Industry Inventory Reduction
The global aviation industry is carrying a staggering amount of aircraft parts inventory—over $100 billion in materials. Prior to the pandemic, the industry had spares inventories staged around the world “just in case” an operator needed a part for a particular aircraft in a particular part of the world. From an aircraft availability standpoint, it might sound like a good thing as you might find a part you need. But airlines also regularly carry aircraft parts in their holds creating a situation that we call “parts chasing airplanes”. A major industry consultancy performs an annual study on the Top 100 A&D companies in the world, and has shown that the high levels of inventory and the low inventory turnover ratios are unsustainable. Another advisory firm estimates that 30% of the $100 billion of spares inventory around the world is “not required”.
As the industry emerges from the pandemic, the amount of available parts inventory is in fact set to increase, despite a lasting decrease in demand. This is due in large part to aircraft decommissioning processes which permanently retire old aircraft. In these processes, older but still serviceable parts are salvaged, renewed, and are released back into parts distribution networks.
Why should the industry reduce inventory? The carrying costs of inventory are high. The weighted average cost of capital on these stocks is about $10 billion. (This won’t show up on most airlines’ financial statements, but it nevertheless impacts their market valuations.) The operating carrying costs of inventory are an additional 25% and include warehousing, shipping, damage, loss, and obsolescence. Despite these high levels of inventories, it remains problematic to find the right part in the right place at the right time in the right condition with an adequate number of cycles remaining.
How SkyThread is Working to Address Inventory Reduction
SkyThread is building an inventory visibility platform. We will not be a part broker or a spares planner. We will not be a parts exchange company. But through our work on Planes, Parts, People and Places, over time, we will help the industry know the location of each part on wing and will have the provenance of parts taken off wing, along with their last known location and condition. We are building applications to support the visibility of global inventories, reduction of inventories, and obsolescence, while increasing the quality of parts documentation and parts provisioning. With this visibility, SkyThread can help:
Improve spares parts forecasting
This involves moving to “pull” strategies rather than “pushing” parts into the aftermarket.
Increase shared inventories between airlines
One tier-1 had over 700 spare engines to handle emergency replacements. Some of those engines may never make it under a wing.
One shared inventory strategy is rotable pool management. This category covers up to 40% of eligible aircraft parts and creates tremendous advantages to part visibility, condition, documentation and location
Improve flight-hour contract parts availability
This aligns the interests of the tier-1 parts provider and the airlines by reducing the amount of spares inventory and by maintaining aircraft availability.
Take inventory off the books of airlines
through sale, exchange, or through sustainable recycling / disposal and write-off.
Solve for maintenance on orphaned fleets
defined as airlines running small fleet sizes by platform (typically less than 12 aircraft.)
Solve for maintenance of aging aircraft
many original parts are no longer in production and some brokers have orchestrated “last time buys” of the remaining stocks.
Increase the production and authorization of additive manufactured parts
on-demand 3D-printed parts.
Improve the visibility of interchangeable aircraft parts to quickly return aircraft to service.
For more information on the Aircraft Parts solution bundle and its applications, please contact: info@skythread.aero.