Airlines have had the option of choosing alternatives to original equipment manufacturers' spare parts for years, but parts manufacturer approval-certificated components are increasingly being seen as a real alternative by operators keen to cut their costs to offset high fuel prices, and in some cases as a real threat by original equipment manufacturers.
Analysts are predicting a boom: "Sales are expected to double in the next five years," says Diogenis Papiomytis, a consultant with Frost & Sullivan, and author of a report on PMA market potential that predicts players will be taking advantage of a market that is forecast to grow to $2.3 billion by 2010 (see graph).
The market as a whole has benefited from the entry of high-profile companies including Pratt & Whitney, whose controversial Global Material Solution initiative was launched in February 2006.
Nonetheless, there are some significant barriers to entry, says Papiomytis. First, brand is crucial. "The PMA market is very particular, in that it can only grow bigger based on the brand equity of existing suppliers. It is also true that the entry of one reputable organisation validates the whole market, in the eyes of airline end-users," he says, adding that Lufthansa Technik provided this much-needed validation, being the largest maintenance, repair and overhaul provider in the world and a sister company to one of the largest airlines, by becoming a shareholder in Heico in 1997.
PMA sales subsequently grew at unprecedented levels, not only for Heico, but for most suppliers, Papomytis says.
"We see the entry of P&W having a similar, if not greater, effect by providing validation from the OEM perspective. P&W, being in direct competition with other engine OEMs on their own products, may mean the beginning of a new trend, with other manufacturers following suit."
While PMA manufacturers are looking forward to the opening of a massive potential market, OEMs are waking up to the threat that PMA offerings pose to their lucrative aftermarket revenues. It is here that the difficulties for PMA players may begin to emerge, as OEMs take action to protect their aftermarket revenues.
"The existence of alternative parts is bound to have an effect for OEMs. At the moment this has not been significant, due to the limited end-user acceptance levels for PMA parts, particularly outside the USA and European markets. However growth is imminent and original manufacturers should, if they do not already, have their strategists looking at this market," Papiomytis says. "OEMs have the power to limit the size of the PMA market, using a number of competitive tools. If original parts prices were not so high, we would not talk of PMA parts today. Airlines are now evaluating alternative material sourcing strategies due to the pressure to cut down their costs and for no other reason. The most popular strategy followed by OEMs today is to grow their aftermarket total support packages, thus becoming the sole material source for airline end-users."
Barriers to entering the PMA market could be particularly high for new and smaller entrants. "Small independent players in the PMA market have a serious competitive disadvantage in the level of insurance cover they offer to their customers. A typical liability for a PMA supplier, in the event of a system failure caused by a non-OEM part, would be in the range of $100 million. For larger airlines purchasing a greater number of PMA parts, such as American Airlines and Iberia, the figure may well reach $500 million. It is apparent that smaller shops cannot assume this liability," Papiomytis says.
In addition, a smaller, independent PMA manufacturer will have to battle to get its brand known and trusted. And even established players such as P&W are finding it tough to attract customers, as many wait to assess the performance of parts before committing themselves, and others await the end of long-term agreements before they are free to change their parts procurement strategy.
There could be changes afoot, however. At the moment the European Aviation Safety Agency takes a "reactive stance", according to Papiomytis, deciding on whether to allow PMA parts in Europe-registered aircraft based on US Federal Aviation Administration approval. But studies are taking place, and further regulation is expected. Talk of a European Parts Approval standard would pave the way for a whole new market, he argues. "Tighter and clearer regulation would also boost PMA sales, as airlines would feel more secure," he adds.
And the market could see significant growth in Asia, which currently accounts for around 15% of worldwide PMA sales, Papiomytis says. He adds that a likely next step will be for governments in emerging markets to wake up to the need for regulation in the PMA markets, thereby ensuring that growth continues.
Source: Flight International
