Keeping Airline Options Open
Greater choice in the market for spare parts is needed to keep costs down
Maintenance materials and parts account for about 4% of an airline’s total operating costs, and that is on the increase. Over the past decade, according to IATA, airlines have experienced annual price increases for spare parts exceeding 3-5%.
At the same time, the big manufacturers have shown greater interest in the aftermarket and have been increasingly involved in supporting their products.
It’s not only the size of the manufacturers that is allowing them to have a considerable presence in the aftermarket. They are also able to bundle aftercare into the initial sale and are heavily involved in regulatory recommendations for the aftermarket. ICAO and other regulatory authorities often insist that companies follow the guidelines and support documentation laid down by the manufacturers, for example.
“The success of some engine manufacturers in the aftermarket has prompted others to follow the same model,” says Günther Matschnigg, IATA Senior Vice President, Safety, Operations and Infrastructure. “Airlines are faced with an aftermarket that has fewer and fewer suppliers. Year over year, parts’ price escalations are the norm in an industry that tries hard to control other costs.”
Providing more choice
The alternative to spare parts produced by the manufacturers is ‘parts manufacturer approval’ (PMA) parts. These are approved by a regulator and manufactured by a third party to standards that meet or exceed the original manufacturer certification.
Airline surveys have shown that the prices of PMA parts are typically 20-30% lower than the equivalent manufacturer prices. In some cases, price reductions of more than 40% compared with manufacturer list prices have been reported.
“PMA parts have become increasingly important to JetBlue, specifically in the Class III type material; aircraft interiors, cargo compartments, and so on,” says Mateo Lleras, Manager Corporate Communications. “They account for considerable savings when compared with spending using the manufacturers’ parts.”
Even so, some airlines still prefer a strategy based on original manufacturer parts and repairs for business reasons. PMA parts can help here too though. The availability of alternate sources of parts in the aftermarket introduces an element of competition. This allows airlines to negotiate more favorable prices with the manufacturers.
PMA parts are not simply about a reduction in cost. They provide a valuable source of replacement parts when a manufacturer has stopped production of the original, for example. This can happen when production standards change. Also, PMA parts are often more accessible, meaning shorter lead times and greater inventory efficiency.
A final point stamps out any notion that PMA parts are in some way inferior to manufacturer products. PMA parts have to meet or exceed the original certification standards for the parts. It can be a complicated process and in some jurisdictions civil aviation authorities (CAAs) need to approve any changes to manufacturer guidelines on a case-by-case basis, often under the advice of the original manufacturer. But it can be done and does not compromise safety in the slightest.
However there are limits to how far airlines can go down the PMA parts path. To begin with, the trend for airlines to outsource maintenance, repair and overhaul (MRO) has affected the PMA process.
As many airlines are now turning to third parties to carry out MRO work, airline scope to innovate has become limited. Civil aviation authorities commonly authorize major airlines to operate under an “approved system.” When airlines focused on doing their own MRO work, it allowed them to design, modify, and fabricate replacement parts. It was a valuable source of PMA innovation that is drying up fast. Now, airlines must become more proficient in working with the third-party MRO providers to continue to drive down prices and costs.
An equally tough obstacle is international acceptance of PMA parts. The PMA process was developed by the US Federal Aviation Administration (FAA) in the 1950s. The FAA is still the only authority that uses this particular process for approval. Unusually, it combines the design approval and the manufacturing approval into one certificate. Two independent approval processes and certificates are more common among most other regulators.
These international barriers only serve to restrict competition in the aftermarket. Not surprisingly, outside of the United States PMA market penetration is very small. In Europe, PMA use is limited and in other regions the use of these parts barely registers. This has become more of an issue recently due to the increase in prices and an aftermarket with limited suppliers.
“PMA approval has been established under FAA regulations,” says Matschnigg. “The European Aviation Safety Agency harmonized its regulations with the FAA a few years ago allowing operators to use FAA-approved PMA parts, even though some exceptions still apply. Other regulators are beginning to allow PMA use but progress is quite slow.”
It’s not only regulators that have slowed PMA acceptance. Manufacturers have also expressed reservations about PMA parts that are focused on safety and complications in PMA interaction with other parts. Lessors too have been slow to recognize the changes brought about by PMA parts. In some cases, they have prohibited the use of PMA parts on their aircraft and engines. They have justified the policy by stating that some airlines and regulators do not accept PMA parts, and therefore their asset value is diminished and aircraft marketability shrinks.
IATA will continue to promote competition in the airline supply chain. “We have published guidelines for the use of PMAs to increase the awareness of using alternate part solutions to achieve cost control without compromising safety,” says Matschnigg.