In the last edition we published the results of the quantitative survey held with our friends from ABL Aviation, KV Aviation, AeroVista, Sirius Aviation, and GTLK Leasing. As part of the interview process, we also held a qualitative segment asking our interviewees specific questions that worked to bring further clarity to the topic at hand. For the purposes of building on the outcomes from the last article we are listing the questions and laying out some of the insightful comments received;
- What % return does consignment play in total revenue returns on assets?
Answers ranged from unknown to 25%, with the most common around 10%.
- How has the impact of COVID 19 on the Aviation Industry changed your view of T/D consignment likelihood?
While in the main the response on this was that teardown and consignment was “more lightly”, Yurij Tokarev of AeroVista had an alternative view stating that “Attractiveness reduced, maintenance deferred, demand for parts reducing, consignment will take longer. Less attractive.”
While valid, is storing really a good alternative? Brian Smyth, a Technical Consultant, has a strong view on that “Parking is tipping scales towards T/D. Have seen $1.4M corrosion damage on stored A/C. On 8 leased engines put in storage; perfectly parked, natural moisture meant the abradable liners in compressors swelled, driving 8 engine shop visits. Airbus changed parking criteria multiple times over the last few months.”
- How satisfied have you been with your consignment programs?
Comments reflected quantitative survey results, Allan Rennie from KV Aviation while generally happy with programs stated “Never fully understand what is going on – unless your on-site.” A harder proposition in this environment, that said, how many leasing companies have people on site at consignment companies?
Very few apparently – does that make sense? For asset maintenance the norm is to have an on-site technical representative, yet on a consignment program with a modelled value of multiple millions the norm is not to have any local representation. Is that down to resources, expertise, or perhaps prioritization?
- If there was one item only that you would change about your experience what would that be?
This was an area of more commonality. Communication and reporting were the order of the day. Anas Bounahmidi, Chief Technical Officer, at ABL Aviation was quite specific when saying “Communication and reporting, more importantly, markers for in consignment decision making”.
- Do leasing companies have sufficient internal resources/expertise to manage end of life asset strategy?
Probably the area of most alignment, examples being, “Not for part out”, from Anas at ABL Aviation, “Not even remotely close” from Brian the Technical Consultant, “Absolutely not” from Philip Hansom at Sirius Aviation.
- What leverage do lease companies use/have in the provision of material to lease transitions?
Allan from KV Aviation mentioned that “Generally speaking you can supply whatever you want, MRO driven, KVA are a mix of both” was reflective of the overall view. That said Brian our Technical Consultant brought an alternative view “2 A321 delivered recently, in transition for some time, leasing companies have broken a considerable number, despite that the cost management was done independently. Ideal example of potential change.”
Where do you stand on this?
- What leverage do lease companies use/have in the provision of material to assets out on lease?
General response was that this was a more difficult proposition than on assets in transition. Philip from Sirius Aviation mentioned that “Big leasing companies do not want to; smaller ones do want that opportunity”. Kevin Phelan from GTLK commented that “this is an element that leasing companies can have more leverage on going forward – depending on size”.
Thoughts?
- What are leasing companies looking for in terms of future consignment programs.
More clarity around market elasticity of demand, generally leasing companies commented that consignment companies tend to plan on the basis of their own experience rather than market dynamics. The ability to use consignment material against internal material requirements is another. Anas from ABL commented “Looking for lean management of consignment program, does not want to pay for inefficient program industrialization.”
Does the current industry default model of consignment provide this?
- Is T/D consignment something that your company wishes to avoid going forward through internal development.
For the most part the answer here is no and perhaps predictably so given that it is often seen as a necessary hardship. Others are deliberating on this, such as ABL Aviation, who are perhaps seeing a different way of being as regards the sale of teardown material.
- Is there anything that you would like to add to this topic?
Yurij from AeroVista stated that; “Probably one of the reasons why this process is poor on the side of leasing companies is that they primarily rely on their own knowledge and some historical contacts, rather than in systematic research. Another matter is that the consignment companies should actively promote their services (i.e., they are not visible for the customer like ourselves)”.
One thing that comes from both elements of this survey is that there is little consistency across the industry. This is not necessarily surprising as we are seeing substantive change in the dynamics of this area. The swing from a lessor/asset led market to a Consignee/market led asset is making the hardship that bit harder to define, and consequently that bit harder to manage.
Let’s talk a bit about that in the next article.