Providing back-up for the world's Lockheed C-130 Hercules is a big and growing business
Graham Warwick/ATLANTA
With more than 1,800 Lockheed C-130 Hercules transports in service with 68 countries, supporting the popular transport is big business - and not just for its manufacturer. Independent companies play a major role in supporting the Hercules worldwide, a role which is increasing as the fleet ages and operators become more sensitive to parts prices.
The C-130-support market, excluding US Government sales, is estimated at $300 million a year by the biggest independent provider, Milwaukee, Wisconsin-based Derco Industries. Derco had sales of $57.5 million in 1993, mostly on the C-130. That places the company second in the market behind Lockheed, with $140 million in C-130-support sales, and ahead of third-placed Certified Aircraft Parts, with 1993 sales of $25 million.
Derco's sales are increasing at an average of almost 19% a year, says president, Eric Dermond. In contrast, Lockheed's product-support revenues are decreasing. In April 1994, the manufacturer formed a venture with Florida-based Certified, called Lockheed Aeronautical Systems Support (LASSC), to compete more effectively with independents such as Derco.
Hercules use is increasing as peacetime demand for the aircraft outstrips that expected in wartime. As the fleet ages, customers are less willing to buy new parts for old aircraft, preferring instead, to have components repaired or to buy reconditioned parts. This trend has fuelled the growth of independent support-providers, to Lockheed's disadvantage.
Now, the manufacturer has responded by forming LASSC, an independent, low-overhead subsidiary, dedicated to supporting commercial and foreign-military operators of the C-130. Derco is responding by extending its total-support programme to encompass Lock-heed's new C-130J Hercules II and the manufacturer's P-3 Orion maritime-patrol aircraft.
The support business is becoming increasingly sophisticated. Derco maintains an inventory of some 17,000 line items, worth more than $20 million, with consignments stationed at eight locations worldwide. Customer orders can range from individual items to complete shipsets of components pre-kitted by Derco to support major overhauls. The company is introducing electronic data-interchange. Customers can now check their order status electronically. Ultimately, they will be able to request quotes and place orders via "paperless communication", using the commercial-airline SPEC 2000 standard, Dermond says.
Derco has developed from a parts provider to a distributor for C-130 component suppliers. The company has distribution agreements with more than 30 original-equipment manufacturers (OEMs), ranging from the supply of improved bleed-air ducts to the joint marketing of a Hercules air-refueling tanker conversion developed by AEL Industries. Agreements cover Hamilton Standard propellers, cockpit armour developed by Simula and a Cubic Defense Systems ground-collision avoidance system.
NETWORK ADVANTAGES
According to Derco, the advantage to an OEM is that, through a network of more than 40 in-country customer-support representatives working with operators of some 550 C-130s, the company is able to forecast demand for a part more effectively than the component manufacturer. Derco takes the inventory risk, allowing the OEM to move from producing components for stock to just-in-time manufacturing.
The customer benefits from Derco's buying power, Dermond says, and from the company's ability to offer new or overhauled parts, for purchase, exchange or lease. DRS, a Derco subsidiary, is a US Federal Aviation Administration-approved repair station able to overhaul some 1,200 items, 80% for the C-130 and 20% for several commercial-aircraft types.
Dermond attributes 15-year-old Derco's success to competitive pricing, flexibility and responsiveness. The company guarantees a 21-day turn-around on overhauled parts and stocks kits of parts for major overhauls, including aging-aircraft upgrades, to minimise delivery times. Consignment inventories are located with major consumers in France, Malaysia, Portugal, Singapore, South Africa, Sweden and the UK, which are billed as parts are used.
Dermond boasts that it is Derco's support, which keeps early C-130As and Bs flying. The US Government's plans to dispose of 150 B-model Hercules to countries in South America, the Middle East and Eastern Europe are expected to increase support requirements. The company also intends to compete head-on with Lockheed to support the new C-130J. Many of the parts, and customers, are the same, Dermond notes and the company plans to sign agreements with new OEMs on the C-130J.
Derco also plans to offer a similar total-support capability for the P-3, which again involves some of the same customers and OEMs. The company already has some P-3 business, but needs "a few large contracts" to make the investment in the required inventory worthwhile, Dermond says.
Lockheed's answer to Derco's inroads into its C-130-support business came in 1994, when LASSC opened for business. The company was formed as an independent, wholly owned subsidiary of C-130 manufacturer Lockheed Aeronautical Systems, to provide total support, ranging from spares supply to repair design. LASSC's initial focus is to provide support for more than 800 C-130s operated by commercial and foreign-military customers, excluding those which bought, and support, their aircraft through the US Government's Foreign Military Sales system.
Lockheed faced a challenge in being competitive, admits LASSC vice-president Jim Adams. The aircraft manufacturer could only supply new parts, but operators of older
C-130s wanted cheaper overhauled components. The company had to become competitive, selling new and overhauled parts and offering repair and exchange services, but could not do so under the manufacturer, because of its high overheads, he says.
LOW-COST SUBSIDIARY
The result was the formation of a low-cost subsidiary, with "an order of magnitude reduction in overhead", says Adams. LASSC has its own board, employees and a separate payroll, to create a "veil" between the support company and the aircraft manufacturer. The links remain strong, however - LASSC president, John Gaffney is Lockheed Aeronautical System's director of product support - allowing the support company to claim the backing of the C-130 manufacturer, for everything it does.
A key element in the formation of LASSC was the agreement with Certified Aircraft Parts, which gave the company access to a used-parts inventory and repair services. New parts are ordered from OEMs via the manufacturer's production-purchasing system, while overhauls and exchanges and handled via Certified, which is a FAA-approved repair station. The agreement also gives Certified access to Lockheed's pricing for new parts.
"We had to do something," says Adams, acknowledging that Lockheed's product-support revenue was declining. "Customers wanted [to deal with] a single source: there were too many Lockheeds out there," he admits. LASSC describes itself as a "one-stop shop", a single point of contact for C-130 operators it's available services ranging from engineering to training.
The company offers a range of upgrades developed by Lockheed and its customers. These include a tanker conversion; surveillance and self-defence pods; improved colour weather-radar; electronic flight and engine instruments; and other system improvements developed over the years.
Adams says that Marietta, Georgia-based LASSC has already made an impression in the marketplace. "We are walking, not running," he admits, but orders are coming in. Plans are being drawn up to locate consignment inventories in Singapore, South America and the UK and the company is already looking at the P-3-support market, Adams reveals.
Certified, meanwhile, continues to operate independently of LASSC, although more and more of its business is expected to be through Lockheed as the support company establishes itself. The company has been in the C-130-support business for 25 years and was once a supplier to Derco. Certified claims already to have the largest inventory of C-130 spares and is expanding its warehousing.
The company says that operators are readily accepting its link with LASSC, which its describes as "long overdue". The team's goal, Certified says, is to drive down the operating cost of the C-130 and, for new customers, to reduce the start-up cost by including overhauled parts in the initial spares provisioning.
Source: Flight International
