Where do you see the methodologies communicated over the past few weeks adding value to your business? Perhaps you already have it covered. To be fair, current market conditions have driven several leasing companies to tool up in order to get the best return on their consigned assets.
Case Study Summary – Current A380 Program
A380 aftermarket spares sales may have seemed like a pipe-dream when the pandemic hit the aviation industry. Yet every month has achieved A380 component sales.
Specific strategies, identified in conjunction with the Consignee, have been taken to support single purpose asset investment funds, and resulted in increased activity in recent months. This without compromising the increase in component value that is expected when the market returns on the A380 – however limited that market may be. Out of the box thinking has been a central component of the increased sales experienced in recent months.
Because the market will be limited, the bulk of program time has been developing future markets. A specific market strategy identified and implemented in conjunction with the Consignee has resulted in relationships and approaches being developed around providing optimal value to A380 Customers when maintenance requirements return. Various parties, including airlines and MROs, have positively engaged in conversations around how to achieve optimal value – from their perspective, while also increasing the probability of the specific Lessor fund revenue targets being achieved – in terms of revenue and timing.
Of course, program management is not all about sales, costs are another major component. Working with the Consignee tens of thousands have been saved annually through reviewing freight and repair costs – in terms of accuracy in allocation, accuracy to contract, accuracy in application, and of course new asset strategy. As new aircraft have entered the program, harvest lists are modified, repair budgets amended, model pricing adjusted. All developed with Consignee and processed through Lessor approval, on the basis of recent market data. With the result being reduced teardown, repair, and warehousing, costs – often significantly, and increasing marketability.
Market Alternates
With the market changes resulting from the pandemic there has to be alternatives to traditional consignment methods, initiatives that provide adequate potential to deserve evaluation. Placing assets on consignment directly with MRO’s is one of those and is becoming a reality. SellUe is having conversations with two MROs about the conditions under which this could work. Decreasing component value and longer consignment durations have made this a reality as stability of demand is becoming a more critical investor/fund expectation. A significant decrease in costs for lessor is also a central component of this initiative.
Discussions with one MRO are at a mature stage on the conditions under which this would work, and have progressed to where the assets will come from. A similar proposal is under evaluation with a second MRO. There may be investment opportunities around distressed assets using this approach as the MRO would be sharing internal forecast information on throughput and component usage. With the result being a more stable forecast, and ultimately demand, for components, than can be relied on in an open market.
Arrangements
In tandem with Partnering, Modelling, Contracting, Marketing, and Performance Management, SellUe provides a Full Metal Jacket Program Management Service on behalf of the Lessor – Sales Management, Cost Management, Payment Management, Inventory Management, along with the pricing, repair, and inventory changes that need to take place, within consignments, and as new consignments get added. All for less than the price of one High Caliber FTP.
There is flexibility to commercial engagement arrangements, ranging from fixed monthly fees for the first and subsequent assets, to a combination of fixed and performance guarantees related to component sales and/or costs. Very much depends on engagement context. Be aware that SellUe only takes one Customer per aircraft type, ensuring no conflict of interest across different clients and consignments.
I hope this series of articles has communicated the options that you have and the value that exists when working to optimise consignment across all dynamics. If you would like to discuss how this approach can impact your asset return, well, that will only cost you a phone call 😊.
If you have comments or questions, I would love to hear from you. DM me on LinkedIn or bring your thoughts to me here. Please, share this piece with your network, and if you want to access prior editions, visit the SellUe blog page.