Engine manufacturers continue to fight back against independent replacement part producers, warning that potential long-term costs could outweigh the savings

With independent producers of parts winning more market share each year, engine manufacturers are taking a new approach in their efforts to preserve a crucial revenue source. Unable to match the purchase price advantage of the independents, the manufacturers are trying to persuade their customers to consider the potential long-term cost implications of introducing independently-manufactured into a system as complex as an engine.

It is the latest round in the battle between original equipment manufacturers (OEM) and independent companies producing replacement components under US Federal Aviation Administration parts manufacturing approval (PMA). At stake is a commercial aeroengine spares market estimated by a study released earlier this year to be worth more than $6 billion annually.

The engine PMA parts survey, conducted by consultancy AT Kearney and the University of Stuttgart's Institute for Aircraft Propulsion Systems (ILA), estimated non-OEM parts will grow in market share by around 10% a year, from under 5% in 2002 to over 20% by 2015. This represents a critical loss of revenue for manufacturers that can no longer expect to make money selling engines.

Non-OEM parts were at one time equated in customers' minds with bogus parts, but the perception of FAA-approved PMA parts as potentially unsafe has largely been discounted. The past two years has seen a rapid rise in airline acceptance of PMA parts, with the engine segment growing fastest, principally because of price savings averaging 31%, according to the AT Kearney/ILA survey.

Heico Aerospace is the largest player, claiming more than two-thirds of the independent, competitive PMA market. The Hollywood, Florida-based company has Lufthansa Technik and American Airlines as investors, and partnerships with Air Canada, Delta Air Lines and United Airlines. But Heico's share of the new replacement engine parts market is still just a few percent. What concerns the engine makers is the impact non-OEM parts have already had on spares pricing and the inevitability of PMA manufacturers moving into the hot section of the engine.

OEMs are under no illusions about why their airline customers want PMA parts. "We understand the climate we are in: the potential for a lower-cost part and the fact the parts are FAA-approved," says Kevin McAllister, general manager of product support for CFM International. "So we understand that the airlines will gravitate towards [PMA]." But OEMs are concerned about the long-term implications, both for themselves and the airlines.

Increased complexity

"On the other side of the coin, we feel airlines need to understand that there can be potential impacts on reliability and durability caused by such parts," says McAllister. "When a non OEM-approved part is introduced into the system it increases the complexity and cost when you are trying to resolve field issues." It is cheaper to fix an engine when the OEM owns the data for all the parts, and the presence of PMA components "adds up to potential higher life-cycle costs", he says.

McAllister is careful to emphasise that any issues with PMA parts are "potential" issues. The PMA industry has largely been successful in dispelling doubts about the safety of their products, arguing that their replacement parts must meet the same certification standards as the original equipment to gain FAA approval. The OEMs have had to become more subtle in their arguments, focusing on the long-term implications of introducing PMA parts into the heart of an engine.

"We are seeing a shift in non-OEM materiel from lower-technology parts to higher-technology components," says McAllister. "Our most important responsibility is to help the airline manage reliability. Once a part gets into the high-tech area of the engine - the aerofoils - this becomes harder to do." Hot-section components are the most expensive to replace, and to repair, and therefore a key bastion for PMA companies to penetrate and OEMs to protect.

"This goes beyond part performance, and takes us to where we should be thinking in terms of the engine system," says McAllister. "As an OEM, you have a ton of data from component and engine testing and from field use. When your business is just making a part, you are not equipped with the data to understand what the effect of that part is on the whole engine system."

Unforeseen effects

Airline acceptance of PMA parts is relatively recent - Lufthansa Technik's 1997 purchase of 20% of Heico marked the start of the current growth trend - and systemic issues, if there are to be any, have yet to seen. But the OEMs want the airlines to understand the potential for unforeseen system effects when PMA parts are introduced.

"Engines are designed and tested today as a system, not one piece at a time," says McAllister. "When we manage reliability in the field, or introduce a new part for the HPT [high-pressure turbine], we know the details of the surrounding systems. If you design something and then cannot account for some of the parts, how do you guarantee the impact?" System fitness is the crux of the OEM's concern, he says. "We are facing in the future PMA high-pressure turbine [HPT] blades and I want our operators to make an intelligent decision on this."

According to McAllister, there are two types of influence that a component can have on an engine - on the propulsion system or the aircraft - direct or indirect. Direct system effects could include a dramatic impact on rotor life as a result of fractional changes in blade weight and centre of gravity. "If you change the weight of an HPT blade by 1% or more, the centre of gravity moves by 0.021in [0.53mm], and you can affect disk post life by 50%," he says.

Indirect influences, including the effects of airflow, are more subtle. "When you change an HPT nozzle it could affect airflow, which can have an effect on the blade," says McAllister. "The size of the nozzle can have an effect on the stall margin. We have a lot of stall margin in these engines [CFM56s] and we manage it very carefully. As you make component-level decisions you can affect the overall operation of the engine."

Every indicator suggests that PMA parts in the core of the engine is an issue OEMs are going to have to deal with. The AT Kearney/ILA survey predicts the PMA manufacturers' share of the engine parts market will continue to grow, but will be capped at around 21% by several factors. Among the biggest of these are OEM cost-per-hour maintenance contracts, seen by engine manufacturers as a way to capture more aftermarket revenues while guaranteeing airlines predictable costs, which prohibit the use of PMA parts.

But the PMA parts manufacturers, distributors and maintenance providers that responded to the AT Kearney/ILA questionnaire listed "OEM pressure" as the most limiting factor on growth in market share. With so much at stake, the engine manufacturers are unlikely to relax the pressure. Faced with the reality of the price differential between PMA and OEM parts, they are hoping a longer-term view will prevail with their customers.

The OEMs' argument is that small changes can have significant effects, direct and indirect, on the entire engine system. "That engine system is designed and validated by us, the OEM," says McAllister. An engine is a 20-year relationship between the manufacturer and the airline, he says, that involves helping the airline sustain airworthiness, improve reliability and durability and reduce life-cycle costs. "We have component issues, but we can manage them," he says. "How do you help them when you are confronted with a part that you don't know?"

Component issues

Keeping the engines flying is the best way to keep airline costs down, McAllister says, and to do that the OEM must to be able to manage system component issues. "I am not concerned whether it is 10% or 50% [PMA parts in an engine]. The wrong part is the wrong part, especially in high-technology components," he says. "System effects may significantly limit the OEM's ability to provide reliability and to take corrective action on field issues."

PMA manufacturers accuse the OEMs of using "fear, uncertainty and doubt" tactics. "Clearly we have gotten over that. The airlines realise the benefit of having an alternative supplier," says Eric Mendelson, Heico executive vice-president. "Non-OEMs are only 3% of the replacement engine parts market. In any other industry it would be much higher. OEMs will continue to play an important role."

Source: Flight International