PMA & Aircraft Engine Overhaul

Read the full interview HERE

We recently interviewed a Former Program Director at Safran Nacelles who was responsible for building key components of the CFM56.

We explore:

Disruption to engine supply chain from covid pandemic
The process and major steps in a CFM56 shop visit
How an airline decides whether to use PMA or OEM parts in overhaul
How pricing works for the shop visit
Oversupply of parts and impact on PMA pricing
Outlook on CFM56 and LEAP aftermarket revenue

Effectively, the OEMs are taking back ownership of the intellectual property, in a way?

Yes; absolutely. It’s key. They own the intellectual property and, therefore, they control who can do MRO activity and at what price.

Potentially, that’s going to reduce the addressable market for PMA then, as well, I assume?

Yes, indeed it could, because under the engine overhaul contract, signed with the OEMs, the OEMs can put in place clauses that forbid the provider to use PMA parts.

Do you think CFM would do that for the LEAP, for example?

If I were in their shoes, I would. There is a certain category of parts which are standard parts, C-class parts, nuts, bolts, washers and other components, which one buys to a standard, from any one of the brokers. Those parts are not controlled by the OEMs.

So there will always be a portion of that engine – the C-class parts – that can be provided by PMA?

Yes.

One interesting discussion there is around those PMA suppliers, such as Heico, is just the pricing architecture for the parts. Clearly, any PMA part is going to be cheaper than the OEM; that’s the offering and the position of the product. How transparent is the pricing, for operators or the MRO network, of those PMA parts? Does the airline have a great idea, understand and accept the actual pricing of the PMA parts?

The market price of a PMA part falls between two prices. It has to be cheaper than the OEM part but there comes a point when the airline is not prepared to take a PMA part and they would prefer to take a good second-hand part, a good used part. As you get towards the good used part, it is at that point you start thinking as to whether it is worth a PMA part or not. It is a bit variable but, typically, people are not prepared to pay more than about 50% for a good used part, compared to a new part. PMA parts are going to have to be somewhere around there, or a little cheaper.

That becomes interesting, because if we see an oversupply of aircraft to the market or retired aircraft, higher surplus of parts, we’re going to see an excess of used parts in the market, that is going to put pressure on PMA demand?

Exactly. Right now, we see, pretty much, 95% of the world’s fleet currently chocked up and taped up in airports and we know that some of those aircraft will never take off again. There was a famous story, this week, of the Air France A380s, which are being taken out of service. I don’t think there is going to be a PMA supplier who wants to try to make a part for a 380 anymore.

So the airline will just demand that they would rather use the used part, even if it’s marginally more expensive, than the PMA part?

Typically, yes. It depends on the relationship with the PMA supplier. If an operator is in a situation where they need a spare part, they’ve got access to a good used part, or they’ve got a PMA part offered to them, from an organization that they don’t know, they’re going to go for the second-hand part.

The other point is, as you mentioned, given that these engines, such as the neo or the LEAP and the GTF, they are more complex, with higher engineering and higher tech, would that be materially harder to reverse engineer, for the PMA suppliers?

Depending on the component involved, yes, those engines are operating at higher pressures and higher temperatures. The control systems are more complicated, the design engineering that went into the engines is much more advanced than that that went into the predecessors, which are 20 to 25 years older, in technology. The parts have been designed to much higher engineering tolerances and to more challenging environments. That makes it, automatically, more difficult to reverse engineer an alternative.

Given the dynamics today, such as the huge oversupply of aircraft, accelerated retirements of aircraft, what is the impact that you see on shop visits, on part supply and part pricing?

The price of new parts is not going to change. The catalogue is going to stay as it is. The aftermarket parts, particularly for the older engines, there is going to be a flood of spares on the market. Second-hand prices are going to fall, without a doubt. The overhaul of engines will depend on the operator of the aircraft and how they anticipate the aircraft are going to be used or how they are going to be able to use the aircraft, in the future and the state of the aircraft they have today.

An operator who has aircraft that have got a year’s life left on an engine, but the airplane hasn’t flown for the last three months, the engine overhaul that they had scheduled for nine months’ time, they’re going to keep pushing it back. However, an operator who has an aircraft that’s probably got a month or two, or three months left, on an engine and the aircraft is due to be handed back to the lease company, they may well opt to put it in engine overhaul anyway, just to get the aircraft back into return to lessor condition. It all depends on how the airline and the operator see the future for their operations.