Focus: Airlines, repair shops in N. America eye used, generic parts to keep aircraft flying

Heico

13/04/2023 11:00

* 
      Higher costs, supply chain delays drive demand for used
and
generic parts
    

        * 
      Honeywell expects higher demand for used parts through at
least
first half of 2024
    

        * 
      Bombardier using teardown partnership to source parts
aftermarket business
    

  
    By Allison Lampert and Abhijith Ganapavaram
       April 13 (Reuters) - Airlines and aircraft repair shops
in North America are increasingly relying on used and generic
parts to keep jets flying, a symptom of the rising costs and
supply-chain shortages plaguing the aerospace industry.
    These alternatives to new parts made by the original
manufacturer must be certified and deemed safe. While they
account for a fraction of the estimated $35 billion spent
annually on components for repairs, sales are growing, analysts
and executives say.
    Driving demand is the struggle aerospace suppliers face to
fill new orders as air traffic soars and the supply chain for
aircraft parts recovers from the COVID-19 pandemic, when labor
shortages and lockdowns slowed production.
    Higher costs and a shortage of available new parts are also
delaying aircraft repairs, which risk pushing up air fares.
    That has spurred demand from airlines and repair shops for
alternatives that cost roughly 20% to 40% less than new parts,
analysts and executives said. Some makers of brand-name parts
like General Electric Co  GE.N  stand to benefit because they
also sell used parts, known as used serviceable material.
    Some planemakers are also benefitting. Business jet maker
Bombardier Inc  BBDb.TO  uses a teardown venture to gain parts
for its growing "aftermarket" business that provides maintenance
and repairs for planes.
        The venture has helped the company source parts for
older aircraft models that are harder to find in the current
market, or are no longer being produced, a spokesman said.
  
    American Airlines  AAL.O , meanwhile, says it has helped
develop certified parts that were not made by the original
manufacturer to mitigate "increased costs and other supply chain
constraints."        
    Companies spent $35 billion in 2019 on materials for
aviation repairs and overhauls, including $5 billion on used
parts and $725 million on generic components, aerospace
specialist Naveo Consultancy estimates. 
        It declined to disclose figures for the following years,
but analysts at Naveo and others say demand for alternatives to
new parts is rising. 
    Honeywell Aerospace Trading  HON.O , the U.S. conglomerate's
used parts business, is among companies enjoying higher demand
since 2021. It expects demand to continue through at least the
first half of 2024 as the supply chain recovers, said Heath
Patrick, president for the Americas aftermarket segment at
Honeywell Aerospace. 
    The market for new generic parts with a Parts Manufacturer
Approval stamp from the U.S. Federal Aviation Administration
(FAA) may be small - representing just 2% to 3% of spending on
materials - but growth is outstripping overall market trends,
said Adam Guthorn, managing director at aerospace consultancy
Alton.
    HEICO Corp  HEI.N , a major independent supplier of new
FAA-approved parts not made by the original manufacturer,
expects demand to continue even after supply bottlenecks
improve, vice president Patrick Markham said. 
        "Growth will be stronger than pre-pandemic" in the next
few years, he said. HEICO's profit in its latest fiscal year
ending Oct. 31 rose 16% to a record $351.7 million, helped by
booming sales of parts with the PMA stamp.
    Companies like GE could lose some demand to such independent
companies producing certified components that perform the same
fit and function, as they can be cheaper and easier to procure
in the current environment, said Abdol Moabery, CEO of
Florida-based GA Telesis, which repairs and overhauls jet
engines. 
    GE, in response, says it provides customers with used
material that can "significantly lower shop visit costs."
    The market for certified used and generic parts has its
limits. For example, parts makers face the same labor shortages
that have hit all companies, analysts said.
    Bigger players like GE could also simply make life tougher
for companies like HEICO by cutting prices if they found the
smaller firms gaining too much market share, said HEICO's
Markham.
    
    TEARING DOWN PLANES
    The increase in price for parts is expected to moderate this
year after rising between high single-digits and
low-double-digits in 2022, even though costs remain above
pre-COVID-19 levels, said Alex Youngs, an executive with private
equity firm Carlyle Group's repair unit StandardAero.
    Companies are trying to find parts any way they can, driving
demand to "teardown" aging planes. 
    Bombardier, whose teardown business is a slice of its
higher-margin aftermarket segment, says it has taken critical
parts like engines from 11 older, customer-owned business jets
torn down through a previously unreported 2018 agreement.
        The teardown business, which helped generate parts for
planes temporarily grounded due to supply constraints during the
COVID-19 pandemic, contributes to Bombardier's aftermarket
revenue target of $2 billion by 2025, up from $1.5 billion in
2022. 
    To meet demand from private planes, Chicago-based Jet
Support Services Inc. (JSSI), an independent provider of
maintenance support and financial services, says it is buying
more aircraft to tear down for parts.
    JSSI, which has maintenance tracking software on over 3,500
aircraft, said 60% of parts on those planes were new in 2022,
down from 67% in 2019.
    Costs are not the only issue. Moabery has seen time to turn
around certain repair orders roughly double because it takes
longer to get back repaired components from large suppliers. 
    "We used to turn an engine in under 60 days," he said. "We'd
be lucky to deliver an engine in under 100 days today."    
    In addition, the supply pool from old aircraft is finite.
Only about 428 air transport aircraft globally were recognized
as retired in 2022, the lowest level since 2007, according to
Naveo. GE expects 400 to 500 aircraft retirements in 2025.    
    Ultimately, the alternatives to new parts may bring relief
but a congested supply chain must be fixed, said Benjamin
Hockenberg, president of JSSI Parts & Leasing.
    "Certain models, certain situations, (used parts) will fill
the void, but I think we also need to see a repaired supply
chain," said Hockenberg.

 (Reporting By Allison Lampert in Montreal and Abhijith
Ganapavaram in Bengaluru, editing by Ben Klayman and Deepa
Babington)
 ((Allison.Lampert@thomsonreuters.com; 514-796-4212; Reuters
Messaging: allison.lampert.reuters.com@reuters.net))