Is Unison Industries Competitive?



Is Unison Industries Competitive? Analysis of OEM versus Third Party FAA Repair StationsR. Scott FelterBellevue UniversityAbstractAs the Aviation Industry struggles with the rising cost of maintaining existing fleets, the hard question must be asked and answered by OEM FAA Repair Stations: How do we stay competitive against rising competition of Third party FAA Repair Stations with concern to overhaul services provided? As the trend grows in utilizing Third party Repair Stations, increasing numbers are outside U.S. borders offering lower cost maintenance. This is appealing to air carriers concerned about their expenses and profitability. Inside this report, questions will be asked and answered in an attempt to review our current position in the market. In addition, what can GE Aviation-Unison Industries do to facilitate stability with continued growth in the years to follow? As the OEM for many turbine components used on our parent company GE Aviation’s own GE90 and GENX turbine engines, we are also uniquely the OEM supplier for our competitors’ turbine engines from Rolls Royce, Pratt Whitney, and CFM.Keywords: AOG, FAA, FAA-PMA, IP, LTA, OEM, PSE, MRO, TAT, VMIIs Unison Industries Competitive?Current SynopsisAs GE Aviation-Unison Industries is recognized as an Original Equipment Manufacturer (OEM) world leader supplying turbine ignition systems comprising of exciters, ignition leads, harnesses, stators, alternators, and sensors, we cannot afford to rest on our achievements. Many of our customers use our products in their OEM turbine engines that are supplied to aircraft manufacturers like Boeing and Airbus. This provides a prodigious advantage to Unison’s Industries OEM sales stability, furthering our market share as the prime supplier to turbine manufacturers like Rolls Royce, Pratt Whitney, CFM, and our parent company GE Aviation.But this portrays only half the paragon of our business strategy, as we also have the unique ability to repair our own OEM products through our licensed Federal Aviation Administration (FAA) Repair Stations. Our Repair Stations operate at the same location as our OEM new production plants; thusly, providing certain advantages this paper will discuss in detail in the follow pages. This alone will not sustain Unison Industries as a leader or guarantee a lion share of aftermarket repair. Third party FAA Repair Stations are becoming the alternative choice to facilitate repairs on Unison Industries products due to lower cost to the end customer. As a growing number of these Third party FAA Repair Stations are located outside the U.S., the decision to use them boils down to cost, logistics, and turnaround times (TAT) in completing the return of the unit. In a recent report produced by the Congressional Research Service, indices showed that there is a current positive balance in airlines using U.S. based repair facilities. But there appears in the future indications, that foreign entities’ investments in training and technologies capabilities with concern to costly engine and component repairs will directly compete with domestic repair shops (CRS, 2012). OEM Benefits versus 3rd PartyAs Unison Industries has the unique position of not only being the OEM, we also retain a license to be a FAA Repair Station for our products. The first question that needs to be asked is what benefits can Unison Industries offer over a Third party repairer? Unison Industries can offer access to our Product Support Engineering (PSE) staff that designed the units; whereas, a Third party repairer has no access nor can they offer detailed analysis of engine maintenance issues. This naturally flows the next question how do we compete for market share? Unison Industries has established Long Term Agreements (LTA) with engine manufacturers; thusly, creating an intimate business relationship that offers a “value point” in using our Repair Station (J. Schiefen, personal communication, August 1, 2014). If the engine manufacturer has established in their engine manuals that all engineering support will be facilitated by Unison Industries, then we have effectively steered Maintenance, Repair, and Overhaul (MRO) facilities in our direction.In a recent article from the Journal of Aviation Technology and Engineering, it stated 64 percent of repairs from airlines were estimated to be outsourced to MRO facilities (McFadden & Worrels, 2012). The globalization of MROs, has created a surge of airlines using oversea facilities. Foreign MROs that perform engine maintenance, offer lower cost with the same reliability and quality of workmanship offered by domestic MROs. As Unison Industries was typically guaranteed business from domestic MROs, this is not necessarily the case with foreign MROs who will use a local Third party Repair Station to facilitate repairs of engine components made by Unison Industries. Regional labor cost, especially in the Asia and South America, are far lower than in the U.S and even Europe.A recent victory that resulted in a LTA signed with an MRO is the joint collaboration with MTU Maintenance located in Hannover, Germany and Unison Industries. Mr. Jim Nickell, Unison Industries Western Europe Regional Sales Director, recognized and seized an opportunity when MTU internally decided not to repair electrical engine components themselves. MTU elected to outsource this to Unison Industries, as we are the OEM for these units. MTU recognized the value of utilizing an alternative business strategy; by allowing the OEM to service the units with expertise. The high volume units were identified, and Unison Industries reduced its flat rate cost lower than published catalog prices. In addition, this freed up capital for MTU as there was no start up investment needed for equipment or materials sourcing (J. Nickell, personal communication, June 5, 2013). We should continue seeking opportunities with other MRO shops, steering the Repair Station business by negotiating LTAs. The fact remains, airlines will continue to outsource repairs to MRO facilities, with a growing presence of MROs outside the continental U.S. (Bloomberg Businessweek, 2007).OEM Quality Service versus Third Party. How can Unison Industries preserve the quality of services offered showing the differences of a Third party Repair Station to our customers? As an OEM FAA Repair Station, Unison Industries currently has advantages over Third party with concerns to level of quality services provided. Unison Industries can offer customers immediate new replacement units whether it is an Aircraft on Ground (AOG) situation, the customer just cannot wait for the overhaul of their unit or the cost of overhaul exceeds the cost of providing a factory new unit; we as the OEM manufacturer can meet this need (G. Gonzalez-Wong, personal communication, August 6, 2014). A Third party Repair Station has zero ability for this particular aspect. Furthermore, a Third party Repair Station only offers a “repair” with the exact defective component replaced with no or extremely limited warranty for the work scope performed. Whereas, Unison Industries as the OEM manufacturer offers an “overhaul” replacing identified life limited components; in addition, Unison Industries provides a comprehensive warranty for the entire exciter (C. Currier, personal communication, July 19, 2014).Even though there are clear advantages to have a unit “overhauled” at Unison Industries, there is a trend developing to utilize the Third party FAA Repair Stations due to cost, logistics, and TAT. If the TAT is too long, it will affect delivery of the engine to the customer. Furthermore, the Journal of Aviation Technology and Engineering reported that foreign MRO LLCs are the fastest growing segment. Due to this fact, many airlines will start requiring MRO shops to offer “full service” complements just as an OEM can with engineering support and AOG recovery when required (McFadden & Worrels, 2012). Again, this aspect drives the need for Unison Industries to reach out to foreign MRO shops building new business relationships.OEM Materials Cost. How can Unison Industries contain raw material cost passing the savings on to its customers? By proactively working with our LTA suppliers to identify commonly used components, then utilizing a Vendor Manage Inventory (VMI) process to auto-fill our inventories. This enables Unison Industries to stabilize cost, as our suppliers have a forecasted projection of our needs and a guarantee of quarterly sales (G. Gonzalez-Wong, personal communication, August 6, 2014). Furthermore, we should be continuously reviewing our processes for “scope creep” to keep cost stable (K. Leonhirth, personal communication, August 13, 2014). As Ms. Leonhirth explained to me in our interview, many times during the bidding process to reach a LTA with an engine manufacturer, assumptions are made without fully understanding the process involved in building the product. Thusly, it puts Unison Industries in a less than desirable position potentially having a negative effect on our bottom line. Identifying and applying these processes, we can offer a constant price point to our customers, even when other Third party Repair Stations are increasing their cost of services to their customers (personal communication, August 13, 2014). Intellectual Property. How does Unison Industries as an OEM FAA Repair Station maintain existing customers; in addition, increasing its market share with product recognition in a volatile global market? Due to the fact Unison Industries owns the Intellectual Property (IP) rights to our products, it is unlikely any of our sourced components from our LTA suppliers will be openly sourced; particularly with concern to our ignition exciter family of products (J. Schiefen, personal communication, August 1, 2014). This one factor has created a unique business relationship with the Third party Repair Stations. As our components are not openly sourced, they must purchase from Unison Industries directly or through our exclusive distributor, AAR Corporation. This allows a certain level of control of who has access to our individual components and repair kits sold on the market. In addition, due to the fact we also have Federal Aviation Administration-Parts Manufacturer Approval (FAA-PMA) rights, we can offer the MRO shops new units or overhaul services even though they are exclusively built for the OEM engine manufacturer: we have license to sale aftermarket. There is no need to return the units to the engine manufacturer for service, as we can offer a one stop FAA Repair Station (C. Currier, July 19, 2014). Conclusion. This report has discerned points of concern and interest of Unison Industries’ current endeavors, moreover with considerations of potential future interest. As it appears we have a competitive edge over Third party Repair Stations, we cannot afford to rest on our laurels. We must be diligent in continuously reviewing our processes to ensure we are operating lean without sacrificing quality at the expense of losing our extensive customer foundation. Unison Industries has chosen the correct path in establishing a business relationship with MTU Maintenance, a direct competitor of our repair business. This step forward will ensure that as airlines outsource their maintenance to MRO shops, whether in the U.S. or overseas, Unison Industries will be an integral player in the global market of aftermarket FAA Repair Stations operations.References BIBLIOGRAPHY Danger In The Repair Shop. (2007, July 29). Retrieved August 23, 2014, from , M., & Worrells, D. (2012). Global Outsourcing of Aircraft Maintenance.Journal of Aviation Technology and Engineering, 1(2), 63-73.U.S. Congressional Research Service. (2012, December 21). Offshoring of AirlineMaintenance: Implications for Domestic Jobs and Aviation Safety (7-5700 ed.) (R42876). Washington, DC: U.S. Government Printing Office. Retrieved August 1, 2014, from Figure 1. Estimate world MRO spending. Adapated from “Airline MaintenanceCosts Executive Commentary.” International Air Transport Association page 3, 2011.Figure 2. Global locations of licensed FAA Repair Stations, Federal Aviation Administration, 2014. ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download