North American Airlines And Repair Shops Rely On Used, Generic Parts

It is a symptom of rising costs and supply-chain shortages plaguing the aerospace industry that airlines and aircraft repair shops in North America are increasingly turning to used and generic parts for maintenance.

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Currently, the only means of obtaining new parts for repairing or replacing an existing vehicle comes from alternative parts made by other manufacturers. Although they are a fraction of the estimated $35 billion spent on components each year for repairing vehicles, they are growing quickly, officials and analysts say.

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In order to meet new orders, aerospace suppliers face a challenge because air traffic is soar amidst the recovery of logistics systems for aircraft parts still weakened by the COVID-19 pandemic, resulting in labor shortages and lockdowns that slowed production.

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A shortage of available new parts and higher costs are also contributing to the delay in aircraft repairs, which is putting a further strain on the economy.

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In response to this, analysts and executives said that airlines and repair shops are increasingly seeking alternatives to new parts that cost about 20% to 40% less than new parts. There are some manufacturers of brand-name parts, such as General Electric Co (GE.N), who also sell used parts, otherwise referred to as used serviceable materials, which are able to benefit from this situation.

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The industry is also benefiting from the program. Business jet maker Bombardier Inc (BBDb.TO), for example, has taken advantage of an initiative to gain parts for its expanding "aftermarket" business, which offers maintenance and repair services for planes and aircraft engines.

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There has been a success in this venture because it has enabled the company to source parts for older aircraft models that are no longer available in the current market or are no longer being produced, a company spokesperson said.

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It has been reported that American Airlines (AAL.O) has donated money to the development of parts not manufactured by the original manufacturer to mitigate the cost increase and other supply chain constraints that have been experienced due to this change.

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According to aviation specialist Naveo Consultancy, aerospace companies spent $35 billion on materials in 2019 for maintenance and repair of aviation equipment, including $5 billion on used parts and $725 million on generic components.

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It declined to disclose figures for the following years, but analysts at Naveo and others say demand for alternatives to new parts is rising.

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A number of companies, including Honeywell Aerospace Trading (HON.O), which has a business specializing in used parts, have enjoyed increased demand since the year 2021. In the wake of a recovery in the supply chain, Honeywell Aerospace expects demand to continue until the first half of 2024, according to Heath Patrick, Honeywell Aerospace's president for the Americas aftermarket segment.

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New generic parts that have a U.S. Department of Transportation Parts Manufacturer Approval stamp from the Department of Defense can be found in the market. Even though the FAA is a relatively small part of the materials spending market - just 2% to 3% -, it is growing at a faster pace than the entire market, according to Adam Guthorn, managing director at Alton Aviation consultancy.

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As a new FAA-approved part supplier, HEICO Corp (HEI.N), an independent company that is one of the largest independent suppliers of new FAA-approved parts that was not developed by the original manufacturer, has predicted that demand will continue to increase even after supply bottlenecks have improved.

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His prediction for the next few years is stronger growth than it was pre-pandemic. HEICO's profit soared 16% to a record $351.7 million in its latest fiscal year, helped by strong sales of PMA-approved parts.

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There is a possibility that GE could lose some of its market share to independent companies that produce certified components that have a similar fit and function to those that GE manufactures. These independent companies are more cost-effective and easier to acquire in the current market conditions, according to Abdol Moabery, CEO of Florida-based GA Telesis, a company that specializes in overhauling and repairing jet engines.

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In response, GE claims to be able to significantly lower the costs associated with shop visits by providing customers with used material.

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According to analysts, parts retailers are facing the same labor shortages that have affected all companies at the same time as there are shortages of certified used and generic parts on the market.

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Markham, a spokesman for HEICO, said that bigger companies with a larger market share could also simply make life harder on smaller companies with a larger market share, if they feel that the aforementioned firms are gaining too much market share, said GE's Markham.

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Planes being torn apart

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Despite the fact that costs remain higher than pre-COVID-19 levels, a recent report from Alex Youngs, an executive with Carlyle Group's repair unit StandardAero, indicates that the price increase for parts will moderate this year after rising between the high single-digits and low-double-digits in 2022.

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There is a lot of demand for "tearing down" old planes because companies are trying all they can to find parts to refurbish them.

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There has been a previously unreported agreement between Bombardier and a customer which involved the demolition of 11 older, customer-owned business jets. The agreement, which was signed in mid-2018, will be the company's initial foray into a higher-margin aftermarket.

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It is through the teardown business that Bombardier will contribute the majority of Bombardier's target of $2 billion in aftermarket revenues by 2025, up from $1.5 billion in 2022, which helped contribute to the temporary grounding of aircraft due to supply shortages during the COVID-19 pandemic.

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According to Jet Support Services Inc. (JSSI), a Chicago-based company that provides maintenance and financial support services for private planes, it is currently buying more planes to tear down for parts as it tries to meet the demand from private plane owners.

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Over 3,500 aircraft across the world are equipped with JSSI's maintenance tracking systems, which said that 60% of the parts on these planes are new in 2022, down from 67% in 2019.

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Besides the costs, Moabery has also seen a nearly doubled turnaround time on certain repair orders since it takes longer for large suppliers to send back repaired parts, which has resulted in the turnaround time for certain repair orders doubling.

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He stated that the time it took to turn an engine used to be less than 60 days. These days we would be lucky if an engine was delivered within 100 days.

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GE anticipates a savings of 400 to 500 aircraft in 2025 and approximately 428 aircraft are expected to retire globally by 2025, the lowest number since 2007. Naveo estimates that only 428 aircraft will be retired by 2025, the lowest number since 2007.

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Benjamin Hockenberg, president of JSSI Parts & Leasing, is adamant that even though new parts are available as alternatives, a congested supply chain must be resolved to make them effective, he added.

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The supply chain has to be repaired in order to fill the void, but I think we have to also see some models arrive with (used parts) for certain situations", said Hockenberg.