Along with maturity comes acceptance, and along with acceptance comes market potential. This premise would appear to apply to the parts manufacturer approval (PMA) industry today.
PMA parts have been produced for 50 years, beginning with the demand for replacement parts for World War II-vintage aircraft. But their acceptance by the airlines has escalated only recently. "PMA parts acceptance [among airlines] was pretty low just five years ago," says Hal Chrisman, a principal at the Ann Arbor, Mich.-based management consulting firm, AeroStrategy. North American airlines have long used PMA parts, but their interest in their cost-cutting value has increased noticeably since 9/11 and the resulting economic downturn. PMA parts "provide the irresistible cost advantage of 30 percent to 50 percent," says Kirti Timmanagoudar, research analysis at the consulting & analysis company, Frost & Sullivan, San Jose, California.
Equally important to industry potential is the emerging interest coming from Europe and Asia. Europe's growing use of PMA parts "is being supported by an improved industry structure and by major third-party MRO [maintenance, repair and overhaul] providers that are encouraging airlines to switch to PMA parts," according to a Frost & Sullivan survey of European maintenance trends. The increased use of PMA parts in Europe is in tandem with the continent's growing number of low-cost carriers (nearly 50 of the more than 80 carriers, according to Frost & Sullivan) and the trend to outsource maintenance, which has brought the proliferation of third-party MROs. Ironically, despite this growing demand for PMA parts (made in the United States and approved for acceptance in other countries through bilateral agreements), Europe has virtually no parts manufacturers other than the OEMs (see accompanying story, page 36).
MORE AIRLINE INTEREST
This escalating interest in PMA parts led to a two-day meeting of airline maintenance officials in Seattle in late January, the purpose of which was to better understand PMA parts and the FAA parts approval process. The airlines want to, first, find out how each of the attending airlines handle PMA parts and, second, find ways to expedite, and perhaps standardize, the use of PMA parts. "Before, the airlines apparently didn't talk much to each other [about PMA parts processing]," according to Gloria Nations, president of the Modification and Replacement Parts Association (MARPA) and attendee of the Seattle meeting. Spearheaded by Alaska Airlines, the meeting included presentations by invited association, government and industry officials.
Where do PMA parts fit into the operating cost picture? Maintenance represented 9.4 percent of the airlines' expenditures in 2005, according to AeroStrategy. "Of that maintenance cost, 35 to 40 percent was for parts. Engines and components are the two largest segments, accounting for 56 and 27 percent of the total parts expenditure, respectively," says Chrisman. The firm claims the total parts market in 2005 was nearly $15 billion, of which PMA represented about 3 percent of the parts market.
Airlines want to increase that percentage, but they struggle with long-held, internal approval processes, which apply primarily, if not exclusively, to PMA parts. Each carrier has its own, unique process, the execution of which is commonly divided between an engineering department and a quality assurance department.
Although both OEM parts and PMA parts come with FAA approval, the carriers have established more-stringent testing procedures with PMA parts. At the Seattle meeting the airlines claimed that the time from when PMA parts are received to when they are authorized for installation averages a lengthy 12.2 months. One airline official said the internal PMA parts validation period could take up to three years. One airline official says his maintenance department came up with as many as 125 questions relating to a part's condition, says Nations.
Airlines clearly hope to streamline the process to make way for the parts' increased use. They may want to follow Lufthansa Technik AG's lead. The German MRO has become a forerunner in PMA parts use, especially after its investment in PMA parts maker, HEICO. According to a company official, "All received PMA parts are handled the same way we handle OEM parts. There is only one exception: Before a new PMA part is used the first time by Lufthansa Technik, it will be inspected intensively by our engineers and specialists. Once a part is on the Lufthansa Technik PMA parts list, there are no more special handling procedures."
ROADMAP FOR GROWTH
How much can the PMA parts market grow? In his presentation in Seattle, Chrisman described the market's potential, using the process of elimination. He refers to this analysis as running the potential PMA market "through screens." In other words, the business that isn't screened back represents the potential market. Chrisman describes the screens as follows:
Screen no. 1--is determining how much of the MRO market is performed by non-OEM shops. "The OEM will not use PMA parts," says Chrisman. "However, non-OEM organizations, including airline maintenance centers, often don't use PMA parts, but are candidates for their use. They will consider PMA parts."
Screen no. 2--is determining how much material is consumed during the maintenance activities performed at the non-OEM shops. "This gives you the maximum market potential for PMA parts."
Screen no. 3--considers how "PMA friendly" a part may be. Life-limiting parts, because of their criticality, have long been considered to be not PMA friendly, says Chrisman. "But that is changing. PMA friendly means what the airlines would find acceptable, and they are accepting more and more. PMA manufacturers are making even turbine parts [for engines]. We estimate that about 30 percent of the money spent on spare parts is for PMA friendly parts."
Screen no. 4--involves the global acceptance of parts. "That, too, is changing," says Chrisman, citing Japan Airline's 2004 PMA parts contracts with companies such as HEICO and Wencor. "The increased acceptance of PMA parts in the Pacific rim, as well as in Europe, is significant," he adds.
After all the "filtering," what share of the maintenance pie can the PMA industry potentially achieve? "We calculate the potential market could reach an annual $1.2 billion," says Chrisman. "So the PMA suppliers, with sales of $250 to $300 million in 2004, had about a 20 to 25 percent share of the potential." There obviously is plenty of room for growth.
BETTER UNDERSTANDING
One factor that apparently stifles such potential is user misunderstanding of PMA parts, as was evident in the airlines perceived need to hold the Seattle meeting, and despite the PMA industry's 50-year-old history. Clarification in the Part 21 rules covering PMA parts would help eliminate the misunderstanding, and FAA's Aviation Rulemaking Advisory Committee (ARAC) Part 21 made recommendations that were included in a notice of proposed rulemaking (NPRM), released in January 1999. One key recommendation would assure that all parts makers, PMA and OEM, have in place production quality assurance systems and self-audit of all activities. Virtually all PMA parts makers have established these procedures, even though the NPRM never became a rule. Such a rule, which is still expected, would no doubt clarify airline perspective of PMA parts.
A revision to Order 8110.42, which outlines the manufacturing procedure required to produce PMA parts, also would bring clarification. Order 8110.42.B, Change 1, currently being worked on, would, among other things, require that a parts maker must, first, assure a part's quality; second, track its use; and finally, make any correction that may be discovered from the tracking.
Users of PMA parts also will gain understanding of PMA parts through meetings such as the one held in Seattle. And the airlines have planned a second meeting, to be held in March.
Through better understanding, clearer written rules and expanding international acceptance, the PMA parts industry may soon realize its full economic potential.
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