Aftermarket Supply Chain Seeks Alternate Solutions

Increasing air traffic and lagging aircraft retirements are combining to promote a very strong aftermarket recovery, as maintenance-hungry older jets must be maintained. Demand is up 15-20% this year, and polls show that almost all MROs are expecting much stronger demand over the coming year. However, the very pace of recovery is causing problems in parts and labor, as discussed in a recent ILS webinar on the supply chain.

After the pandemic crash in MRO, recovery challenges are “a very good problem to have,” according RBC Capital Markets Managing Director Ken Herbert. But these problems are going to last at least another year, according to webinar participants.

Naveo Managing Director Richard Brown laid the groundwork for the discussion: by late May, 78% of the pre-COVID commercial fleet was back in service and, of the remaining 22%, 3% were parked for seven days or less.

Jimmy James, managing director of TechOps procurement at American Airlines, is seeing bottlenecks in parts made of exotic materials for engines and from second- and third-tier suppliers of forgings.

Pat Markham, vice president of technical services at HEICO’s Parts Group, says he must “play whack-a-mole” with many different parts as each in turn becomes a problem. Alternative supply chains, designated engineering representative repairs (DER) and used parts are possible counter-strategies, but DERs and used markets are no solution for consumables and expendables, which are frequently tough challenges.

Ian Franklin, vice president of sales, marketing and customer support at MRO and parts provider VSE Aviation, also sees high demand for consumables and expendables. “Delivery schedules are not met,” says Franklin. He also notes that VSE is seeing big cost increases for CFM56 engines as it handles the retirement of Southwest Airlines’ Boeing 737NGs.

“For platforms like 737s or [Airbus] A320s, we have seen significantly higher demand for a certain cohort of parts that were already very hard to get to begin with,” says Eric-Jan Schmidt, vice president of marketing at ILS. “That cohort of parts has actually grown by 15% or more in the last 12 months.”

For 737s, these scarcer parts include seals, bearings, nozzles, special altimeters and certain valves. For A320-family ceos, bearings, bolts, covers, bellows, plates and glazing are getting sparser.

American Airlines’ James hopes supply chain problems will flatten out by mid-2024, but predicts relief will come “case by case.”

Tom Anderson, chief operating officer of urban air mobility at Archer and formerly of Breeze Airways and JetBlue, sees relief in 2024 or 2025. RBC’s Herbert thinks turnaround times on narrowbody engines will stay lengthy until mid-2024.

A poll of webinar attendees revealed that a third are most concerned about long lead times in getting parts rather than price, availability or reliability of the fleet. And the most popular solution to delivery challenges is simply building up bigger inventories, a remedy that is well ahead of adding suppliers, better communication, or seeking parts manufacturer approval (PMA) parts or used parts.

James says American is stocking up for two reasons: it is expanding its network and thus needs to distribute parts to more stations, and it is guarding against supply chain risks. Herbert reports stocks 25-50% higher than before.

This could create another problem down the road. At some point, supply chains will be restored, which could be followed by a dramatic destocking. If suppliers misinterpret the reduced demand for parts as permanent, they could reduce capacity, setting the industry up for another supply crunch in the future. Several webinar participants advised airlines to make it clear to suppliers that, when destocking comes, the reduced demand will be temporary.

All webinar participants agreed that PMA use is increasing. ILS counted nearly five million requests for PMA quotations in the most recent month, versus about 1.5 million in the spring of 2020.

Markham said some carriers turned to PMAs only during the pandemic to solve AOGs, but now are continuing to use PMAs for consumables and expendables, as well as in the cabin. He is now seeing much more acceptance of PMAs even for engines, airframes and hydraulics.

American Airlines has been using PMAs for a very long time and has not shied away from PMAs, even in engine hot sections, James notes. The pandemic has even converted some of the airline’s PMA-wary staff to accepting their value. American has pushed back on lessor concerns with PMAs, and James says lessor resistance is decreasing.

Archer’s Anderson observes that PMA advocacy by major carriers like American helped smaller airlines to deal with lessors as well. He says acceptance of PMAs is spreading across borders well beyond the U.S. “The same for DERs—they used to be a big no-no, and OEMs kept reparability modest. Now DER repairs are accepted,” he says.

Herbert is still cautious in his expectations that airframe OEMs will catch up on promised deliveries. RBC estimates only 350 aircraft will retire in 2023, well below the annual rate in pre-COVID years. Naveo forecasts only 167 January-May aircraft retirements, 41% of which will be comprised of 737NGs or A320ceos.

Franklin does not expect aircraft retirements to add much to the used part supply, as the airlines tearing aircraft down are likely to use these parts for their own fleets. “As for engines, they are getting all the green time they can,” he adds.

American’s James agrees, noting: “We cannibalize them for ourselves.”