Does anyone know why Aviall visited TUL?
AMR owes Aviall $4million dollars
2008 Article Info Only
When Boeing purchased Dallas-based Aviall in September 2006, the acquisition sent a two-part message to the aviation community. Boeing had snagged a top player in the aftermarket community, and the news also seemed to indicate a change in its mindset that everything had to be controlled tightly in-house, even the sale of aftermarket parts. Acquiring Aviall showed that the once-resistant-to-change OEM was willing to delegate some of this segment of the business to another company and concentrate on what it does best: Building airplanes. Today Aviall is a division of Boeing Commercial Aviation Services, a unit of Boeing Commercial Airplanes, providing aftermarket parts and supply-chain management services for general and business aviation as well as commercial and military operations. Aviall claims its business is equally divided, but the company is known best in the GA and bizav communities. To most observers, the coupling is mutually beneficial. With Aviall's major contracts from Rolls-Royce and GE, "it is poised to become a very effective provider for outbound service parts logistics on sunsetted aircraft," says Kevin Michaels, a principal with AeroStrategy Management Consulting. It has 1,048 employees and markets and distributes 1 million items from 39 customer service centers in North America, Europe and Asia/Pacific. It also provides wheel-and-brake maintenance and painting services. Airline Procurement spoke with Aviall CFO Colin Cohen about life with Boeing and the changes and future direction of the parts supplier and the aftermarket parts business. He described the marriage as "unusual" because of the different missions of the two companies but workable because Aviall fills a void for Boeing. "We are in the business of soliciting business in the aftermarket, whereas Boeing has had to deal with the aftermarket largely as a way to supply its aircraft building business," he says. The principal reason Boeing bought Aviall, he adds, was because the industry trend is toward a much more "proactive" support of customer operations that is not necessarily proprietary to the Boeing product.
THE MRO CONNECTION
While the airframe manufacturer already has a large service business, it is possible that Aviall could become its primary parts supplier. It certainly is equipped to become a bigger part of the supply chain of aftermarket components for Boeing customers of older legacy aircraft. The aftermarket business is an integral part of the growing $39 billion MRO industry and both partners want to tap into that lucrative revenue stream. Boeing recognized some time ago the growing importance of the aftermarket, but few envisioned that 40-year-old commercial and military aircraft still would be in commercial service today. A real benefit of the aftermarket business is that the aggregate price of spares on, say, an older APU is many times the dollar value of the APU. The same can be said of older engine parts and hard-to-find parts for airframes. But Aviall faces several challenges, not the least of which is the continued high cost of fuel and its cascading negative influence on the business. There also are the uncertainty of the market and the need to rein in operating costs. "The transparency of the aftermarket supply chain has not permeated very far in most organizations," Cohen says, noting the possible exception of market leaders such as GE Aircraft Engines, Honeywell and Rolls-Royce. There is little transparency regarding cost elements associated with the aftermarket. One reason is that the OEMs do not entirely own the manufacturing process of parts so they have subcontracted out on several levels, "which adds up to a very opaque supply chain," Cohen notes.
FORM AND FUNCTION
Aviall is composed of two business units: Aviall Services, which owns parts, and Inventory Locator Service, which owns information. The history of the two divisions is noticeably different, but both evolved as the aftermarket business grew after air transportation moved away from the US military for the supply of parts at the end of World War II to the production of parts for commercial and general aviation. At the same time, there was a viable need for parts distributors like Aviall that could serve as a go-between for parts sold by the OEMs for production aircraft and those for aircraft no longer under warranty. Because of the inefficiency of the supply chain, inventoried aircraft parts grew but without organization, particularly in the US. "The role of distributors in the MRO business is increasing, particularly in service parts distribution," says Michaels. "By acquiring the largest independent distributor, Boeing has positioned itself to offer new value propositions and to leverage broader MRO market growth." Aviall has been a profitable enterprise almost from the beginning. Before becoming a Boeing subsidiary, it increased its annual revenues by 25% and profitability by 35%. The growth pattern is expected to continue, says Cohen, who declines to provide numbers as Aviall's assets now are tied directly to Boeing's. But the supplier has maintained its brand name and traditional role in the marketplace. Currently most of the parts it sells do not go on Boeing aircraft, but it says that could change. As for specific growth, Aviall is doubling its Dallas facility and looking for opportunities elsewhere worldwide. In the Asia/Pacific, the GA aircraft parts business is relatively small with the exception of Australia, for which it is the largest parts supplier. Meanwhile, there are other developments. Boeing is slated to launch airline maintenance services in China soon under the name Boeing Shanghai Aviation Services and estimates the MRO market in China will grow 10% annually. Aviall could factor into Boeing's plans for China. Cohen projects that if it were to play a substantial role in that country, this would involve supplying parts on new aircraft. Aviall's future growth likely will come from five areas: Increased integration with Boeing Services to provide non-Boeing products to operators of legacy Boeing and other aircraft, integrated support of Boeing customer MRO and product support, addition of more OEM-sourced product lines for which it would be the worldwide distributor and logistics manager, integrating information flows to the supply chain to provide more timely and efficient provisioning of materials, and working with Boeing to provide a better long-term, cost-effective supply of parts. Cohen sums up Aviall's long-term growth plans: "Wherever there are legacy aircraft or engines out of production that is where we will become a component to the supplier and customer." But much of its growth depends largely on willingness to feed a large portion of the aftermarket management business. "That has been slow going," he concedes, "because MROs have substantial procurement organizations and procedures in place." Consequently, they are resistant to handing over the job to a third party such as Aviall. Despite this resistance, there is a move toward one-stop shopping by some forward-thinking MROs. Boeing has been at the forefront of this movement through internal programs, and that could benefit Aviall. Having Boeing as a partner adds to Aviall's credibility and opens doors. Last year it announced that its team led by Science Applications International Corp. was selected by the Defense Supply Center to furnish a range of chemicals, packaged petroleum, oil and lubricants. The $6.2 billion contract won by SAIC has a five-year base term with an option for an additional five years. When Boeing acquired Aviall, industry observers feared that the OEM's bureaucracy would hamstring the Dallas company. "That has not happened," Cohen maintains. The only delicate area, he says, is the regulatory regime. Because Boeing is held to a higher standard when reporting to regulatory authorities specifically in matters related to export controls and requirements for employment standards Aviall has had to upgrade its reporting systems. But the company has one advantage over its parent: Its business is not labor-intensive so an evaluation of the labor and management picture is unnecessary. Centralization of management and parts is essential for Aviall's cost-effectiveness. The key to a long and successful marriage between the two is "integration of the supply chain," Cohen concludes. "Or, as the military says, from 'dust to dust.' You've got to be able to know what you need, when you need it and in what quantities to optimize the supply chain."
AMR owes Aviall $4million dollars
2008 Article Info Only
When Boeing purchased Dallas-based Aviall in September 2006, the acquisition sent a two-part message to the aviation community. Boeing had snagged a top player in the aftermarket community, and the news also seemed to indicate a change in its mindset that everything had to be controlled tightly in-house, even the sale of aftermarket parts. Acquiring Aviall showed that the once-resistant-to-change OEM was willing to delegate some of this segment of the business to another company and concentrate on what it does best: Building airplanes. Today Aviall is a division of Boeing Commercial Aviation Services, a unit of Boeing Commercial Airplanes, providing aftermarket parts and supply-chain management services for general and business aviation as well as commercial and military operations. Aviall claims its business is equally divided, but the company is known best in the GA and bizav communities. To most observers, the coupling is mutually beneficial. With Aviall's major contracts from Rolls-Royce and GE, "it is poised to become a very effective provider for outbound service parts logistics on sunsetted aircraft," says Kevin Michaels, a principal with AeroStrategy Management Consulting. It has 1,048 employees and markets and distributes 1 million items from 39 customer service centers in North America, Europe and Asia/Pacific. It also provides wheel-and-brake maintenance and painting services. Airline Procurement spoke with Aviall CFO Colin Cohen about life with Boeing and the changes and future direction of the parts supplier and the aftermarket parts business. He described the marriage as "unusual" because of the different missions of the two companies but workable because Aviall fills a void for Boeing. "We are in the business of soliciting business in the aftermarket, whereas Boeing has had to deal with the aftermarket largely as a way to supply its aircraft building business," he says. The principal reason Boeing bought Aviall, he adds, was because the industry trend is toward a much more "proactive" support of customer operations that is not necessarily proprietary to the Boeing product.
THE MRO CONNECTION
While the airframe manufacturer already has a large service business, it is possible that Aviall could become its primary parts supplier. It certainly is equipped to become a bigger part of the supply chain of aftermarket components for Boeing customers of older legacy aircraft. The aftermarket business is an integral part of the growing $39 billion MRO industry and both partners want to tap into that lucrative revenue stream. Boeing recognized some time ago the growing importance of the aftermarket, but few envisioned that 40-year-old commercial and military aircraft still would be in commercial service today. A real benefit of the aftermarket business is that the aggregate price of spares on, say, an older APU is many times the dollar value of the APU. The same can be said of older engine parts and hard-to-find parts for airframes. But Aviall faces several challenges, not the least of which is the continued high cost of fuel and its cascading negative influence on the business. There also are the uncertainty of the market and the need to rein in operating costs. "The transparency of the aftermarket supply chain has not permeated very far in most organizations," Cohen says, noting the possible exception of market leaders such as GE Aircraft Engines, Honeywell and Rolls-Royce. There is little transparency regarding cost elements associated with the aftermarket. One reason is that the OEMs do not entirely own the manufacturing process of parts so they have subcontracted out on several levels, "which adds up to a very opaque supply chain," Cohen notes.
FORM AND FUNCTION
Aviall is composed of two business units: Aviall Services, which owns parts, and Inventory Locator Service, which owns information. The history of the two divisions is noticeably different, but both evolved as the aftermarket business grew after air transportation moved away from the US military for the supply of parts at the end of World War II to the production of parts for commercial and general aviation. At the same time, there was a viable need for parts distributors like Aviall that could serve as a go-between for parts sold by the OEMs for production aircraft and those for aircraft no longer under warranty. Because of the inefficiency of the supply chain, inventoried aircraft parts grew but without organization, particularly in the US. "The role of distributors in the MRO business is increasing, particularly in service parts distribution," says Michaels. "By acquiring the largest independent distributor, Boeing has positioned itself to offer new value propositions and to leverage broader MRO market growth." Aviall has been a profitable enterprise almost from the beginning. Before becoming a Boeing subsidiary, it increased its annual revenues by 25% and profitability by 35%. The growth pattern is expected to continue, says Cohen, who declines to provide numbers as Aviall's assets now are tied directly to Boeing's. But the supplier has maintained its brand name and traditional role in the marketplace. Currently most of the parts it sells do not go on Boeing aircraft, but it says that could change. As for specific growth, Aviall is doubling its Dallas facility and looking for opportunities elsewhere worldwide. In the Asia/Pacific, the GA aircraft parts business is relatively small with the exception of Australia, for which it is the largest parts supplier. Meanwhile, there are other developments. Boeing is slated to launch airline maintenance services in China soon under the name Boeing Shanghai Aviation Services and estimates the MRO market in China will grow 10% annually. Aviall could factor into Boeing's plans for China. Cohen projects that if it were to play a substantial role in that country, this would involve supplying parts on new aircraft. Aviall's future growth likely will come from five areas: Increased integration with Boeing Services to provide non-Boeing products to operators of legacy Boeing and other aircraft, integrated support of Boeing customer MRO and product support, addition of more OEM-sourced product lines for which it would be the worldwide distributor and logistics manager, integrating information flows to the supply chain to provide more timely and efficient provisioning of materials, and working with Boeing to provide a better long-term, cost-effective supply of parts. Cohen sums up Aviall's long-term growth plans: "Wherever there are legacy aircraft or engines out of production that is where we will become a component to the supplier and customer." But much of its growth depends largely on willingness to feed a large portion of the aftermarket management business. "That has been slow going," he concedes, "because MROs have substantial procurement organizations and procedures in place." Consequently, they are resistant to handing over the job to a third party such as Aviall. Despite this resistance, there is a move toward one-stop shopping by some forward-thinking MROs. Boeing has been at the forefront of this movement through internal programs, and that could benefit Aviall. Having Boeing as a partner adds to Aviall's credibility and opens doors. Last year it announced that its team led by Science Applications International Corp. was selected by the Defense Supply Center to furnish a range of chemicals, packaged petroleum, oil and lubricants. The $6.2 billion contract won by SAIC has a five-year base term with an option for an additional five years. When Boeing acquired Aviall, industry observers feared that the OEM's bureaucracy would hamstring the Dallas company. "That has not happened," Cohen maintains. The only delicate area, he says, is the regulatory regime. Because Boeing is held to a higher standard when reporting to regulatory authorities specifically in matters related to export controls and requirements for employment standards Aviall has had to upgrade its reporting systems. But the company has one advantage over its parent: Its business is not labor-intensive so an evaluation of the labor and management picture is unnecessary. Centralization of management and parts is essential for Aviall's cost-effectiveness. The key to a long and successful marriage between the two is "integration of the supply chain," Cohen concludes. "Or, as the military says, from 'dust to dust.' You've got to be able to know what you need, when you need it and in what quantities to optimize the supply chain."
