What’s one thing that will save you millions of dollars and months of your time?
Used Serviceable Material (USM).
Without them, you’d throw good money after bad, chase long, complicated lead times and get little OEM support, especially for older aircraft models.
That’s why this post is so crucial for you to read.
It’s a trend that has no foreseeable end, unless particular things happen within the aviation industry, of which, none exist.
The trend is, used serviceable parts are becoming more expensive and scarce.
We’ve hit a threshold point, and not addressing it within your operation will leave you…
- Vulnerable to increased material costs.
- Vulnerable to increased AOG incidences.
- Vulnerable to over investing in inventory to offset your material risk exposure.
To understand why this is important, you first need to know where it’s all coming from.
These three scenarios are responsible for the scarcity of used serviceable material.
A surge in MRO demand.
Many factors contribute to the recent MRO surge, the biggest one being increased passenger traffic, which drives maintenance demand.
Passenger traffic increased 6.7% for the first three quarters of 2018.
As passenger traffic and aircraft utilization increase, more shop visits are necessary, more components fail and need replacement, and more pressure is put on the MRO ecosystem.
Without an MRO industry prepared for this growth, the natural effects of supply and demand begin to set in.
There’s too much MRO demand for the current MRO supply.
Stable fuel prices.
The second scenario is the stabilization of fuel prices.
Sean Broderick writes, in his article, “Demand And Delivery Delays Are Driving Aftermarket Surge,”
“Fuel’s steady ascent has allowed many airlines to slowly ratchet up fares and fees, helping them recapture lost revenue in lieu of major cost-cuts via parking aircraft. The trend bodes particularly well for older aircraft that are less economical in a higher fuel-price environment, and has MRO providers bullish as well.”
As of this writing, fuel prices have dropped again, and the future price of oil is optimistic.
Acceptable fuel prices make flying older aircraft attractive, which puts pressure on USM material if…
There’s a lag in aircraft retirements.
The third scenario is the delay and lag of aircraft retirements. Fewer aircraft to part out results in less supply of used serviceable material.
Canaccord figures show that retirements of Airbus and Boeing aircraft totaled about 260 in the first three quarters, down 36% year-over-year.
If we look at all aircraft types, 2018 was expected to have 777 retirements, and 2019 is expected to have 747.
A 4% reduction in total retirements of all aircraft models.
When you combine higher traffic demand, stable fuel prices, and a decrease in traditional aircraft retirements, you have the perfect Used Serviceable Material scarcity storm.
What does aircraft used part scarcity mean for your operation?
Increased cost and less reliability.
Over the last decade, operators have become more profitable with an intense focus on total cost reduction.
Used serviceable material is part of their maintenance strategy, and they’re now in pursuit of leaner supply chains.
As USM material becomes scarce, you have to broaden your supplier list as current material providers are no longer carrying enough inventory.
This both increases the time you need to plan and source available material, but also the costs associated with sourcing, processing, and chasing your aircraft material needs, leading you to stock more material to offset the risk.
You’ll encounter unreliability and support.
A supplier can support your one Rotable need, but do they have the coverage to manage 500 repairs, deliver 1,000 items of expendable and consumable material, and build custom maintenance check kits that reduce your overall project cost?
The answer is unlikely. The impact is an increase in the time and money you must invest in managing your entire supply chain.
If your preferred material partner doesn’t have stock, you’ll be required to keep searching.
You won’t be able to reduce the complexity of your supply chain.
As USM material becomes more scarce, the natural effects of supply and demand peak its nasty head.
The higher the demand and the less supply, aircraft part prices increase.
It’s essential you get ahead of this in various ways that are reserved for a future post, and conversation.
If you’d like to know more about 2 other trends impacting your operation and the three ways you can offset the USM scarcity trend, join our email newsletter to get ahead of it all.
You’ll get an email from me once you do join. Reply to my email and let’s talk about how these trends will impact your operation.