Replacement Parts: What the Industry Is Facing
Replacement parts, where are they coming from? Manufacturers, OEMs, MROs, distributors, competitors? And what are the issues that these companies and the market face to keep the world flying? AMT reached out to AAR, Boeing Global Services, Rapco, and Wencor to provide you with some answers.
“The parts market is strong overall, and you see that reflected in the growth we've been reporting to the street,” says Ken Shaw, Boeing Global Services senior vice president of Supply Chain. “We're seeing organic growth at the business level, double-digits and the predominance of that is parts through the supply chain. We have seen growth in all segments of our market from commercial to business aviation, general aviation, international government, and domestic government. All are healthy. All are growing. All are extremely competitive. Every day is a knife fight with our competitors.”
“Currently, the parts market is healthy on both the commercial and military sides,” Eric Young, AAR senior vice president OEM Solution, says. “In environments of rising energy prices, we definitely feel the pressure of shorter lead-time expectations as customers seek to squeeze their inventory levels. Of course we continue to see surplus, hostile PMA, and DER competition on our OEM product lines but we have seen success in stocking the right inventory and being easy to do business with from a contractual and relationship standpoint as effective tools against these forces. We are seeing a rare combination of healthy commercial and government markets right now and OEMs have their hands full in supporting the market from a production standpoint.”
Tony Gentile, Wencor Group executive vice president, distribution and operations, says, “Wencor is one of the premier commercial aerospace distributors in the bearings, seals, filters, interiors, hardware, and lighting categories. We saw significant growth in all of these with our key suppliers in 2018. This growth comes from building the right partnerships with the suppliers that we distribute for and from the significant investments that Wencor has made in improving our operational performance.”
Partnerships with Manufacturers
“AAR can partner with the OEM and serve as their single point of contact for all global smaller customers, specific challenging regions, and/or specific product lines,” Young says. “We look for synergies with our existing customer mix and technical knowledge. In addition, with 80 salespeople and 10 warehouses globally, we do put in a significant amount of effort to train the sales force on a new product line, so we also look for a certain level of expected volume for new agreements. AAR enhances system OEMs’ aftermarket sales through a number of agreement constructs,” Young says. “Often, OEMs choose to have their sales force focus on larger customers, specific high dollar or strategic product lines. All this allows us to be a more effective extension of the OEM and better support the customer.
“On the military side, AAR is one of the largest aerospace distributors to the U.S. and foreign governments,” Young says. “We look for opportunities where the unique challenges of selling military parts are straining an OEM’s organization, resulting in potential lost business, and we can add value by leveraging our established platform and proprietary tools, while improving service levels to governments.”
Wencor Group, headquartered in Peachtree City, GA, encompasses a global distribution and spare parts division with warehouses around the world; a large engineering division that designs and develops replacement parts for the aftermarket; a services and solutions team which provide kitting, 3PL/VMI, engineering and on-site total material support; and a group of nine MRO facilities throughout the United States. The company creates significant value to its customer base through synergies between its different divisions.
Wencor extends this attention to synergy even to its corporate partners and suppliers. “We look for companies that want to be in a two-way partnership,” Gentile says. “There are obvious characteristics that we require from suppliers like regulatory compliance, extremely-high quality, ethical compliance, and competitiveness. But there are also other things that matter such as customer satisfaction and expertise in their products. Good suppliers are leaders in what they do. We want suppliers that keep us and our customers informed and, therefore, we place value on open and direct communication. We like to have suppliers that are continuously investing in improvement and that have production capabilities that can keep up with our growth. An incredibly important element that we emphasize is cultural alignment — to us, good suppliers are good team players that are able to demonstrate a considerable amount of flexibility in this market.”
PMA Parts
Since 1982, Hartland, WI-based Rapco Inc. has manufactured quality FAA Parts Manufacturing Authority (PMA) approved replacement parts for general aviation aircraft. Rapco stands for Replacement Aircraft Parts Company. “Since the beginning our mission has been to produce high quality products that meet or exceed OEM performance, provide availability, and offer competitive prices,” Patrick White, president, says. “Years of experience combined with the latest technology enable us to improve on existing designs as well as develop innovative new products. Research and development along with our FAA-approved quality control program help to achieve a high level of performance and consistent reliability. The Rapco product line is available through our worldwide distribution network of dedicated aviation professionals.
“Our distributors have their boots on the ground and have the best feel for what is happening in their local area, an invaluable source of information for Rapco on what the market needs and wants,” White says. “Rapco has been a member of Aviation Distributors and Manufacturers Association (ADMA) for over 30 years, and values the symbiotic relationships we have with our partners in the distribution channel.
“The market for PMA products has reached full maturity in the sense that the industry has fully accepted,” White says, “and more importantly actively partnered with non-OEM manufacturers. It has taken a long time, but the market now understands that the method of bringing spare parts to market via the FAA-approved procedure meets and often exceeds the parts being replaced. The future for PMA parts has tremendous future growth.
“The market for PMA parts will depend in large part to the viability of the aircraft application they are approved for. If you have paid attention to aircraft lifetime cycle, you can position your market offering to match the growth and maturity and eventual obsolescence of the installation aircraft.
“All players in the aircraft parts approval cycle: design, manufacture, FAA approval, sales, and use have grown to respect and embrace the value offered by PMA parts,” White says.
“You’ll find that it is when an aircraft’s warranty is ending that airlines really start to look for alternate replacement part solutions,” Benjamin Boehm, Wencor executive vice president, business, market & strategy, says. “So, in the early years of an aircraft’s life, the airlines will simply go to the OEM. They're obviously going to try to get as many parts as they can on warranty so they don't pay anything for them. Then, over time, they start to realize that “prices are getting higher and higher” and start to look for alternatives. Eventually, as the OEMs gouge the market with excessive year-over-year price increases, we start to see the opportunities to design a PMA. By monitoring the distribution market we’re able to see where an OEM partner has the synergy to create a PMA for a competitor’s part and we begin to pull that into their product repertoire.”
Distribution, Spare Parts, and More
“We stay focused on core product expertise areas that we can integrate between our engineering and services teams, our MROs as well as distribution,” Boehm says. “We have a fairly robust kitting business where we offer parts that are already sorted, categorized, and packaged for a specific work task; an example might be: an engine change, a flap change and a landing gear overhaul. It essentially saves our customers labor time.
“Instead of having a highly skilled mechanic that has to stand at a cage waiting for 10 different parts, they can just go and grab a kit,” Boehm says. “Everything is right there. They lay it out on their work bench or right beside the airplane and it gives them a considerable productivity boost. Additionally, for a few key customers, we have vendor managed inventory services with on-site Wencor staff. It's almost like the customer has their own private Wencor warehouse right there in their own hangar. In some of these cases over the next year, we will actually integrate the customers’ ERP system with our own as well. This and other types of value-add that we create from our core competencies will support considerable growth for the company and our OEM partners.”
How Have Purchasing Programs Changed?
“Our online portal, PAARTS™ Store, has really benefited customers and the way AAR does business,” says AAR’s Young. “The adoption among independent shops and smaller customers has been the strongest. While many large customers’ internal policies currently do not allow for online procurement, the ability to see AAR’s inventory and pricing in real-time has been a powerful accelerator to commerce
with airline and MRO customers. As we continue to see a technology-comfortable generation rise in the procurement organizations, we predict digital channels will continue to replace traditional ways of doing business.”
Boehm says, “Some of the larger airlines work through a number of industry standard interchanges that go straight into our system where the airline can place their orders electronically. But, I wouldn't call it online exactly. In 2019, Wencor is planning a significant E-commerce revitalization that will allow smaller customers to join us online with the same convenience that most of us are used to doing at home similar to consumer on-line retailers.”
What Does the Future Look Like?
“We see growth on both the commercial and government sides of our business,” AAR’s Young says. “On the commercial side, being nine years into an economic bull run, we obviously consider the risk of an economic downturn. But we expect continued outsized passenger flight hours in growth regions such as Asia, initial provisioning spare part orders associated with delivery of next generation aircraft and engines, and the addition of new OEM product lines to more than offset this for AAR’s business. On the government side, we are currently seeing our backlog increase meaningfully on the backs of increased military budgets in the U.S. and abroad.”
“We continue to see more and more partnerships forming,” Shaw says. “You see the ebb and flow of mergers and acquisitions, but the partnerships continue to be a strong activity across the industry, really tying product offerings and capabilities to market access and customer preference.
“One of the great things of The Boeing Company is we really focus on a One Boeing approach to how we operate, so how do we take the best of the company, strength on strength, to bring that to customers and then grow on that to make it even better?
“That approach has served us well in our services business,” Shaw says, “because every one of these opportunities, we can take all we’ve learned and then take those improvements back into the rest of the business to evolve, improve, and grow. That's been exciting. Especially as we've brought together the defense and the commercial sides of our services business and our global services, we're really starting to see that accelerator happening. Then when you put in KLX, it just adds another dimension of it.”
“It's exciting times of how can we get better every day,” Shaw says, “learn from everything we're doing, bring the best of Boeing to our customers, and just make sure that we're putting the customer first. Everything we're doing is about driving the value proposition for the customer, to make them more successful. The more successful, whether it be a military customer or a commercial customer, that turns back into more business for us. That's the cycle that we've been focused on and enjoying pretty good success with."
