December 1999

Accessories Off The Shelf

December 1999 Accessories Off The Shelf Fact: An aircraft is worth much more as parts than as a whole. That fact is the fundamental premise of an entire industry, the outsourcing of massive inventories of aircraft accessories.

By David A. Lombardo, Contributing Editor

Many airlines and aircraft operators choose to send all, or at least part, of their accessories out for repair rather than do the work themselves. It is estimated that in 1998, nearly half of the money spent on component overhaul was paid to outsourcing companies. Increasingly, the method of choice is to remove a part and replace it with a spare from a third party.

According to the FAA, there are approximately 2,500 distributors that offer materials and parts to civil aviation purchasers. Obviously parts can be purchased directly from the original equipment manufacturer (OEM) but there is a second, expanding resource for parts-independent distributors.

Some years ago the secondary market had somewhat of a black eye because all sorts of unacceptable parts were showing up. Many were taken from wrecks or from military surplus, and some were outright bogus parts made to look like OEM parts. Since then, the FAA has stepped in and while distributors are not directly regulated, they are now self-regulated by a third-party accreditation program as outlined in Advisory Circular 00-56, Voluntary Industry Distributor Accreditation Program.

AC 00-56 describes a voluntary, third party, industry oversight system for civil aircraft parts distributors. FAA believes such a program will assist in alleviating the lack of documentation and improve traceability. Criteria developed by several organizations provide a means to ensure that parts reflect the appropriate standards by being in compliance with the advisory circular (see sidebar on page 35).

Independent ASA

The Airline Suppliers Association (ASA) is an organization dedicated to addressing the concerns and needs of companies involved with the supply of aviation parts, according to Jason Dickstein, vice president and general counsel of the Washington, DC-based association. The organization developed Quality System Standards ASA-100 in response to the FAA advisory circular. Other organizations with similar approved programs include the Society of Automotive Engineers and the American National Standards Institute. To understand why these organizations and their thousands of member companies are in a rapidly growing industry , one has to consider the alternatives.

While there are airlines that have built up significant maintenance reputations over the years, maintenance is still nothing more than a necessary evil, not the reason an airline exists. Traditionally, an airline would buy a new fleet of aircraft and at the same time purchase a vast inventory of spare parts and rotable components.

An aircraft such as a Boeing 737 is, from an equipment list perspective, in a constant state of change. A rotable component is one that is interchangeable, such as a generator, and during its life may have been used on many different aircraft. The airline warehouses all these new parts then at some point a crew writes up a generator, it is pulled off the aircraft and replaced with a spare. The original generator is repaired and put into the spares warehouse until another aircraft needs it. With thousands of parts floating throughout a fleet, keeping track of the maintenance history for every part is a logistical nightmare. Fortunately, computerization has made that task somewhat less daunting. Nonetheless, many airlines are simply getting out of the spares business completely because, as Dickstein pointed out, it costs money and resources to warehouse parts.

Specialty companies

What many airlines are doing is contracting with companies that specialize in maintaining a vast inventory of spares that are available 24 hours a day. David Sisson, CEO of Chicago-based AirLiance, said that airlines spent $1.3 billion in 1996 for pre-owned components. It is safe to assume the market will continue to increase along with the demand for air travel and the opening of previously limited or non-existent markets in emerging countries. Certainly the availability of used aircraft to purchase for parts as well as the unused inventories of airlines worldwide presents staggering possibilities. Consultants have estimated there are $50 billion worth of spare parts throughout the industry.

AirLiance Materials was formed as a joint company in mid-1998 by United Airlines, Air Canada, and Lufthansa Technik to provide airlines and aircraft maintenance organizations throughout the world with high quality, traceable preowned parts at a reasonable cost from their excess inventories. To make their parts readily available, AirLiance uses an integrated information software package called Pentagon 2000 that is available to clients via the web.

Pentagon 2000 provides customers access to inventory information 24 hours per day, including pricing, availability, and interchangeability. If the part they need is in stock, the client can enter a purchase order for immediate shipment. Clients also have the option of checking on orders, receiving electronic order confirmation, and tracking shipments.

According to Sisson, AirLiance provides much more than simple material sales. The company offers consignment sales of parts from other airlines to the worldwide market. It also offers purchasing services for clients, where if they don't have the part on-hand, AirLiance will source inventory from the pre-owned parts market.

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