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Marcontell Provides Guidance on Key Drivers of Value as a Vendor.

Dave Marcontell, President of Team SAI Maintenance and Engineering Solutions, addressed the aviation industry at the ASA/AFRA Conference on June 29, 2010.

He predicted a relatively flat market for MRO in North America between 2010-2015. He sees a significant increase In growth rates during the period between 2015-2020.

Spare parts demand is driven by MRO activity.  The MRO spares part market will be about $22.9 billion in 2010, and will grow at 4.1% over the next ten years, to hit $34.0 million by 2020. Much of this growth will come from outside of North America!

Over the next five years, Marcontell expects significant retirements of narrow-body and wide-body aircraft. There will be significant numbers of aircraft available for disassembly. But the demand for material must be tracked to assure that there are still enough aircraft flying in a given fleet. He feels that the optimal ratio is fleets where about 10% of the fleet is parked (available for disassembly) – this ration yields an optimal return on investment for the parts removed from a disassembled aircraft. Beyond that ratio, disassembly becomes less cost effective.

Contract maintenance continues to grow. In the engines and components MRO markets, about 75%-80% of the work being done is being done on a contract (“outsourced”) basis. Only about 5% of tech support is contracted-out, but he sees a great deal more of this being contracted in the near future. While the “total-value-proposition” is important – like turntime, quality and performance – cost nonetheless remains an important driver that can never be ignored. Thus, distributors can have a significant impact on the value proposition when they can provide cost savings to the MRO community.

Distributors are viewed as providing lower-cost overhead for warehousing of parts. They are also expected by the customers to bear the capital costs of stocking, and to provide logistics network support, including intergration of related articles from different sources in a “one-stop shop.”

Airlines are transitioning to a model in which they carry no inventory. They acknowledge that this entails higher operating costs, but it also reduces their risks, provides greater flexibility, and gives them better return on their capital. In order to make this work for the customers, parts providers need to meet the customers service availability needs. Having the part when the airline needs it is a key to success in this model. Key success factors for distributors that provide aircraft parts appear to be:

• Parts availability – in stock and shipped today

• Customer service – having someone that the customer can talk to when THEY want to talk

• Financial strength – distributor are expected to make the capital Investment necessary to support the customers

• Integrity – developing a long-term relationship that shows that the customer can count on you to be fair

• Price

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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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