Contributor: Andrei Diminescu, Founder AirAI Network
Covid-19 is long gone and so are its travel restrictions. The travel industry has met the most optimistic recovery projections and is currently at 90.5% of the
2019 pre-Covid volumes an en-route to fully recover by end of 2023, as reported by IATA in their latest press release related to Passenger Demand. The recovery has been accelerated by the removal of domestic and international travel bans in China, as well as the general increase in leisure travel demand. In fact, domestic travel has already surpassed 2019 number by 2.9%. While airlines are happy to fly sold-out flights, the rest of the Aviation industry is struggling to keep up with the rapid recovery and to ramp up their manufacturing, repair and overhaul operations to pre-pandemic levels.
The main challenges of the industry are:
- Shortage of maintenance technicians
- Material management
Both subjects were showing signs of weakness for some time now and the pandemic did not help at all, but on the contrary, accelerated their decline. There is no Aviation event where one or both subjects are not on the agenda, and this was the case at the Le Bourget Paris International Airshow (19-25 June 2023). Large “We’re hiring” signs, special QR codes for Resume/CV uploading and HR managers at the stands were obvious signs of an industry looking to attract manpower.
On the other hand, supply chain managers were running around, trying to strike new deals and secure constant flows of material for their operations. Manufacturers, MROs, or component repair shops, equally struggle now with missing material. This is driving turn-around-time and maintenance costs up, keeping shelves empty, induction slots inactive and putting a lot of pressure on the creativity of the supply chain teams to get material in the shops on time. The biggest problems seem to be around component piece parts, engine hot section and consumables. The latter comes a bit as a surprise since it is a category of products with a diverse supply base and low value so the general expectation would be that enough stock, if not extra, is available. The market signals are that this is not the case anymore since consumable manufacturers have either gone bankrupt during pandemic, are struggling to get their hands on raw material or are heavily affected by the manpower shortage as well.
Predictions are that the material shortage issue is not going to get better anytime soon. The lead times have increased from 16 to 42 – 52 weeks for new manufactured parts and are expected to remain at this level for the next 12 – 24 months. Based on this, MROs are struggling with getting engines out the door and back on wing especially for customers that stick to using only new material during the overhaul process.
It is clearly a time to become creative and try to find ways of overcoming challenges. Most of the respondents of Oliver Wyman’s latest MRO report survey plan to simply fill their racks with parts as they become available. That’s not necessarily the most creative idea but it can get the job done if they can locate the inventory and if the company has the cash to allocate to inventory. When cash-flow is an issue also then companies must look at alternatives to OEMs such as: using PMA (Parts Manufacturer Approval), OPP (Operator Produced Parts) or USM (Used Serviceable Material) parts, strengthening their relationship with distributors and last but not least, adopting new technologies to help with their sourcing process.
USM, PMAs and DERs
If we were to choose the best time to be in business for these types of parts, then this would be it. Raw material has increased with 8.3% in the last year and a 6 – 7% increase is expected for the next 2 years. That is way over an average of 3% per year between 2015 and 2020.
The current material shortage situation and raw material cost increases are pushing operators and MROs to look for cost reduction methods. Used serviceable material seems to be the preferred route, with at least 50% of supply chain professionals considering it a good way to mitigate current challenges.
Down the list of preferences are PMA/OPP parts as well DER (Designated Engineering Representative) repair parts. Only 30% of customers are looking into this kind of parts and since more than half of the assets currently operated (engines / aircrafts ) are leased, the lessors are the ones driving this number down. These categories tend not to be so attractive for them for a few good reasons: they artificially decrease the value of the asset and makes it harder to place with another operator.
Distributors
Distributors have picked up a lot of the orders that OEMs couldn’t fulfill. They either hold previously purchased OEM stock, have developed their own parts according to OEM drawings or bought assets and are selling them as piece parts. A study made on the Top 3 spares distributors has revealed that it is very likely their sales numbers will exceed 2019 reported numbers by at least 10% until the end of the year. That confirms the higher appetite that the market has for OEM alternatives.
The trend is for distributors to be as integrated as possible with the customer’s operations and that is why companies diversified a lot the range of services they offer. For example, in a recent discussion with Farsound Aviation COO, Mr. Lee Kelsey, I found the great efforts Farsound has done to evolve from distribution to offering full supply chain solutions to their customers. In the last 5 years, they launched cloud portals that customers can use to check order statuses 24/7, intelligent vending machines that record consumption data while reducing ordering time as well as line feed solutions and kitting carts deployed in MRO operations.
Technology
As a proactive part of the digital transformation of the aviation industry, I was pleased to observe that technology adoption ranks 6th place in MRO professional’s Top 10 solutions for current supply chain problems. We’ve set a clear mission for helping the aviation industry and that is to “Connect the entire MRO ecosystem” so we are doing our part in connecting relevant markets and reducing technology barriers. Our objective is to empower supply chain professionals to focus on supply chain tasks, rather than administrative or IT-related activities.
The message we’ve got from the market is that supply chain professionals need more time to connect with their suppliers, understand their challenges and work together on solutions. In a recent discussion with the CEO of DAES Group, Juerg Bartolome spoke, “Almost every order requires special attention and needs to be walked-thru the process.”
So where will companies get this extra time?
By automating many repetitive and time-consuming tasks, these solutions enable professionals to concentrate on tasks that require their unique aviation supply chain expertise.
During visits to the Paris Airshow, encountering companies promoting themselves as major stockists, distributors, or established operators and discovering that a seemingly simple task such as generating an inventory report could consume a considerable 3-4 hours using their current software solutions was both amusing and disheartening.
Market challenges combined with technology intensify the frustration experienced by a group of professionals who are already under significant stress. Supply chain professionals do not have 3-4 hours to spare in the current dynamic environment. Basic information such as purchase order updates, part availability information or AWB updates needs to flow between businesses in the most efficient way possible.
Understandably, a software solution will not be able to speed up the production process of a mill providing raw material to spare parts manufacturers, but it could surely help an MRO, a manufacturer or component repair shop operation understand better their needs, consumption patterns, safety stock levels and purchasing habits and send the right signals, at the right time, downstream and upstream.
We are at a turning point in the aircraft spares and inventory market, and I encourage companies to investigate adopting new technology that can make business processes and operations more efficient, flexible, and resilient to Covid-like situations. We believe great communication within the ecosystem, between customers, spare parts dealers, suppliers, distributors, and marketplaces, is the cornerstone of the industry’s success. Relying on outdated software solutions, building barriers between systems, lack of IT development and gut-feeling decisions are no longer viable strategies. It’s imperative for the industry to embrace innovation and leverage modern technological advancements to navigate the complexities of today’s aviation landscape.
