If an airline chooses to lease its aircraft, why should it not also lease the spare parts? While the concept of leasing spare parts might at first seem alien to airlines, the idea is beginning to catch on. In fact, the idea is not as unfamiliar as it might seem. Power-by-the-hour deals are commonly offered by engine manufacturers. A spares lease deal is similar. For a fixed term and fee, the airline buys access to line replaceable units (LRUs), returning them to the maintenance company for service and re-certification and paying for repairs and overhauls on a cost-per-flight-hour basis.
TRW Aeronautical Systems (Lucas Aerospace) regards itself as a pioneer in this new approach to repair and maintenance. Since developing and launching its Total Service Package a couple of years ago, the company says it has been receiving an increasing number of inquiries about these types of contracts. To date, TRW has signed half a dozen long-term lease deals, including contracts with St Louis-based Trans States Airlines and Northwest Airlines regional carrier Mesaba, as well as an executive jet operator. The company says another contract, with a large regional carrier, will be announced soon.
"What we have realised in our business is that you have to add value to the airlines. It's no longer just about repairing parts. It's about being flexible to offer whatever the airline is looking for," says David Ashton, executive general manager equipment services at TRW.
A spares' lease package offers airlines the opportunity to keep their balance sheets as light as possible and concentrate on the front end of business - customer service. "When the idea of leasing aircraft was first raised, people said the airlines would never do it. This is the next logical step to take," says Ashton.
Trans States, which has a 10-year deal with TRW, has extended the scope of the agreement to include support of engine controls on its fleet of Embraer ERJ-145 regional jets. Trans States is typical of the type of innovative airline that is willing to try a new way of doing business, says Ashton. The engine parts covered by the extended contract include the full authority engine control, the fuel pumping metering unit, and the compressor variable geometry actuator. There are 40 TRW LRUs on each ERJ-145 - a far higher count than on older commuter aircraft. Consequently, the company believes that interest in spare parts leasing packages will also increase as more regional jets enter service.
But interest is not limited to regional jet operators. Mesaba's five-year, $3 million deal covers various Lucas electrical system components on its fleet of Saab 340 turboprops.
GE inventory management
The concept of leasing parts can be seen as a just one step away from other creative inventory management programmes that are also appealing to airlines. In August, Ansett Australia and Air New Zealand Engineering Services (ANNZES) selected a new inventory management programme from General Electric Aircraft Engines, to manage all of the GE and CFM International engine parts used during overhaul.
What takes this five-year deal beyond the now-familiar power-by-the-hour agreements is that GE assumes responsibility for spares inventory at all levels, including the supply of new parts, the overhaul of selected components, paperwork, storage, transportation and packaging. GE has linked with California-based logistics company BAX Global as part of the deal and has set up logistics support centres in Melbourne, Australia, and Auckland, New Zealand.
"This is a great tool for airlines that want to get out of the inventory business yet still require the right parts to be available at the right time," says Jack Lutze, general manager of GE Aircraft Engines, South Asia-Pacific. "By moving inventory to the GE logistics support centres, and using GE e-business expertise to track parts, take orders and send invoices, airlines no longer have the expense of maintaining inventory. We assume responsibility for each part from the moment it enters our support centre until it or a replacement is returned to the customer."
GE is believed to be talking to other airlines about similar deals. ANNZES is a joint venture engineering business owned by both Ansett and ANZ that was set up in November 1999. The airlines believe that the venture will deliver a benefit of A$122 million ($65 million) per year within five years.
Both airlines were previously customers of GE's asset management programme, from which the inventory management programme has evolved. Under the asset management programme, engine parts are delivered to and returned by GE in kit form. Airlines still own a substantial amount of inventory and are responsible for packaging and transporting the kits. According to GE, the new programme should reduce the total time to conduct an overhaul. Perhaps just as interesting to the airline it is freed from the expense of maintaining inventory.
Source: Airline Business
