A host of major carriers are turning to non-OEM spare parts to help cut their maintenance bills
If you go to the Google internet search engine and type in "PMA parts" in less than a second it finds 76,100 entries. Does this sound like an industry that is going away? Despite the awkward name and continuing attack from original equipment manufacturers, Parts Manufacturer Approval (PMA) parts have become an integral part of the aviation maintenance business.
Begun decades ago by the US FAA, the PMA programme allows companies to apply for authority - meeting rigorous standards - to produce PMA parts as replacement for generally more expensive parts from the original equipment manufacturers (OEMs).
Under the system, more than 2,000 PMA holders are making thousands of aftermarket parts used in commercial aircraft and engines. PMA approval consists of a design and production approval, giving companies the ability to produce and sell FAA-approved aircraft parts eligible for installation on FAA type-certificated aircraft.
Companies can obtain PMA design approval by showing that the part is identical to the design of a part covered under a type certificate or by showing through tests and computations that the design of their part meets the airworthiness requirements applicable to the product on which the part is installed.
Because of US bilateral agreements, PMA parts can be used worldwide and are finding increasing favour abroad. The reason for their growing use and popularity is that they can save the airlines as much as 25-35% compared with the prices of OEM parts, according to Eric Mendelson, chief executive of Heico Aerospace, the largest independent PMA producer.
There is another benefit as well, he says. The very availability of PMA parts for the aftermarket influences OEM pricing behaviour, limiting their ability to raise prices on competing products. Previously price increases of 5-10% a year were not uncommon, he adds.
"We're a modern-day version of Robin Hood, taking from the rich monopolists and creating savings for the airlines and a proper return for ourselves," Mendelson contends.
Although some OEMs have sought over the years to rein in the growing use of PMA parts, charging variously that the parts were not safe or not as good as those produced by the OEM, those allegations have not been substantiated - and have not been accepted by the FAA - and PMA parts have found growing acceptance among leading airlines.
Reliable supplier
Eager to develop a reliable source of reasonably priced quality parts, Lufthansa Technik invested $50 million in Heico Aerospace in 1997 for a 20% shareholding in the company. Much of it was invested in new product development, Mendelson says, some of it requested by Lufthansa.
Three years ago, Heico and AMR, the parent company of American Airlines, formed a joint venture to develop and manufacture a range of FAA-approved spare parts that were applicable to American's fleet. That was followed by similar agreements with United Airlines, Delta Air Lines and Air Canada.
Most recently, Japan Airlines (JAL) became the first Asian carrier to sign a long-term, exclusive-supply agreement with Heico, under which it will significantly increase its use of aircraft and engine PMA parts. JAL expects to buy a substantial number of PMA parts from Heico's existing catalogue as well as parts currently under development. It will also work with the company to develop other parts for FAA certification.
"Most of our business is on long-term agreements with our partners - they've agreed to buy a majority of the product that they can buy from us," Mendelson says. "In addition, we identify a group of products to develop in the future and they agree to buy them as soon as we have them. We have to go to the FAA for each one."
Florida-based Heico currently ships more than 2 million parts annually from a catalogue that now stands at 3,600 parts. With an annual research and development budget of about $7 million, Mendelson says, the company develops about 300 new parts every year, all through re-engineering and without the use of any OEM proprietary information. The parts range from simple nuts and bolts to air foils and fuel pump gears and more complex parts. Most Heico parts shipped are for engines, but its range also includes fuel, hydraulic, pneumatic and electromechanical components, structural parts, some avionics and interior parts. Its engine parts include compressor blades and turbine veins.
Ironically, Heico sells parts to OEMs whose customers, under time and material contracts, request its parts. Sometimes, OEMs overhaul other OEM's products and ask for Heico parts.
Besides the independent PMA holders, many aerospace companies - such as Hamilton Sundstrand, Honeywell and Parker Hannifin - are also PMA holders, having been licensed by Boeing and Airbus, for instance, to produce parts or subsystems for their aircraft.
How big the PMA market is depends on who you talk to, and what the definitions are. AeroStrategy Management Consulting estimates the available PMA market is potentially $1 billion, including $650 million for engine parts, out of a total MRO parts demand of $13 billion. Last year, though, PMA sales were estimated at about $200-250 million. Even if PMA sales double or triple by 2008, they will represent just 3-4% of the total, AeroStrategy projects. "OEMs will still control the vast majority of parts demand by 2008 even under optimistic scenarios," says Kevin Michaels, AeroStrategy principal. The PMA phenomenon does not threaten OEM spare-parts volume, he says, but will affect future revenue streams by limiting spare parts price increases.
Heico sees the size of the market as somewhat smaller. It estimates the current independent PMA market worldwide for large commercial transport aircraft at less than $150 million. Although a tiny portion of the overall market, it is up from just $50 million a decade ago, Mendelson says, which is why OEMs are upset.
"It's FUD - fear, uncertainty and doubt," he says. "We're not going after 50% or 100% of the market. It's our intention to take a minority market share, to provide cost savings for our customer and a fair return for ourselves."
Because the cost of parts makes up so much of the bill for engine overhaul, though, it is no wonder that the big engine makers have been the most vocal against PMA parts.
Regulation revision
Four years ago, General Electric Aircraft Engines and Pratt & Whitney jointly wrote to the FAA calling for revisions to the regulations which certificate PMAs for core engine components. Noting that PMA holders were moving into "technically sophisticated parts of jet engines, including rotating parts", it urged the FAA to impose OEM-level testing, design, systems and standards on them to prevent potential risk to aircraft engine operating integrity. No action has yet been taken.
Privately, officials at the engine makers concede that providing spare parts are the only thing making it worthwhile staying in the engine business. Airlines want to pay the lowest possible price for aircraft engines and the resulting price - almost free, some say - makes it difficult for the companies to recoup the high capital costs of developing a new engine.
REPORT BY CAROLE SHIFRIN IN WASHINGTON
Source: Airline Business
