At the Dubai Airshow this year the total amount of orders for the newest products of the two largest aircraft manufacturers – Boeing and Airbus – has already exceeded 400. Moreover, both competitors have been raising their production rates in order to keep up with the schedules whilst at the same time also trying to increase their presence in the aftermarket. However, the considerable supply chain-related obstacles directly linked to the recent boost in production may force the industry giants to alter some of their ambitions.

During the last few months, the industry has observed the two largest aircraft manufacturers – Boeing and Airbus – steadily increasing their production rates with the unprecedented ambitions to reach the levels of up to 70 aircraft a month, following a record amount of orders from carriers. With the increasing amounts of new generation aircraft soon to be introduced into the market, the challenges of their aftermarket support are one of the most concerning issues for operators. However, the manufacturers have as much to worry about, since such a boost in production will definitely exert additional pressure on their supply chains.

“Airbus representatives have recently emphasized the necessity of being a global manufacturer rather than just a European one. For example, it is known that the company is probably the largest U.S. export customer today, as its supplier list stretches across 40 states, involves more than 200.000 jobs and costs the manufacturer tens of billions a year. Moreover, the registration for entering that list is still open,” shares Zilvinas Sadauskas, the CEO of Locatory.com. “The situation with Boeing is quite similar as it acquires up to 800 million of its components from its partners, spending up to $30 billion annually. In order to manage such an expansion and increase in production the supply chain needs to run like clockwork, and to our knowledge the two manufacturers have had their share of troubles due to massive outsourcing before.”

Airbus representatives have recently emphasized the necessity of being a global manufacturer rather than just a European one

Performance-wise, Airbus products have not been exactly flawless recently. Its A380s operators are facing mandatory inspections of the specific belly-area fuselage panels after loose panels were discovered on an in-service aircraft. Moreover, EASA has ordered to increase the frequency of Airbus A320 pylon checks after an operator of A320 family airplanes reported an in-flight loss of the Right Hand aft pylon moveable fairing tail cone.

Also, despite the fact that the extensive B787 program does show signs of improvement (Boeing says it is making progress on boosting the 787’s reliability, which is at 97% across the 96-plane, 16-customer fleet), Boeing’s product still presents challenges to its operators. For example, the Norwegian Air Shuttle has recently had to ground its two 787s and use two Airbus A340-300s instead. Moreover, the FAA has recently ordered Boeing 747-8 operators to check elevator power control actuators for missing bushings after an alarming report issued by an operator. At the same time, unlike Airbus, Boeing has been building up its ambitions to cash in on the massive demand for the aftermarket support that its aircraft generate and has been designing the newest aircraft (737MAX and 777X) with an eye on grabbing a greater share of the maintenance work the models will need.

“It’s a known fact that while engine MROs have managed to obtain large shares of their products’ aftermarket work, airframe OEMs own less than 4% of the components business, so Boeing’s ambitions in the segment should raise no eyebrows,” says the CEO of Locatory.com. “At the same time it is always important to set up one’s priorities straight. In a recent interview, a representative of Airbus has said that since 30 years ago no one thought that it was possible to make more than four aircraft per month, the design was 100% focused on the performance of the aircraft and not at all on manufacturing considerations. While today the new technologies do expand manufacturing possibilities, the reoccurring problems with the new products seem to suggest that the industry as a whole is still unable to keep up with such pace.”

Locatory.com, an industry leader in supporting the aviation industry with IT-based Supply Chain Optimisation solutions worldwide, has selected Pentagon 2000SQLTM for integration with its own trading platform catered specifically to the aircraft spare parts aftermarket. Responding to the rapid growth and the most recent trends in the aviation industry, Locatory.com has started its business process integration and added Pentagon 2000 Software as its initial ERP partner.

Gabriel Mofaz, President at PENTAGON 2000 Software, Inc. commented that “the Locatory.com inventory & services locator has a very comprehensive set of data that is required throughout the industry, and they are making significant investments to expand their offerings and maintain leading technology for their platform. With over 2 billion inventory items listed and more than 700,000 repair capabilities included, it is no wonder that many of our key customers connect to the service on a daily basis”.

Zilvinas Sadauskas, the CEO of Locatory.com added “Pentagon 2000 Software has been in business for over 27 years and serves leading OEM’s, global operators, a broad set of repair stations, and distributors in all regions of the world. We have a core set of common customers today, and this new integration will allow quick and seamless expansion of our service capabilities to hundreds of other businesses that utilize the Pentagon 2000SQLTM platform today”.

Locatory.com, an IT company supporting the aviation industry with IT-based Supply Chain Optimisation solutions worldwide has signed an agreement with the International Air Transport Association (IATA) in order to provide the IATA Financial SIS platform to increase the efficiency of its aftermarket services. The IATA Financial SIS platform is an electronic invoicing solution facilitating the air transport industry’s billing and settlement activities by optimizing and reducing the cost of back-office processes, unifying invoicing standards and eliminating the need for paper documentation.

“In today’s market carriers are always in search of ways to cut down expenses. Nevertheless, almost half of all the money the global aviation industry spends on maintenance services (which is $56.2 billion in 2013) is invested into spare parts. However, this number could be reduced if the relevant processes were properly optimised. Innovative IT solutions can considerably speed up the execution while reducing the number of such emergency situations as AOG,” says Zilvinas Sadauskas, the CEO of Locatory.com. “Many of the maintenance-related delays are connected to the processes of finding and purchasing the necessary inventory. And then there are also hundreds of thousands of dollars worth of documentation management processes to consider.”

In today’s market carriers are always in search of ways to cut down expenses

IATA reports that approximately 160 tonnes of invoices and supporting documents circulate among airlines each year to support the aviation industry’s interline billing and settlement processes. In addition, such largely paper-driven activities as invoicing and dispute handling involve substantial manual effort. SIS aims to eliminate unnecessary paperwork, mail charges and courier fees as well as mitigate the risks related to lost documents and internal paper handling thus offering annual cost savings of up to $700 million for the industry.

Via SIS an operator can submit a single electronic billing file that then is converted into an invoice and a settlement file. This helps to avoid record duplication and improves efficiency by integrating a unified e-invoicing standard (IS-XML). The platform also enables the participant to choose from such options as automated invoice validation and offers a variety of other handy functions. As a result, it significantly reduces the need for manual labour and improves control over cash flows, as the data is being directly linked to the payable systems of airlines.

“The first task of any e-procurement system is to ensure that operators receive comprehensive inventory management services with fast and effective aftermarket support. With the integration of the IATA Financial SIS solution into our platform, operators will be able to not only simplify the process of searching for necessary parts, but also purchase them in a fast, standardized electronic manner, making the process cheaper and paperless,” shares the CEO of Locatory.com. “Considering the cost of an AOG situation, the process of acquiring the necessary part should be as fast and easy as possible. The cooperation with IATA will allow us to offer our clients the opportunity to significantly reduce aggregate inventory while minimizing the number of maintenance related delays and cancellations.”

The recent early retirement trend which has led to a large number of relatively young aircraft being torn down for parts has resulted in a considerable decrease of certain spare parts’ prices. That, in addition to the positive changes in the lease rates has resulted in significantly prolonged service-life of some types of aircraft. At the same time, the growing demand for wide-body jets accompanied by the on-going wave of fleet optimization has raised the demand for the spare parts of such popular models as Boeing B777, often selected to replace older and less cost-effective aircraft. However, as operators are not willing to part them out, is there a way to meet the newly rising demand?

The influence of the aftermarket services on today’s commercial aviation industry is undeniable. The data provided by ICF SH&E indicates that the spare parts market has grown by over $5 billion in 12 years’ time and now accounts for almost half of $56 billion worth MRO market. Of course, there are many factors that have contributed to such an impressive growth. First and foremost, there’s an on-going fleet renewal trend that has pushed many operators to dismantle their middle-aged aircraft. And then there’s the growing share of leased aircraft in operation to consider.

“When an aircraft is returned from lease, a lessor should always consider the benefits of leasing it to another operator versus the benefits of its teardown. Based on  the fact that in ten years’ time almost half of the current generation of aircraft is expected to retire, in the last few years the teardown option has become increasingly popular, since it facilitates fleet renewal and enables companies to compete with OEMs in the spare parts market,” says Zilvinas Sadauskas, the CEO of Locatory.com. “However, the trend has definitely led to a surplus of some parts and, in turn, to increased levels of deflation.”

When an aircraft is returned from lease, a lessor should always consider the benefits of leasing it to another operator versus the benefits of its teardown

A few years ago when such relatively new aircraft types as Boeing 737NGs were parted out, their spare parts were worth more than the market value of the new ones. However, the situation today is different. The surplus of particular spare parts in the aftermarket and a positive shift in lease rates has dropped the value of certain spares by up to 70%. With warehouses filled with parts that have dropped in demand and are readily available, some players might be even faced with the inability to sell their inventories, not to mention anything about the ability to earn profits. But at the same time, while the demand for spare parts of a single aircraft type has dropped, the other market segments might be actually subject to the lack of offerings from the aftermarket players.

For example, replacing the remaining Boeing 747-400s has been the prime objective of Boeing for some time now. In the meantime, Airbus has been more successful in selling its A380s to 747-400 operators than Boeing has in selling its 747-8s. The latter has even begun buying its B747-400s back from the airlines which agree to order the new Boeing 747-8s. What is actually common in the industry today is that older B747s are being replaced by B777s. For instance, recently Air France has decided to refocus its cargo fleet consisting of B747 on its two Boeing 777Fs. Also, despite the fact that Boeing has shown active interest in selling more of its B747-8s to Lufthansa, the carrier seems to favour the forthcoming B777-9X instead.

“A search for cost-effective fleet solutions accompanied by the need to raise capacity has lead to an increased demand for wide-body aircraft. According to the recent Boeing forecast, the category of small and medium wide-body airplanes is the highest valued market segment. Moreover, in 20 years’ time almost 90% of the aircraft in the category will have been delivered past 2012,” shares the CEO of Locatory.com. “But although such a forecast implies a quite high retirement rate, the fact is that today such current generation airplanes like B777s are being used to replace the less efficient ones, such as B747s. Thus, paradoxically, although the demand for these aircraft raises the demand for their spare parts accordingly, it prevents lessors and operators from tearing them down. Apparently, the optimal solution will once again be found only by answering the question of profitability.”

Currently Russian or Soviet-built helicopters represent approximately 15% of the global helicopter fleet. Moreover, the manufacturers are ambitious about strengthening their global presence and strive to raise this number to 20% until 2020. Therefore, the need to invest into the development of the infrastructure necessary for the aftermarket support of the products used outside the region of origin is on the top of the priority list. However, the success of the endeavour depends on many factors and overcoming certain challenges may prove to be rather difficult.

The primary issue concerning the aftermarket support of the Russian-built aircraft is the fact that despite the global popularity their main operating area is still largely limited to the region of production. For example, regardless of the fact that Russia is the main manufacturer of one of the most popular helicopters in history – the Mi-8/17 – only 2 800 of more than 12 000 of these helicopters that have been produced are operated outside of the region. Nonetheless, the number of orders for this type of rotorcraft is still constantly rising: India alone is expected to receive 80 Mi-17V-5s until 2014. Therefore, as the popularity of the Soviet/Russian origin products in the emerging markets remains considerably high, the demand for respective aircraft spares is steadily rising.

“For some time now the aftermarket network for the Russian-built aircraft outside the CIS has been recognized as an issue that has to be dealt with properly. Of course, the main area of distribution of these aircraft is limited to the territory of Russia and the CIS. However, there are considerably large fleets of Russian aircraft in Asia, the Middle-East, Africa and South America. For example, Africa has as many as 600 Mi-8/17s and Ka-32s in its rotorcraft fleet and there are approximately 300 Russian-built rotary-wing aircraft in India,” says Zilvinas Sadauskas, the CEO of Locatory.com. “Despite the fact that these numbers may seem small compared to the fleet of such aircraft operated within Russia, these helicopters still have to be properly maintained and this calls for organizing the necessary infrastructure in the entire region. Everything from MRO facilities to spare parts support needs to be taken into account.”

For some time now the aftermarket network for the Russian-built aircraft outside the CIS has been recognized as an issue that has to be dealt with properly

The importance of developing a structured maintenance system is indisputable. However, this is not possible without proper communication between an operator and a provider. Communication is absolutely necessary because if a manufacturer or an MRO provider lacks the necessary data on the operators’ fleet condition it cannot properly forecast and plan the maintenance activity. Moreover, as the sole manufacturer of Russian rotorcraft, Russian Helicopters, has begun working on the restructuring of its aftermarket support, the first thing that has been noticed was the necessity of establishing local MRO centres, so the rotorcraft wouldn’t have to be sent to Russia for maintenance. Finally, one more issue that has to be solved is the language barrier, as operators need to have access to native-language support.

“For the Russian manufacturers, the development of comprehensive aftermarket support outside the CIS will require considerable efforts, but it is a step that simply has to be taken. As challenging as some of the accompanying actions may seem, they are still manageable. For instance, (and this is a thing all of the manufacturers know) it may be more effective to certify a local MRO provider than to establish a completely new facility,” shares the CEO of Locatory.com “As for the stable flow of spare parts, which is always necessary in case of any emergency situation, centralized pools of spare parts have become more and more recognized as an effective solution. Moreover, various e-procurement systems may not only solve the issue with spare parts, but also help to get around the language barrier, as the teams working on such projects are usually international and multilingual.”

The Ulyanovsk-based Aviastar-SP aviation facility has recently launched the production of the upgraded Il-76 transport aircraft. The first of the newly produced Il-76MD-90As are expected to be delivered already next year. Nevertheless, despite the considerably fast manufacturing rates of the new generation of aircraft, most models of Il-76s currently in service are more than 15 years old. This means that, considering their popularity in the former USSR and the emerging markets, there is a steady demand for their maintenance and spare parts support. However, meeting this demand can be more of a challenge than it may seem.

The popularity of the multi-purpose strategic airlifter Il-76 in Russia is unarguable. According to the recent statistical data, more than a third (50 of 137) of all freighter aircraft in the Russian commercial aviation market consists of its various modifications. Moreover, Russia operates the largest fleet of Il-76s in the global military aviation segment. At the same time, as most of the global operational fleet of Il-76s (almost 400 aircraft) is rapidly approaching retirement age, the airplanes are in need of constant technical attention and spare parts support. However, providing operators or MROs with spares for this type of aircraft has proven to be a headache for the suppliers: the demand seems to simply be too high.

The popularity of the multi-purpose strategic airlifter Il-76 in Russia is unarguable

“The demand for spare parts for the Soviet-built aircraft has been steadily increasing for some time, and Il-76 is a great example of the trend. The reasons for that are obvious. Firstly, at least 94% of these aircraft in service are older than 15 years. Secondly, there had been a gap of almost two decades in the development of the Russian aviation industry, so there was no possibility of the gradual fleet renewal. Thus, keeping the existing aircraft in operational condition remains the only option for the operators which are fully satisfied with their performance,” says Zilvinas Sadauskas, the CEO of Locatory.com. “It should also be remembered, that Il-76 was originally developed as an aircraft for military purposes and is still largely used by air forces in Russia, the CIS and the emerging markets, such as China, India, Pakistan or Algeria. Despite the growth of investments into new technologies, it’s understandable that they will try to maintain their existing fleet, while gradually switching to fresher products. Unfortunately, locating the necessary parts outside of Russia is becoming increasingly difficult with the aftermarket of Russian aircraft yet to be properly developed.”

However, according to the CEO of Locatory.com, the popularity of the Il-76 outside the Russian borders may in fact suggest the possible solution to the aforementioned maintenance and spare parts scarcity problem. Currently there are more than a hundred of various models of Il-76s kept in storage around Europe, Africa and Asia-Pacific. As the demand for the inventory isn’t likely to drop, tearing down these older airplanes and forming joint stocks or joining already existing ones could turn the operators into suppliers, thus forming the aftermarket. After all, it’s a known fact that an aging aircraft can be worth considerably more parted-out, than if being sold as a whole.

“Of course, operators may lack the necessary contacts for entering the spare parts segment, but there is a way to make such integration easier. It is to do with various platforms, enabling the collaboration of operators and MRO providers all over the world. After all, all players would benefit from more accessible and easier to find spares. The main issue of the spare parts market is almost never the absence of necessary parts, it’s the lack of communication,” explains Zilvinas.