A PARTING OF THE WAYS

A new growing trend among carriers pressed to save money is the use of materials purchased from parts manufacturing authorities, rather than from original equipment manufacturers (OEM). One consultancy estimates that airlines are saving more than $100 million per year through the use of these parts. Observers expect their use to continue to increase and to affect how original equipment manufacturers price their replacement parts. Since 2000, there has been a radical restructuring in rules to permit wider use of parts that do not originate from the manufacturers, and some airlines are now working directly with the new suppliers to avoid being held hostage to monopolistic practices of the original equipment makers. Interestingly, low-cost carriers are not participating as widely in this. One reason is that legacy carriers have large engineering staffs, which can put their resources to the problem. Also, low-cost carriers tend to lock in low after-market costs when they purchase their equipment, and they are able to exert leverage in this respect because of the high volume of purchases this sector is making. More recently, the new suppliers have started moving into the key components for jet engines, which is prompting regulators to take a second look at permitted substitutions.