company has presented a new plugin to complement the virtual tool. By integrating Amber’s capabilities directly into an email client, it enables procurement managers to reach suppliers straight from their Outlook without the hassle of writing or forwarding a single email.

The plugin can be integrated with the relevant MS Outlook client by following a three-step setup process. It also requires to log in using one’s Locatory.com Account details. Afterwards, simply selecting an email and clicking on the Process button on the MS Outlook toolbar is enough to conduct the search and send multiple RFQs to all available vendors just moments after receiving a request for spare parts.

“Amber A.I. has already proven to be a hit among procurement managers. However, the new plugin brings Amber-enabled search experience to a whole new level by integrating the power of artificial intelligence straight with a tool everyone in the industry uses daily – an email client. As a result, you don’t even have to read your emails: a single click can summarize all the effort you need to put into the spare parts purchasing process,” shares his excitement Zilvinas Sadauskas, the CEO of Locatory.com.

What is more, the app features a Paste Search function. It allows to process relevant information through Locatory.com marketplace by simply copying it into a Paste Search window from any source without having to worry about structuring or editing the text in any way. For extra convenience the search results can be viewed in an email client or in a web browser.

„Now, as a procurement manager, you can get part numbers extracted from the email you have just received from the planning department and start receiving quotes from the suppliers even before you have the data of the customer quotation added to your ERP. As a result, you get to enjoy your cup of coffee longer,” smiles the CEO of Locatory.com. The new Amber Plugin is currently available for Microsoft Outlook 2010 and 2013 users, with the support of Outlook 2007 and IBM Notes coming up soon.

For further information please visit www.locatory.com/amber/plugin

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Sometimes being an outsider can prove beneficial. You get to look at something with a fresh perspective and discriminate between the positives and negatives as you learn the details.

Locatory.com, part of the Avia Solutions Group in Lithuania, is not an outsider looking in, but it is a young company that looked at parts procurement in a new way. Noticing that email was the most common interface in parts searches, the company developed an artificial intelligence Network that examines e-mails to speed up parts searches. This is another example of a small company taking a fresh look at the industry, in this case parts procurement, to figure out how to make the process easier.

Locatory.com has just launched an artificial intelligence tool, Amber, that translates e-mail inquiries about parts into searches for the right item, condition and quantity; replies to the inquirer with availability and suppliers; and then can automatically send a request for quotation (RFQ) to each supplier, all in less than 15 sec.

Where did it come from? “We are constantly generating ideas on how to ease the procurement and logistics processes in the aviation industry,” explains Locatory.com CEO Zilvinas Sadauskas. “Eventually we came to a conclusion that the most common interface, used by most of the aviation supply chain members, is e-mail. Everybody understands how it works and how to send one.” Still, Sadauskas says he is unaware of anything similar to Amber in aviation trading. Feedback from beta testers has been positive and surprised, some asking: “How is this possible?”

We are constantly generating ideas on how to ease the procurement and logistics processes in the aviation industry

Amber was built entirely in-house by Lithuania-based Locatory.com’s own IT team. The software assumes all incoming e-mails are requests for parts and looks for desired part numbers, conditions and quantities. The e-mail must thus contain at least a part number. “You can write whatever you want, and Amber will pick out part numbers from context,” Sadauskas explains. “You can even forward an e-mail received from your planning department or from a customer having an AOG [aircraft on ground], and Amber will do everything for you.” Or a buyer can simply copy Amber when sending an RFQ to his regular RFQ mailing list.

Sadauskas says Amber is a lot easier and more natural to use than asking procurement staffers to fill out standard digital forms. “People are looking for the simplest solution they can get and Amber is as natural as communication with your friend.” For example, one could hit the send button on the following message: “Hi Amber, I’ve just received an e-mail from an airline I’m working with. Their window has just cracked and they have an AOG at the moment. Therefore I would like you to tell me who has the part number MY20266-10 in overhauled condition. Please deliver me a report as fast as you can. And don’t tell me that you’re tired — you’re an artificial intelligence, right? Cheers!”

Sadauskas says the tool works for any part. “Amber technology is based on artificial intelligence. That’s what makes it so elegant and fast.” E-mails do not need to be written in English. The tool has been tested in several languages, including Lithuanian and Russian. Amber even understands Cyrillic terms for Russian-built aircraft. Given the variety and freedom of communications allowed, Amber might misinterpret a few messages. It looks for structures that resemble part numbers.

“Imagine a Chinese child looking at Latin characters or a Lithuanian child looking at Chinese characters,” Sadauskas explains. “These characters look like images without meaning.” Some images look like part numbers, some do not. Nevertheless, Amber gets its right 99% of the time. In the other 1% of cases, users can log in to the standard Internet or mobile interface of Locatory.com and search by keypad or voice query.

Amber technology is based on artificial intelligence. That’s what makes it so elegant and fast

And even these few errors should diminish over time. Locatory.com staff will teach Amber and help her understand. “Amber will not teach herself,” Sadauskas acknowledges. “But our IT department will constantly iterate on the errors.” When the potential buyer receives Amber’s summary of availability by part, region, quantity and condition, he or she can just hit “reply.” This sends a standard Locatory.com RFQ to the suppliers.

Sadauskas says Locatory.com’s quality-assurance policy prevents competitors from using Amber to investigate each other. Amber is available to customers, adding: “If one wishes to become our customer, he has to comply with our quality assurance policy.” Part documentation is handled by separate communication between buyer and supplier, independent of Amber.

Sadauskas is eagerly awaiting market reaction to Amber. He hopes it will help optimize the procurement process. “We have plans to build a Web service for Amber, for buyers to be able to integrate Amber with their internal processes. Can you imagine how many copy-and-paste procedures can be saved with that?” Amber probably can.

Source: Aviation Week & Space Technology

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Many OEMs have been forced to reduce their forecast for new spare parts sales at least once or twice during the last year due to lower than expected shop visits. In 2014, as the period of airlines destocking spares and differing maintenance services has been gradually drawing to a close, the demand for spares and repairs is expected to increase, with the predicted aftermarket revenue rate of 9%. However, the experts believe the performance of the OEMs in the aftermarket might not improve significantly, pointing at the steady growth of the unused surplus material market as the actual source of their underperformance.

The surplus parts market is booming. In 2001, the aviation serviceable parts market was worth about $11 billion, with just 10%, or $1.1 billion, claimed by surplus parts, according to SH&E data. Today, surplus parts account for about 18% of a $15 billion market, and the share could climb to 20% by 2015. The biggest share of surplus parts, 65%, is in engines, since engine MRO makes up about 40% of the global MRO market. More than 90% of material for older engines such as the General Electric CF6-80C2, the CFM International CFM56-3B and the Pratt & Whitney JT8D falls into this category, with new narrowbody engines beginning to see more of this material available as well. Components – which at 21% of the global MRO market rank second to engines in total spend -account for 30% of the surplus business.

“Many different factors are driving demand for this material. Prime among these is increasing availability of feedstock for teardown, buoyed by retirements of popular modern aircraft types and increasing cost-effectiveness of part harvesting processes. In 2007, half of the surplus parts came directly from airlines or brokers, while the other half were harvested directly from aircraft. Now, as the useful life of various aircraft models continues to get shorter, the share of surplus parts being sourced directly from part-outs is about 82%. Moreover, the increase in surplus parts availability is altering strategies for both airlines and maintenance providers, giving them more options than simply going to the OEM,” comments Zilvinas Sadauskas, the CEO of Locatory.com

When surplus material isn’t readily available, many operators are forced to purchase new parts

The recent survey conducted by Oliver Wyman found a vast majority of airlines (84%) adopting an“active serviceable materials strategy” since OEM emergence. MROs have responded effectively to this growth in demand, with almost 80% reporting an “active” or “comprehensive” program and 60% reporting a rise in usage during the past three years. As a result, surplus parts’ prevalence appears to be affecting OEM spares pricing strategies. The Canaccord survey found that new spare parts prices were about 3% higher last quarter than the same period a year ago. While this is in line with historical averages, there is evidence that some OEMs are throttling back due to unused surplus parts’ pricing pressure.

“When surplus material isn’t readily available, many operators are forced to purchase new parts. However, the latter are 30-50% more expensive, not mentioning the fact that that can have long lead-times and import delays, which is unaffordable in case of an AOG. Meantime, currently there is an excess of surplus materials in the market, and the MROs are still in the process of figuring out the best ways to utilize it. Most of this surplus comes from the consumables, which are acquired by the MROs for C-checks in large quantities. However, the providers actually use 50-80% of these parts, and the rest of them remain in their storages. If independent MROs will manage to hone and expand these capabilities, they may yet successfully stem OEM momentum and defend their remaining market,” concludes the CEO of Locatory.com

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There is no secret that for quite some time now fraud-related losses have been an increasing industry-wide problem in aviation. However, due to numerous reasons the issue has been largely swept under the carpet. Only recently the industry players have started publicly addressing the problem which costs airlines as much as approx. $1.4 billion per year. Moreover, the practice of accepting components from external sources has also revealed several inconsistencies with regard to the reliability of the supply chain. For instance, in an alarming number of cases airlines end up with unapproved or counterfeit parts, representing a high risk to aviation safety. According to industry experts, with the increasing trend to outsource and/or opt for e-commerce solutions, more opportunities for illicit activities emerge, making the struggle for credibility as topical as ever.

It is a well-known fact that the aviation industry is inherently exposed to numerous external influences such as fuel costs, the economy, exchange rate fluctuations, natural disasters and political instability. Fraud is yet another external challenge facing the industry and it comes packed with major cost implications. For instance, a recent global survey carried out by CAPA reveals that airlines are losing an average of $1.4 billion a year to fraud. However, the MRO segment has also been facing issues of similar nature for quite some time now.

In 2012 the results of a yearlong investigation uncovered more than a million bogus parts destined for use by the US Air Force. In 2009 and 2010 alone the report catalogued 1,800 cases involving bogus parts in assemblies destined for use in aircraft as diverse as transport, special-ops helicopters and state-of-the-art surveillance planes, totalling more than a million individual suspected fake components. The 2007 International Chamber of Commerce report cited Russian gangs illegally producing aircraft parts and selling them in Russia as well as other countries. The group was arrested after stealing components from the Saturn plant in central Russia and producing and selling civil aircraft parts. The seized parts, worth more than $142.000, were intended for Tu-154 passenger airplanes and Il-76 freighters.

“It is clear that the trade in counterfeit aviation parts poses both direct and indirect risks. In addition to potentially fatal equipment failures, the cycling of legitimate parts for refurbishment and upgrade with uncerti?ed suppliers may lead to the insertion of identi?cation, tracking or disabling devices, as well as malware and other malicious software,” comments Zilvinas Sadauskas, the CEO of Locatory.com. “However, while safety and security-related issues are among the most important ones, the rising popularity of e-commerce has created the environment enabling fraudulent activities to spread even further.”

For instance, in 2012 EASA reported that the agency’s approval holders and applicants have been targeted by e-mail requesting payment of fees or trying to receive a copy of EASA invoices/account statements. The fraudster was trying to make recipients believe that those emails originated from EASA, and informed them that EASA’s account has changed. In addition, according to the CEO of Locatory.com, more and more procurement managers have been reporting cases of encountering fake suppliers who are often in possession of the necessary documents or even photos of the spare parts, but fail to deliver the goods after receiving payment. Considering the fact that rather commonly spare parts are needed urgently to resolve an AOG situation, the money lost in such transactions is followed by additional downtime-related losses, and thus can reach hundreds of thousands.

In the meantime, there are certain measures that can be implemented in order to reduce the risk of fraud in the industry. For instance, more and more aviation enterprises choose to implement appropriate ERP applications in identifying the discrepancies in procurement and order fulfilment processes. However, in many cases the fraudsters are highly sophisticated and thus capable of exploiting multi-layered corporations by addressing the weak points of the existing technologies, processes and personnel controls. Extending the ERP to incorporate electronic business-to-business communications between customers and suppliers may certainly help to close this gap, but, unfortunately, it will not eliminate the threat entirely.

“The counterfeiters go to great lengths when creating false documentation. They can skilfully misrepresent the origins and obscure the authenticity of the parts. With independent distributors playing a pivotal role in many procurement processes, a programme of effective auditing might be another way to begin dealing with the problem. It involves establishing a network of trusted suppliers and thus significantly mitigates the risk associated with the process of purchasing components. Creating a set of industry-wide standards and holding suppliers accountable for ensuring the quality of their products is also a reasonable strategy. Meanwhile, in order to minimize the fraud-related risks one might consider the use of specialized online platforms, which welcome only the sellers with the best reputation and the necessary industry approvals. In any case, reducing the potentially harmful effects of such illicit activities requires increased diligence and active control measures from players of all the segments of the industry,” concludes Zilvinas Sadauskas, the CEO of Locatory.com.