The Chinese Market Begins to Warm to New Sources of Supply

2nd Annual Aviation Part Support and Supply Chain Management Forum – Panel on Used Serviceable Material and Aircraft Disassembly

Last week, I attended the 2nd Annual Aviation Part Support and Supply Chain Management Forum in Shanghai, China.

The conference was quite-well attended.  The organizers told me that they had registered 230 people.  At one point I counted the number of bodies in the room and counted 160 (which is a very good percentage for a spot-count).  Many of the attendees were from Chinese air carriers and Chinese MROs.  Several ASA members were there and they all seemed impressed with the potential customers that were available for networking.

Useful Information

Anyone who wanted a lesson in airline spares management could have attended a presentation by Jet Airways’ K. “Adi” Adikesavan.  He provided a very detailed analysis of the spares world, from metrics for vendor selection to strategic tips.  Adikesavan explained that the safest thing is to own every possible part in sufficient quantity to ensure no shortage, but admitted that of course this is not realistic.  He explained that the best thing is to not own inventory, because everything has a but cost.  He presented spares sourcing as a data-based balance between the two ideals of owning nothing, and owning everything.

The conference also included some cutting-edge discussions for stock optimization and the latest word in aerospace-usage of 3-D manufacturing from Stratysys (the largest producer of 3-D manufacturing equipment).

There were a range of real opportunities in the room, based on upon how willing companies were to diverge from their past practices.  One large Chinese air carrier described their range of parts supply options as running from holding inventory in their own warehouses, and purchasing from inventory held in OEM warehouses.  I asked about purchasing from other sources, like pooling with other carriers or with MROs; but it was clear from the answer that many of the parts supply options that are common in other parts of the world are not yet common in China.

But it is evident that this is changing.  Daniel Stromski, the Executive General Manager of HAECO’s Inventory Technical Management business, talked about parts pooling opportunities that went well beyond what some air carriers seemed comfortable with, but that would have seemed perfectly normal in the Americas or Europe.  He provided an excellent breakdown of how Haeco’s inventory technical management program helps air carriers meet their inventory needs efficiently, effectively, and economically.

One concern raised by the audience in response to the poling discussion was whether lessors would be opposed to this sort of method for sourcing parts.  Stromski explained that lessors typically do not have a problem with pooling.  They are not interested in technical management.  He explained that from the leasing perspective, the aircraft is an asset, and they want the maintenance risk to be pushed to the airline, so they are comfortable with arrangements like pools that facilitate on-time dispatch of the aircraft.  So Stromski’s challenge is convincing air carriers of the value of his services.

While Chinese air carriers recognize the importance of OEMs as aircraft parts sources, several of them complained that some OEMs took unfair advantage of them, charging unusually high prices and providing sub-par service.

Business for ASA Members

Dissatisfaction with current suppliers was a topic in both hallway-chat and in the formal presentations – this dissatisfaction provides a potential opportunity for distributors who want to expand into the Chinese market.

For distributors in the US looking to support the Chinese aviation market, targeting major MROs as potential customers might be the best way to start.  MROs seemed much more open to working with a wide range of sources, and are presenting themselves as mechanisms for reducing air carrier burden by using their parts sourcing resources to obtain the best deals for parts needed by air carriers.  It was also clear that in some cases, air carriers may look the other way when a MRO uses a source that the air carrier itself might not use, as long as the MRO takes responsibility for safety.  One example of this is used serviceable material (such as overhauled material).  More than one air carrier declared that used serviceable material is not acceptable in China; nonetheless, more than one Chinese MRO explained that they consumed used serviceable material in their repairs (for these same air carriers) and they found it to be both effective and economical.  They stressed that it provides more options to allow maintenance organizations to meet the air carrier’s needs.

It appears that some Chinese air carriers – especially those that are not the state-supported legacy carriers – are interested in exploring alternatives to their traditional parts sourcing paradigms.  So there is room to expand in to that direct market but success may require more work in building relationships and trust.

Having a distinct presence in China is certainly helpful.  Companies with a physical presence in China seemed to be much more successful, and those without a physical presence suggested that having an agent in China was the next-best thing.

The 2018 Conference will take place in Shanghai in March.  It is an excellent opportunity for distributors who are looking to expand their presence in the Chinese marketplace.

 

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About Jason Dickstein
Mr. Dickstein is the President of the Washington Aviation Group, a Washington, DC-based aviation law firm. He represents several aviation trade associations, including the Aviation Suppliers Association, the Aircraft Electronics Association, the Aircraft Fleet Recycling Association and the Modification and Replacement Parts Association.

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