Lessor backing builds AeroTurbine asset management business.
AeroTurbine recently forged a few major asset management agreements around the globe, made possible by four years of investing in people, processes and infrastructure. The culmination of quietly building the company and its aircraft and engine component spares capabilities generated a 25-30% compound annual growth rate during this time, and it also enabled AeroTurbine to craft a multi-million-dollar deal with .
The four-year deal signed on Feb. 12 involves American selling its excess inventory to AeroTurbine, which opened a warehouse in Tulsa near American’s heavy maintenance base and monetizes that surplus for the airline. “The initial batch of parts includes 20,000 line items”—ranging fromto MD-80s, according to Mike King, AeroTurbine’s president and CEO. As American deems additional inventory surplus, it will flow to the neighboring warehouse.
Last month, AeroTurbine also announced an exclusive agreement with Webjet Linhas Aereas, making the Brazilian low-cost carrier the launch customer for AeroTurbine Flexible Engine Care Solutions. Through this three-year agreement, AeroTurbine will manage off-wing maintenance for Webjet’s 45-3 powerplants, including engine leasing and exchanges.
This type of tailored engine maintenance support package also can include material supply, as in another multi-million dollar deal AeroTurbine recently signed with Evergreen Aviation Technologies (EGAT). This agreement covers-80C2 material support for the MRO in Taiwan.
King credits AeroTurbine’s purchasing power, which now is upsized to a $425 million credit facility, to owner AerCap’s financial strength. Since AerCap—a Netherlands-based aircraft and engine leasing company—purchased AeroTurbine in 2006, its credit has climbed and “gives us remarkable advantages over our competitors because it allows me to buy multiple aircraft engines and large parts packages around the world that feed our engine leasing business, our parts business and our engine exchange business,” says King.
Investments over the last few years include opening facilities in the U.K., Singapore, and Dallas; setting up a sales office in Abu Dhabi; and purchasing an MRO in Goodyear, Ariz., where maintenance and teardown takes place.
At the same time, “We’ve hired over 50 people to support the front-end growth of our business,” says King. “This is remarkable if you consider that we’ve been operating in an economy that is arguably the worst we’ve had in the past 80 years,” he says. “At the same time, we’ve tripled our EBITDA and doubled our front-end revenue growth by getting close to the customer,” adds King.
And customers have, and will continue to, increasingly focus on used content, predicts King, who credits MROs with doing a good job of maximizing labor and processes to generate savings for their customers. But for engine overhauls, “about 70% of an invoice is for parts,” so he predicts more inclusion of used, serviceable material and parts repair.
He also sees a bow wave in vendor reduction and long-term supplier agreements, which help operators control costs. Both of these trends fit AeroTurbine’s pursuit of more programmatic business, such as the American Airlines agreement, that locks in a steady stream of revenue. The company also has a similar surplus inventory agreement with Chromalloy, as well as component lease agreements with(for wheels and brakes) and Aveos (for components).
Deals such as these have helped transform AeroTurbine’s business from selling 80% of its parts to competitors in 2006 to “today, when 90% of our product goes directly to the end user,” says King.
“Our banks and investors clearly see the value of end-user penetration and that makes the business more forecastable,” he adds.