Fast 5: What’s Selling In The Spare Parts Market
Tommy Hughes, VAS Aero Services CEO, talks with Lee Ann Shay about the state of the spare parts market and predictions for used serviceable material.
What parts are selling now? What’s the outlook for June and July?
May was one of the toughest months that we saw because repair activity that had already started was finishing and there weren’t any new inductions involving engine or component repair. Towards the end of May, we started seeing more activity. June started off much stronger than May and we learned that maintenance events that had been put on hold for certain operators, especially on the engine side, had been released to continue. So there is a line of sight for material. We did see heavy activity from the cargo operators, which increased operations, and we did see a consistent flow from the regional operators because of the lower seat capacity. June has been the strongest month since the coronavirus broke out.
Given that, do you think passenger widebody aircraft parts will be some of the last to pick up?
That’s absolutely true. The single aisle aircraft will be put into service before the dual aisle.
Given the number of parked aircraft, is there going to be a glut of used serviceable material (USM)? If so, when will this happen?
This is the number one question I get asked. Because there’s reduced traffic demand and reduced routes, you’ve got aircraft that will retire sooner than planned so there will be an oversupply of some fleet types that will hit the market. But it’s still gauged by the capacity of the teardown facilities. You could have 5,000 aircraft retire but how many aircraft can be dismantled in the course of 12 months? We disassembled an A380 last year that took 5-6 months. How much material can be dismantled and provided to the market? There definitely will be more than we see today—and probably an oversupply--so that will cause values to deteriorate. But how fast this occurs I don’t know.
Given the principles of more supply, will prices drop?
Prices will definitely be impacted but the question everyone has is ‘what is the market value of a 737-800 in 6-12 months?’ It’s all based on supply and demand. Today suppliers can demand a higher price when there’s not much competitive material on the market—but as more competitive material is offered from many suppliers, prices will change. Operators already are looking for a lower price than they typically would’ve paid three months ago.
What are you looking for in teardowns?
We determine it based on customer feedback and data from our SAP system. That gives us the ability to use the data on pricing, historical movements, maintenance intervals and consumption. This is a better approach that speculative trading, which is a tough world. We also have tight relationships with engine shops, which helps us forecast material needs. For instance, we’re investing in Pratt & Whitney PW4000 engines because we’re supplying material for a large MRO. Our approach is more predictive than speculative.