Tight cost controls at some airlines amid the pandemic-related demand downturn are keeping spare parts sales artificially low, a trend that must shift even if carriers do not ramp up their schedules quickly, a top executive at Heico contends.

The parts manufacturing and distribution specialist saw commercial business revenues fall 54% across its business units for the three months ended July 31, its fiscal 2020 third quarter. While this is in line with a general commercial aftermarket decline of 50% in recent months, purchasing by several large customers was down significantly more, outpacing their flight reductions, said Eric Mendelson, president and CEO of Heico’s Flight Support Group.

“There are certain airlines that are down very significantly. I would say 96%, 90%, 88%, 87%, and these are major customers,” Mendelson told analysts on an Aug. 26 earnings call. “They’re operating 30% to 50% of their flights, and yet their purchases are down in the 90s. Obviously, that is not a sustainable model. These guys are flying aircraft, and it is just impossible for them to not purchase the parts.”

Heico specializes in lower-cost, OEM-alternative new parts that it develops under FAA parts manufacturer approval (PMA) requirements. Unlike, for example, expensive engine parts that airlines will seek to harvest from used parts stocks either internally or externally, most of Heico’s parts are bought as-needed with little lead time and are not subject to cost-cutting alternatives beyond using available inventory. This gives the company a reliable perspective on customer fleet activity.

Heico’s customer base includes major airlines from around the world, though certain regions—notably China—are less receptive to PMA parts than others. Heico’s sales figures show that May was the low point for demand, which suggests flying activity hit its low point a month or so prior—a timeline that generally tracks with airline feedback in major regions including Europe and North America. 

“May was the bottom,” Mendelson said. “We were able to bounce nicely off of the May numbers into June and July.”

But a rise in COVID-19 cases in many places caused airlines to trim their already-reduced late-summer schedules as demand stagnated, which Heico expects to show up in its sales trends soon.

“I would be careful to extrapolate that improvement going forward because ... with the late-July increase in infection rate, that [post-May uptick] has now come down,” Mendelson said. “That would ... put a damper on the increases going forward.”

Many airlines spent the last decade wringing costs out of their operations. One ramification—a reduction in spare parts inventories. Heico sees this as a factor in driving parts-sales recovery.

“In general, everybody went into the downturn with much lower inventories than they had in the prior downturns, whether it was the global financial crisis in 2008, ‘09 or the U.S. carriers when 9/11 happened, the international carriers with SARS,” Mendelson said. “So I anticipate the snapback to be quicker than perhaps it was in the past.”