2011 State of the Parts Address
If I may offer my readers some advice on preparing for their 2011 parts requirements, it is this: buy early. I have been observing the price of aircraft parts and its impact on the market for many years. I am less than encouraged by what I see.
Several fleet operators over the years have asked me for my predictions on price increases for parts. Now, it isn’t the prices that I am concerned about. It is the supply. I am genuinely concerned about the technical ability of many important manufacturers to provide parts in a reasonable timeframe.
The reason for this actually deserves a little background information. In the mid-1990s, many U.S. aerospace manufacturers got excited about a new phrase: “just in time,” or “J.I.T.” Like many good ideas that get taken out of context, J.I.T. means only one thing to some manufacturers: no inventory. In reality, the last component of J.I.T. speaks to the end user receiving the products they need, exactly when they need it.
The problem with J.I.T. is that this philosophy often does not work. The reason why it does not work is that manufacturers have basically stopped manufacturing their own parts, thus losing most control over their own supply. When you outsource, you lose material source and quality control. Look at the Boeing 787 Dreamliner. Boeing is a master when it comes to systems integration; however this program has run into trouble because of problems with second and third tier suppliers. Issues with one supplier became so bad, that Boeing had to step in and buy them. I know of another fortune 500 aerospace component manufacturer that actually got the bright idea of selling its very own foundry which supplies most of its critical castings. This foundry is right out behind the company’s offices. This foundry is now providing slower service at much higher prices. Additionally, this foundry is now supplying the exact same castings to a competitor!
The reason why I am communicating this is to make you aware of an emerging mentality. Many of the original aviation component manufacturers that offered leadership and new products in the 1960s through the 1990s have been bought out and merged into larger aerospace holding companies. Many of the senior management were pilots, engineers and mechanics. Now most of that generation has been downsized. These companies are now increasingly being staffed by people who care little about aviation and their exposure is usually relegated to what they see on the History Channel. Not all companies are doing this. There are a few companies that do impress me. Aero Accessories in North Carolina impresses me a lot. They care about making good quality products and are determined to support their distributor network. SMR Ice Shield impresses me as well. Their products are so good, that some of the OEMs are starting to integrate them onto some legacy airframes.
Anticipated price increases
With an understanding that many manufacturers don’t want to stock anything, nor do they seem to be able to completely control their own supply needs, what are some potential price increases that we are likely to see during the next 12 months? For those of you in the avionics community, pay attention to what China is doing to rare earth elements market. Despite the fact that China only has 25 percent of the rare earth element supply source in the world, they are currently supplying 95 percent of the rare earth market. Newer green technologies are relying increasingly on rare earths for their performance, making the demand even greater. There is a significant number of rare earth elements used in radar and avionics components. This dependency on China for rare earth elements and China’s recent actions with blocking the export of these elements to Japan has a real consideration for the future cost of avionics repair and upgrades.
Speaking of elements, I expect lead acid aircraft battery prices will climb soon as well. Copper reached more than $4 per pound in December and tin has increased about 53 percent in the last 12 months. Copper and tin are major traded commodities, and I have seen these volatile elements create multiple prices increases for aircraft batteries within one year. For this reason, I would encourage everyone to buy your batteries sooner, rather than later.
Another item that seems to continue to climb is tires. Petroleum has been climbing again, and it is a key ingredient in the cost of aircraft tires. After suffering a dip in price, rubber is also recovering quickly. With the significant increase in rubber and petroleum costs, it is safe to assume tire prices will continue to climb. Tire manufacturers are very keen on controlling costs. I have been to several U.S. aircraft tire manufacturing facilities, and I can tell you they work hard at producing very little waste. Whatever waste they experience gets recycled.
As a parts distributor, despite our efforts to educate our customers, some people still put off part purchases even when they are told price increases are coming. It always amazes me when someone calls and orders a part four months after I quoted it. The part is significantly higher in cost and the customer is upset. We already advised the customer that the price increase was coming, but they decided to wait anyway.
Basically, there is no better time than the present to buy parts. When you buy a part early, you lock in a less expensive price and can take advantage of cheaper or less costly freight methods. It is a win-win for everybody. I take no joy in sending large checks to FedEx and UPS each week.
In closing, I would encourage you to take advantage of the customer service that distributors can provide. Distributors can support you in ways that other companies cannot. For example, I had a Falcon Jet operator try and pull the wool over the eyes of a local large FBO here in Indianapolis. He was flying through and was experiencing problems with BOTH of his lead acid batteries. He wanted a free set of batteries at $2,000 each. I talked to the FBO’s director of maintenance and asked him to get me the battery serial numbers of the Falcon. It is rare that BOTH batteries would have problems. I ran the serial numbers and discovered this person was trying to get his third set of free batteries. He would fly from one new FBO to the next, leaving the FBO holding the bill on a pair of batteries. He simply refused to pay.
Norman Chance is President and CEO of Chance Aviation, an international aircraft parts distributor headquartered in Indianapolis. He graduated with a degree in Aircraft Maintenance from Vincennes University and has a degree in Aeronautics from Embry Riddle University. Chance has recently been named to the board of directors for the new Indiana Aerospace Junior/Senior high school. He holds an FAA A&P certificate.