Market Segment: Civil Aviation Turboprop G/A Fixed Wing, Turbine Helicopter, Corporate Aviation & Business Jet
Originally published: January 18, 2018, Garrett Schwarz
OEM Parts Inflation & Availability
OEM parts pricing continues to rise, in many instances at a rate disparate to overall aftermarket inflation rates. Furthermore, some OEM supply chains appear to be constricting piece part distribution and MRO functions with a more OEM centric end-user/operator direct sales focus. In some cases, airframe OEM authorized dealers may only quote aircraft operators directly. We expect this trend to continue as these protective and sometimes anti-competitive strategies disincentivize participation by some independent and third party elements within the supply chain. While this might seem like a challenge – it represents a sizeable opportunity for FAA-PMA and other entrepreneurs looking to commercialize products, specialized repairs and other services routinely consumed by a still robust installed base of aging components and airframes. The OEM centric strategies should continue to incentivize creation of new products and services that increase value and extend airframe life cycles for the operators of maturing non-proprietary aircraft and components within this ecosystem.
FAA-PMA approved parts and innovative DER repairs continue to flourish as aircraft operators and MRO’s alike thirst for value creation and profitability. While FAA-PMA parts may represent a relatively small slice of aftermarket on a line item and dollar value basis, they offer a formidable check and balance system for OEM price inflation, reliability and availability. FAA-PMA parts and innovative DER repairs are no longer just a niche ecosystem for a fragmented collection of aftermarket entrepreneurs. There is clearly an intense battle currently underway for higher margin aftermarket content to augment lower margin introductory OEM business. Both independently produced and OEM licensed FAA-PMA parts continue to play a key role in creating value throughout the aftermarket and supporting life cycle extension of various mature and legacy airframe and component platforms. As demand for FAA-PMA parts & innovative DER repairs continue to grow, OEM validation of this ecosystem was recently underscored with Textron Aviation’s acquisition of Able Engineering.
ICA (CMM) Affordable Accessibility
Instructions for Continued Airworthiness: aka (Component Maintenance Manual)
An essential aftermarket element key to independent 3rd party MRO existence and a competitive free enterprise based support system. With the OEM(PAH) having dominion over and being the origin of ICA – and the visible trend of a more protective and proprietary agenda, it can sometimes be a challenge to even gain access to current ICA from the OEM’s. You have airframe OEM’s, component OEMs and independent MRO enterprises all in aggressive pursuit of the same aftermarket dollar. The hyper-competitive outcome has made ICA a hot-button topic. The cost of ICA has risen dramatically and become more restricted over the last few years. For those who can actually buy it, they must be able to amortize the high cost over the volume of units they service annually and still be competitive in a fragmented ecosystem – and in many cases compete with the very same OEM that sold them the ICA in the first place – since many of the OEM/PAH’s are performing MRO in house to add aftermarket content. In some cases we are talking about the same ICA (CMM’s) that OEM’s were liberally dispensing at little or no cost decades ago. Suddenly, current ICA applicable to mature/legacy components and airframes has become highly valued and coveted intellectual property – and priced as such. Furthermore, a notable stipulation now commonly found in ICA license agreements it the requirement to pledge your allegiance to the use of OEM parts only – to gain access to current ICA. Affordable accessible unrestricted ICA is absolutely critical to a healthy vibrant competitive aftermarket where maintenance providers and MRO’s can flourish – and ultimately aircraft operators can profitably thrive.
As OEM’s and consolidators aggressively reach both organically and acquisitively for high margin proprietary aftermarket content to complement their introductory OE production, they incentivize the introduction of new state-of-the-art platforms, many of which embody an increasing amount of proprietary parts and aftermarket support. This sets up a favorable situation for their aftermarket enterprises for years to come. On the other end of the spectrum you have established operators of mature and legacy aircraft models which have proven to be reliable and productive – just trying to extend the life cycle where there is safety and economic feasibility. So the ‘value add’ tug-of-war between the OEM shareholder and the aircraft operator continues. As this perpetual dynamic plays out it creates new aftermarket opportunities as mature/legacy operators face continual turbulence created by OEM proprietary headwinds. Operators will eventually gravitate to the best value, whether it be OEM or third party in a highly fragmented market with all the topics discussed here carefully and strategically intertwined with each other. Needless to say, these are interesting times to be a student of the aircraft parts aftermarket.