By Graham Newton
Airlines and maintenance, repair, and overhaul (MRO) companies can pay too much for aircraft parts. With millions of unique part numbers and a multitude of brokers and original equipment manufacturers involved, it is a dense market that lacks transparency. And that means prices can be artificially high, creating additional cost within the aviation supply chain.
The surplus spares market overall is worth $5 billion annually but a significant portion of that is “unearned” profits, generated by trading parts amid this complexity.
Simplifying the process has been difficult because parts purchasing is a predominantly manual process. Suppliers are contacted individually to ascertain the availability and price of a part. Scanning the market for the best deal is time-consuming and makes little financial sense. The cost of checking suppliers on an individual basis is greater than a slightly cheaper price.
The result is airlines often accept the first, potentially expensive, offer.
“Airlines have been held hostage by an opaque market and it is important to unravel this difficult area,” says Chris Markou, IATA’s Head, Operational Cost Management.
Christopher Whiteside, President and CEO of the AJW Group, which offers services across the MRO spectrum, believes partnership is the best way forward. “Building partnerships forms highly effective agreements, which deliver the desired solutions that the airlines want and need,” he says.
AJW acts an integrator to ease a client’s maintenance requirements and, says Whiteside, benefits from the technical, reliability and Service Bulletin/Airworthiness Directive support that a component original equipment manufacturer (OEM) can provide.
The challenge is to spread this partnership approach across the industry. To help shine a light into the darkened recesses of parts purchasing, IATA has introduced the MRO SmartHub. The platform will save airlines an estimated 10%-15% in the cost of parts and create new supply chain efficiencies for all stakeholders by bringing greater knowledge and transparency to the parts market.
Developed in conjunction with Opremic Solutions, there are two functions to the MRO SmartHub; the Connector and the Evaluator.
Building partnerships forms highly effective agreements, which deliver the desired solutions that the airlines want and need
-Christopher Whiteside, President and CEO of the AJW Group
The Connector describes itself, linking an airline to the market quicker and with no more time-consuming communication and integrated/automated negotiations via the platform. The functionality also allows trading between preferred approved partners within a closed group.
In effect, the Connector brings all supplier information together in one place. Suppliers must provide firm information on prices, availability, and the lead time. Otherwise stock cannot be uploaded to the platform. Because the information is transparent and displayed in real-time, airlines save a lot of time and money.
The spare parts market is worth $5 billion annually
But it is the Evaluator that is the key to the success of the solution. Behind the Evaluator lies an algorithm that uses multiple data inputs and criteria to assess the fair market value (FMV) of a part. Though the FMV represents real monetary value for a part, it is not presented as a buy or sell option. In fact, for data security compliance, all information is de-identified before it is displayed. As such, the Evaluator becomes an impartial but reliable advisor and decision support tool.
Importantly, the FMV is not just based on an average of the historical price. Users, for example, can get a recommendation whether it is better to buy a new part or repair the old one. The Evaluator will even estimate the time for a repair based on supplier information and also the cost of the repair. This can then be weighed up against the cost and time involved in buying and receiving a new part.
Progress through the levels
All airlines stand to benefit. Lufthansa, for example, was looking to solve the problem of parts purchasing in-house, through its subsidiary, Lufthansa Technik. But it has now found a ready-made solution in MRO SmartHub.
“The MRO SmartHub is a global platform that is applicable to all,” says Fabricio La-Banca, Lufthansa Technik AG. “The market really needs this. By creating greater transparency, the MRO SmartHub will generate real “fair market values”. It will rebalance the aviation value chain and help airlines save money.”
Optimizing purchase decisions depends on relevant information and incisive decision support for management and material teams. To that end, IATA will continue to bring in more airlines to the MRO SmartHub. Ultimately, the aim is for the platform to become the industry standard in evaluating and trading parts, a solution that benefits all by rebalancing the aviation value chain.
For more information, visit www.iata.org/services/safety-flight-operations/Pages/mro-smarthub.aspx
Picture Credit | Alamy