AMSTERDAM—Supply chain issues are driving an ultra-competitive market for used serviceable material, but long turnaround times on repairs, cost hikes on parts and aircraft delivery delays could cause operators to reconsider its usage.
During a fireside chat at Aviation Week Network’s Aero-Engines Europe conference, David Greenwell, AerFin’s senior vice president of supply chain, shared perspectives on the used serviceable material (USM) market.
“We’ve seen a 50% year-over-year increase in demand from this time last year, so the USM market is definitely hot,” said Greenwell, noting particular growth in demand for parts from narrowbody engines such as the CFM International CFM56-5B and -7B. AerFin also sees high demand for parts such as high-pressure turbine hardware, life-limited parts and line replaceable units.
As repair turnaround times (TAT) continue to drag out, Greenwell sees more companies looking at USM, parts manufacturing approval (PMA) parts and designated engineering representative (DER) repairs to reduce costs. “A few years ago, Aerfin would never anticipate going out and trying to get DER repairs—we’d always want the OEM repair,” he said. “I think the industry is changing now where, in order to get things through at a pace fast enough to keep up with demand, we’re having a look at [options such as DER and PMA].”
Greenwell noted that a typical turnaround time used to be 30 days, but “no one ever expects their part to be returned in 30 days anymore. It’s getting elongated, so that affects your cost bond, your cash flow, how quickly you expect to get revenue on it and what you can promise your customers.” While he believes the industry is making incremental improvements on TATs, he is unsure when things will stabilize. “I’m not expecting it to be any time this year or into next year,” he said.
However, some recent challenges are complicating the USM market. For instance, Greenwell said green-time engines have been snapped up for aircraft such as the Airbus A320 and Boeing 737NG, so it has increasingly become more economical to overhaul an engine and get it back on-wing rather than parting it out to support overhauls. This means USM players “are all bidding on a smaller and smaller pool, which is pushing our bid prices up,” he said.
Although there have been competitive USM cycles in the past, “the difference this time is who you’re competing against. It’s not just competing against other suppliers—it’s competing against people that want to get that engine flying again,” said Greenwell. “We’re in a period now where demand has gone crazy on needing the metal, but the prices of acquiring the assets are going up at a much faster pace than what the MROs are willing to pay for that material, so I think something’s going to give at some point.”
Greenwell also expects aircraft delivery delays to cause operators to withhold the release of aircraft into the teardown market until delivery rates are more consistent. And until this happens, prices will continue to be high.
“The biggest challenge is justifying the business case to keep adding more teardown on assets,” said Greenwell. “There’s a need in the industry to keep [using USM]—otherwise, we’re going to end up in a world where the only option is to go and find new material, and the price of an overhaul skyrockets. We need to keep [USM], but I think we need to get more of a sanity check on what the expectations are on revenue and margin on a deal and not kick it two years down the road.”
Greenwell also said AerFin is looking to diversify its USM portfolio. He noted that the company has some projects underway that will take it into a more niche market.
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