Acquiring engine assets “like trying to catch the rainbow”

""The values currently commanded by used serviceable material (USM) are like pre-Covid prices “on steroids,” said Cliff Topham, SVP of sales and business development at Werner Aero, speaking at Airline Economics’ fleet management and asset trading parts conference. “In some cases, it’s very difficult to understand how the calculation is made to make the business case make sense,” he continued, adding that bidding on USM has also achieved record high prices in the last few months. Despite best efforts, “in a lot of [auctions], we’re not even in the same ballpark,” he added. Accordingly, it’s now increasingly harder to find an optimum powerplant asset for teardown. By this, Topham means an engine with something like 6,000 cycles remaining on the disc, which are now “very rare assets” (despite people wanting to sell engines with 1,200 cycles remaining) and can be attributed to the extension of leases leaving engines “somewhat compromised”. Finding a good engine is “like seeing a rainbow and trying to catch the rainbow,” joked Gil Krazier, director, lease and trade, Israel Aerospace Industries. Although MROs will typically absorb a large amount of raised prices (if a pre-arranged contract has been signed), this will differ if overhauled parts are substituted for new material. However, much like any relationship, he highlights the importance of “compromise on both sides”. Krazier also notes an increase of PBH (Power By Hour) Agreements, which are able to offer airlines more certainty on pricing. Regarding legacy engines, “it’s really interesting because the last several years have seen increased demand of parts not typically required,” continued Krazier. “Naturally, the core of the engine was always difficult to find… but we also see increases in [wait times for] other materials as well”. “Critical supply problems” are being further compounded by significant skill shortages in the MRO sector, explains Topham, with many companies struggling to source and train fresh talent in the required timeframe. “It’s not the impact of parts per se, but the quality of information for people to make a decision on what they’re going to do as an organisation,” he clarified. Questions also abound surrounding the substitution of PMAs, something Nina Biton, director of business development at Total Aircraft Support, said customers would “rather accept” than pay full price at the OEM. Krazier agrees that customers and airlines that previously wouldn’t consider PMA parts now “do not even hesitate”, specifically for legacy engines; cautioning that increased adoption of this solution is creating its own knock-on supply chain issues. However, Topham considers there to still be a “resistance” to PMAs, particularly if the asset is owned by a financial institution or a leasing company. “I would say categorically that the strength or the control of the financial institution will still want to protect their residual value.” And with engine assets and component parts unlikely to stabilise from their currently heady prices for anything up to three years, “I can’t think of an undervalued asset likely to turn around quickly,” concluded Topham.