September 2024 – Jet Engines – Out with the New, In with the Old…
Sometimes older is actually better than newer, even when the sky’s the limit. Such as in the aviation industry where leasing old jet engines is actually more cost effective and efficient for carriers than buying shiny new ones.
The post-pandemic aviation industry was supposed to be flooded with an oversupply of aircraft, engines, and unneeded parts. But just when the industry prognosticators had it all figured out, people did something different – and decided to fly anyway, and a lot. Reuters reports that U.S. summer air travel is expected to be 6.3% higher than in 2023, with United Airlines setting a personal best in Memorial Day travel. As a result, air traffic controllers, jet engines, and parts are now all in short supply. Add in quality and durability issues from the major engine suppliers and you have a supply chain stalled in midair – or ready to be reinvented by a savvy player…
Enter the savvy player FTAI with a flight plan to disrupt their corner of the aviation supply chain, and who’s success in doing so is a textbook example of how to turn turbulence into value within an industry.
A one-stop jet engine leasing and maintenance, repair, and overhaul (MRO) shop that originally began as an investment firm, FTAI has been gaining altitude since their counterintuitive prediction that air travel would take off after the pandemic. Taking along with it the company’s stratospheric stock price, which has soared more than 800% over the past 5 years. Due to the demand for refurbished jet engines and the company’s growing economies of scale, FTAI predicts that its engine repair costs will eventually be 50% lower than other MRO shops.
At PriSim, we start our BizFighter™ aerospace and defense business simulation classes with several suppliers signaling ‘mayday’, with lousy cost and schedule performance (CPI and SPI). Teams are challenged to chart a course of improvement for their integrated supply chain. Should they invest in their suppliers? Increase their accounts payable days as punishment? Use different suppliers? Maybe they should just call FTAI instead…
Here’s wishing FTAI the absolute best and may the wind beneath their wings always be fortuitous – since we’re probably flying on planes they’ve serviced. Sounds like another very good reason to never let your supply chain fall to earth.