The BIG DEBATE: PMA & DER and OEM & Lessor What is RISK? 1. - - PowerPoint PPT Presentation

The BIG DEBATE: PMA & DER and OEM & Lessor

Jim O’Sullivan josullivan@heico.com

What is RISK…?

• 1. A probability or threat of damage, injury, liability, loss, or

any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action.

• 2. Finance: The probability that an actual return on an

investment will be lower than the expected return. Financial risk is divided into the following categories: Basic risk, Capital risk, Country risk, Default risk, Delivery risk, Economic risk, Exchange rate risk, Interest rate risk, Liquidity risk, Operations risk, Payment system risk, Political risk, Refinancing risk, Reinvestment risk, Settlement risk, Sovereign risk, and Underwriting risk.

2

Source: BusinessDictionary.com

Balancing Risk with.. VALUE?

• 1. Accounting: The monetary worth of an asset, business

entity, good sold, service rendered, or liability or obligation acquired.

• 2. Economics: The worth of all the benefits and rights

arising from ownership. Two types of economic value are (1) the utility of a good or service, and (2) power of a good

• r service to command other goods, services, or money, in

voluntary exchange.

• 3. Marketing: The extent to which a good or service is

perceived by its customer to meet his or her needs or wants, measured by customer's willingness to pay for it. It commonly depends more on the customer's perception of the worth of the product than on its intrinsic value.

3

Source: BusinessDictionary.com

Regulatory and Technical Support

EASA Decision ED/2007/003/C FAA SAIB NE-08-40 FAA RAF Study Korea / FAA China / FAA Hong Kong / FAA Argentina/ FAA

(and many more)

EASA/FAA TIPS 2011 BASA Brazil/ FAA

We are not aware of a country in the world that does not allow the import/operation of a product that contains PMA parts.

Israel/ FAA

The Risk (Cost) of Doing Nothing

“…the OEM’s increasingly tight grip on the aftermarket means Delta’s spares costs double about every seven years. Without TechOps parting

• ut engines to bolster spares and coming up with
• ther alternatives to OEM-supplied support, that

increase could be even steeper… …“We’re pretty good at sourcing outside the OEMs… …“and we’re always working to develop those alternatives.”

OEM Prices Double every 7 years

Richard Anderson, CEO Delta Air Lines Keynote MRO Americas April 2013

Restrictive practices need to be redressed

“Whether it is a reality or perception that we are moving to single engine supply, I think that is a development that we don’t like to see. We think that competition with engine as well as airframe supplier is an important feature of the industry…” …“I think, as an industry, we need to start taking action, or our maintenance costs will defiantly rise. If we don’t challenge the restrictive practices that exist, we will be held captive and costs, as we have seen before, will rise and will rise well in excess of anything that is justifiable. So we have to start redressing this situation…”

Willie Walsh, CEO IAG IATA AGM - Miami June 7th 2015

OEM Influence on Choice, Cost and Value

PMA and DER Parts are found everywhere

Cockpit/Avionics

• INUs, IRUs
• Display Units
• DGAs
• Instruments
• Autopilots
• Radomes
• Nose Cowls
• Battery Packs
• Cockpit Paper

Landing Gear

• Wheels and Brakes
• Landing Gear

Wing

• Flight Controls
• Actuation Systems
• Guides

Components

• Electro-Mechanical
• Hydraulic Pumps
• ACMs, CSD/IDG
• Batteries
• APUs

Fuselage/Interiors

• In Flight Entertainment
• Lavatories
• Seat Parts
• Tray Tables
• Galleys
• Overhead Bins

Engines

• CFM56
• CF6
• CF34
• PW2000
• PW4000
• V2500
• JT8D
• JT9D
• LM2500/500/600

Engines

• Combustion Chambers
• Blades & Vanes
• Fan Exit Guide Vanes
• Shrouds (single crystal & equiax)
• Thrust Reversers
• Acoustic Panels
• Pneumatic/Bleed/Anti Ice Valves
• Heat Shields
• Insulation Blankets

Engines

• Fuel Pumps
• Nozzles
• Gears
• Shafts
• Bearings
• Starters
• Rings
• Spacers
• Expendables

7

>90% are non Engine 90% of Engine PMA Are non Gaspath

Alternate Material Options Increase as Aircraft Mature

8

Source: ICF

Alternate Material Options are the only counter to OEM Dominance

“OEM” % MRO has grown from 13% to 46% in 15 years

OEM Parts PMA Parts & DER Repairs

Options to use PMA / DER (DOA) Repairs keep independent MROs competitive. Without options there is no limit to OEM price.

11