A parts manufacturer approval

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CHAPTER 1 : INTRODUCTION

1.1 Introduction

Parts Manufacturer Approval (PMA) is a combined design and production approval for modification and replacement parts. It allows qualified sources that are not the original type certificate holder to design and manufacture replacement parts for commercial aircraft. The FAA (Federal Aviation Administration) approves materials, processes, appliances and other parts by other means like a Technical Standards Order (TSO) or in conjunction with a type certificate. The concept is pretty straight-forward: TheFAAsays that as long as you don't infringe upon someone else's patent, you can make a part or system of parts that someone can install on their aircraft in lieu of the original item. The FAA, specifically the ACO (Aircraft Certification Office) of the FAA, is responsible for approving any part design related to commercial aircraft. An OEM (Original Equipment Manufacturer) is subject to the same regulations to qualify and validate parts as a PMA holder is. An OEM does not approve its own parts. Order8110.42prescribes the approval procedures for FAA personnel and guides applicants in the approval process. Of course, for safety's sake, the FAA wants detailed proof that the PMA part is as good or better than the one made by the original equipment manufacturer, but that's a hurdle that more than a thousand PMA manufacturers have jumped many, many times. The rewards for their efforts are the profits received from building what they feel are better products, less expensive products or both. Today, airlines on every continent have an increasing demand for the PMA parts. The use of high-quality PMA parts has given airlines the cost savings that are translated into operational economy. Airlines are now working directly with PMA suppliers to develop replacement parts as a hedge against what they view as the monopoly pricing power of OEMs.

1.2 Problem definition

Being first to the market is not as important as giving the customers what they want. Although being the major player in the industry, OEMs such as Boeing and Airbus have to take into considerations of how the customer feels about the cost-cutting value that the PMA part offers. The OEM might have paved the road in the industry, but PMAs are taking advantage of the situations that arise from it. At a time of weak revenue growth, the global airline industry has continued to seek more innovative cost containment

strategies. Maintenance, which ranks second behind fuel as the largest cost line item for airlines, has huge potential for cost savings. Much of these savings can be realised through the use of DER repairs - i.e. repairs approved by FAA Designated Engineering Representatives - and parts manufactured under PMA by reputable sources other than the original OEM. (Andrew Farrant,October 2010).

The battle between the original parts and the aftermarket parts have been a heated one, not only in the aviation industry but also from other businesses as well. We can see almost in every automotive workshops that aftermarket products are being sold widely to cater for the demand of the customers. Original manufacturers wants their customer to buy and use their products, whereas aftermarket products manufacturers is offering a cheaper alternative that can work as good as the original part. The OEM says there's plenty wrong in using aftermarket products, because if the OEM didn't make it, there's no guarantee that it will perform as well as the original; a situation that could jeopardize lives and indirectly ruin the reputation of the aircraft builder. A simple situation could explain all this. If in the event of an aircrash, the general public only hears that a particular model aircraft crashed, not the fact that an aftermarket part may have caused it.

In the other hand, the PMA manufacturer says there's nothing wrong with their parts, especially since the FAA has to certify them as being equal to or better than the OEM's product before they can be sold to anyone. This is to prove that only a certified part can be used on an aircraft, thus keeping the standard of airworthiness. Use of such parts does not in any way affect the airworthiness of the aircraft. Such parts are identical in design specifications and part number to that of original manufacturer. Such parts are not bogus parts. They meet the drawing and material specifications and are manufactured under approval. Often, PMA parts are cheaper than the OEM parts as PMA holder does not have to make any investment on research and development. The PMA parts are identified by OEM's part number with either a prefix or suffix to differentiate it from OEM part number and to have traceability. It is almost identical, but with a lower price tag. The way that the OEM addresses this problem is to say that once PMA parts is being used with their aircraft, the warranty for that particular aircraft, if still valid, is not accepted anymore. That is a big blow for the PMA industry, having a minority say in the situation.But like everything else in a free market, the victor is chosen by the customers, and for now they're split, with some swearing by PMA parts and others swearing at them.

In this battle, both OEM and PMA have their own strength. The OEM is armed with guaranteed compatibility and the PMA steps forward with compatibility, as well as lower prices and better availability. It is hard to see which side is winning the parts battle. It all comes to which part and what kinds of customers are being examined.

1.3 Objective of research

The objective of this research is to determine the acceptance of PMA usage within the aviation industry in Malaysia. There is always two sides on a coin. Some may say that PMA is really the way to go especially in this dire economic state that the aviation industry is facing, while others may opt for the guaranteed OEM parts. According to Jason Dickstein, president of the Modification and Parts Replacement Association (MARPA), the attitude toward PMA parts was very different in the 1990s than it is today. He says that as some larger companies recognized that PMA parts could be a viable threat to their business, people became more reluctant to accept them. Efforts to try to disadvantage PMA parts ensued in the Aviation Rulemaking Advisory Committee (ARAC).

“I think that there has been some anti-PMA sentiment in the past,” says Dickstein. “People who didn't understand PMAs were averse to PMAs because they represented an unknown quality. Over the last decade or so, MARPA, the PMA parts manufacturers themselves, and even some of the government agencies have done a good job cooperatively of better educating the public, particularly the public within the industry, about what a PMA part is.

In response to OEM concerns, the FAA put its Aviation Safety (AVS) Repair, Alteration, and Fabrication (RAF) Team to work. Its task was to “provide recommendations to close any gaps existing in both current and in-process regulations, policy, and guidance necessary to ensure an acceptable level of safety commensurate with the criticality of affected parts.”

“What they concluded was that what the FAA has been doing is safe, that PMA parts are safe, and a lot of the OEM concerns are competitive, rather than safety-driven,” says Dickstein.

1.4 Research scope

This research will be targeted mainly on the two biggest airline operators in Malaysia, which are Malaysia Airlines System and Air Asia. The scope of the study will only be concentrated in the maintenance and financial field.

* Maintenance - the practicallity of PMA parts to be the substitude for OEM parts (how they perform,do they fit easily,the availability of parts etc)

* Financial - the pros and cons in terms of monetary value, both in short and long term aspects (how much difference does PMA parts offers in terms of savings, to what extend does PMA parts affect the warranty of an aircraft etc)

This research will only cover the perceptions and opinions of people who are involved with the aviation industry, particularly on PMA issues. The outcome from this research could possibly help both airlines in deciding whether to go for or against PMA parts. There are a few big names working together with the PMA manufacturers. Names such as British Airways, Delta Airlines, Pratt & Whitney are now enjoying the benefits that the PMA parts offers, both to them and also to their customers. Airline operators in Malaysia must have their stand on the PMA issue in order to be on par with the big names.

CHAPTER 2 : LITERATURE REVIEW

2.1 Introduction

PMA parts have been produced for 50 years, beginning with the demand for replacement parts for World War II-vintage aircraft. At that time, companies other than the original manufacturers were allowed to design and make spare parts for aircraft under a PMA to help a large number of military aircraft sold to civilian operators to fly again. However, even after 50 years of usage throughout the industry, arguments between the airlines, the OEMs and the PMAs are still highly debated. This is due to the "questionable quality" and "safety concerns" used by Original Equipment Manufacturers (OEM) to challenge PMAs, whom they take as a big competitor in the market.

2.2 Certification

According to the FAA, PMA means the design and production approval for modification and replacement parts. It allows a manufacturer other than the OEM to produce and sell these parts for installation on type certificated products. Without the PMA, aircraft parts would be designed and manufactured exclusively by the OEM, granting them a monopoly in the replacement parts market.

The FAA requires that companies or individuals that produce parts for sale for installation into type certificated aircraft may only sell approved parts. These "approved" aircraft parts, other than hardware, are parts that are approved by TSO, PMA, a type certificate, or a production certificate. To receive a TSO or PMA approval for a part, the manufacturer of the part must demonstrate to the FAA that the part will operate just like the original part, as intended in an aircraft environment and will be manufactured according to the FAA standards. The FAA regulations states that it is the responsibility of the person installing the parts on an aircraft to ensure the parts meet the appropriate airworthiness standards. The Technical Standard Order (TSO) is one of the procedures that the FAA uses to establish standards for aircraft parts. TSOs have been established for many types of aircraft parts such as landing gear parts, engine parts and many avionics equipments. TSOs are divided into different categories and the testing required to cover a wide range of environmental conditions such as heat, temperature, altitude, vibration, etc must be established.

If a TSO is available for a part, a manufacturer will test the part in an FAA-approved laboratory to meet the requirements as per the TSO. If the part successfully passes all the tests, then the manufacturer will be granted a letter from the FAA stating that the part is approved per the TSO. This TSO approval letter means the part can be used for installation in any aircraft via an STC (Supplemental Type Certificate) or TC (Type Certificate) as long as the operating environment of the part in the aircraft is within the TSO criteria.

If there are no TSO categories established for the part that the manufacturer wants to produce and sell, the manufacturer can still get the approval from FAA by testing the part in the actual aircraft type where it is designed to be used. To achieve this, the part must be conformed to the design drawings by a FAA-designated inspector to ensure it meets the type design. Then it will be installed and tested in accordance with a FAA-approved test plan. Upon completion of the tests, submittal of the appropriate documentation, and verification of a FAA-approved manufacturing system for the part, the FAA will issue a letter identifying the part as eligible for installation under PMA for the specific aircraft type in which it was tested. The PMA part may then be installed in the specific aircraft via STC or TC. If the part manufacturer wants to use the part in another aircraft type, additional documentation and testing may be required. In any case, a PMA part can only be installed in an aircraft types where it has specifically been approved.

Airliner who manufacture parts for their own use, do not require a PMA for the manufactured parts since they are not being sold to another party. The parts, however, still must be approved and manufactured according to the FAA standards and installed using a STC or other FAA-approved installation procedure. The regulations states that a PMA part must be equal to or better than the OEM equivalent. John Wicht, a project manager at Wisconsin-based Rapco, Inc pointed out that the FAA Aircraft Certifications Office won't accept on ‘equal to' parts, according to his involvement in many PMAs. He also said that “If you can't definitively demonstrate that your part will exceed the performance of the OEM part, they're just not interested in talking to you."

2.3 Safety issues

The FAA or EASA have no statistical evidence for safety concerns with PMA parts. It is as if they are turning a blind eye on the matter, which is definitely not a good news for the OEM. For them, anything will do as long as all the required procedures are being followed accordingly. To achieve certification, PMA manufacturers must prove to the FAA that a part that they manufacture is the same in all respects to a design in a type-certificated product or, through test an computation, that the part is the same as, or better than, the one it seeks to replace. “You have to prove that the quality assurance system is adequate before you get production approval, just like the OEM products are proven,” says Jason Dickstein, president of the Modification and Replacement Parts Association (MARPA).

As people begin to see what the regulatory structure surrounding PMA parts before it is being approved, those people begin to accept PMA parts. Many air carriers are now starting up programs to identify and purchase PMA parts because they believe that the PMA parts are safe and that, because they represent competition, PMA parts would bring prices down. British Airways had been on the opposite of the PMA parts until representatives from Heico International Inc., a maker of hydraulic cylinders, sat down with them to explain the benefits of PMA parts. After the presentation, British Airways had turned around 180 degrees and begin purchasing PMA parts.

Air carriers are now being more acceptance towards PMA at the purchasing and quality assurance levels because they have conducted investigations prior to the actual usage of it. Air carriers had to investigate the usage of PMA to figure out whether or not they represent a good economic value. What the carriers found out was that not only were they a good economic value, but they're also safe. A PMA may be obtained for replacement parts for TSO articles that are approved as part of a product type design, provided that installation eligibility to that product can be shown. Approval of a part that would result in a major design change to the TSO article cannot be done under a PMA and would require a new TSO authorization. Even critical components can be ‘PMA'ed, given that it is in compliance with the specific FAA guidance. When there is a PMA on a critical part, chances are that the critical part has gone through a whole lot of FAA scrutiny that the OEM part

didn't go through. This means that a PMA part is being more thoroughly checked.

The FAA has to witness all the tests being carried out to the most critical components. These will never be delegated to a DER (designated engineering representatives). The FAA has to perform its own analysis of all the data and make the individual regulatory compliance findings themselves. The draft for FAA Order 8120.2F also states that once a PMA part has passed through a PMA holder's quality system, the holder must establish a procedure to report any failure, malfunction, or defect of the part to the FAA.

2.4 Cost savings

By using the PMA parts, airlines all over the world can also save a lot of money. The economic imperative for airlines to minimize maintenance costs means the savings offered by PMA parts, when compared to OEM catalogue prices are a big advantage. DER repairs and PMA parts programmes that specifically focus on gas path components can result in savings of more than US$500,000 per shop visit, or over 50 percent of the typical OEM catalogue

pricing. These alternative parts and repair programmes not only represent a great opportunity for savings, I believe they represent the only form of competition available in this specialised market. [ Andrew Farrant, 2010 ]

As mentioned earlier, British Airwaysis clearly showing a very high interest on using PMA parts. They are now looking to make massive savings through the extensive use of PMA parts instead of sourcing them from the OEM. Speaking at "The Great PMA Debate" event at the Royal Aeronautical Society in London, Ameet Bhalla, British Airway's technical manager, airframe systems, explained that the strategy follows on from a deal signed with Heico, the world's largest independent designer, manufacturer and distributor of FAA and EASA approved replacement parts for jet engines and aircraft components. This will see that Heico will be managing BA's alternative parts programme while at the same time helping the airline maximise savings through using alternative aircraft parts.

"Through this deal with Heico, we will actively seek PMA opportunities going forward. We will no longer be the cash machine for OEMs," said Bhalla. "Contrary to popular belief, PMA parts have been used for many years within BA. There has been an approval process since 1997 and hundreds of PMA parts are now in use. In 2006 alone, 28 new PMA parts were approved," he added. "These are not bogus parts but approved by the very same regulatory authorities that approve OEM aircraft parts. BA reviews all applicable PMA parts and approves each one on a case-by-case basis. Once installed, the parts are monitored for any defect trends and we note failure modes of PMA parts to check that they are similar, if not the same, as their OEM equivalent," he says. Bhalla also said that BA are now looking on to exploring the potential of 95% of Heico's inventory that are non-critical items. "There has been no overall financial saving target set but we have said that we will openly entertain the PMA concept and would consider putting non-critical PMA parts on any of our aircraft," he says.

James Bennett, Heico European sales director, told Flight International: "Historically BA, while not anti-PMA, could not be said to be advocates either. They are well known as being extremely conservative as an airline but the move byLufthansa, which isa stakeholder in Heico, was seen in the industry as an extremely successful move to keep the OEMs in check."

"BA must certainly be looking in the region of saving between 30-40% off OEM list prices and will be focusing on high-cost items. Heico will head that PMA management process and review together with BA where further PMA applications can be used. We will be the fulcrum for BA to explore PMA."

2.5 Availability

PMA manufacturers are also proud of their inventories, having the ability to supply immediate availability on a variety of parts that the OEMs have trouble keeping in stock. Although customers' most frequent complaints are with engine OEMs, shortages can be found with everything from fasteners to landing gear struts.

During the summer of 2003, owners of MDHI's helicopters noticed a dramatic decline in the availability of OEM parts. It wasn't long afterwards that everyone realized the company was in the grips of severe cash flow problems, resulting in angry suppliers refusing to deliver new components to the factory floor until outstanding debts were paid. As a result, sales of MDHI's light single-engine MD500s and twin-engine Explorers plummeted and there are rumours that MDHI was months away from bankruptcy. Meanwhile, MDHI aircraft around the world were on the ground with timed-out parts and some very angry operators.

Aerometals, a California-based supplier of PMA parts, which had been selling PMA parts for MDHI (then Hughes Helicopters) since 1983, was perfectly positioned to take advantage of the problem with the OEM and sell tons of products to MDHI's anxious customers. And even though the health of MDHI has greatly improved since its acquisition by Patriarch Partners investment group in 2005, customers still call on Aerometals for a wide variety of components. Aerometals tend to have 95 percent of their product line available for same-day shipment, whereas the OEM competitor has many items back ordered for six months or more. Aerometals has experienced a huge rise in sales simply because they have the items in stock and the OEM doesn't.

Even some of the healthy helicopter manufacturers have had trouble filling orders. Since the terrorist attacks of September 11, companies likeAgustaWestland, Bell andEurocopterhave seen orders for new aircraft come in at a record pace. The increase in orders at the helicopter manufacturers still have their assembly lines running at maximum capacity. A new Bell orEurocopterproduct will have to wait around two to three years before it can be delivered. The ripple effect of those sales has overwhelmed the engine manufacturers and other OEM subcontractors in the chain as well, leaving the door open for PMA manufacturers to step in with parts ready for immediate shipment to aircraft already in-service.

2.6 Wider acceptance

Acceptance comes with maturity. And where there is acceptance, market potential could grow from it. This statement briefly concludes the PMA parts in aviation world today. Every year, more businesses discover the advantage of buying PMA parts. As a result, the aerospace industry has witnessed a continuous rise in the usage of PMA parts on a global scale. But their acceptance by the airlines has escalated only recently. "PMA parts acceptance among airlines was pretty low just five years ago," says Hal Chrisman, a principal at the Ann Arbor, Mich.-based management consulting firm, AeroStrategy. North American airlines have long used PMA parts, but their interest in their cost-cutting value has increased noticeably since 9/11 and the resulting economic downturn. PMA parts "provide the irresistible cost advantage of 30 percent to 50 percent," says Kirti Timmanagoudar, research analysis at the consulting & analysis company, Frost & Sullivan, San Jose, California. Equally important to industry potential is the emerging interest coming from Europe and Asia. Europe's growing use of PMA parts "is being supported by an improved industry structure and by major third-party MRO providers that are encouraging airlines to switch to PMA parts," according to a Frost & Sullivan survey of European maintenance trends. The increased use of PMA parts in Europe is in tandem with the continent's growing number of low-cost carriers (nearly 50 of the more than 80 carriers, according to Frost & Sullivan) and the trend to outsource maintenance, which has brought the rapid increase in numbers of third-party MROs. Ironically, despite this growing demand for PMA parts (made in the United States and approved for acceptance in other countries through bilateral agreements), Europe has virtually no parts manufacturers other than the OEMs.

This escalating interest in PMA parts led to a two-day meeting of airline maintenance officials in Seattle in late January 2006, the purpose of which was to better understand PMA parts and theFAAparts approval process for the airlines. They want to, first, find out how each of the attending airlines handle PMA parts and, second, find ways to expedite, and perhaps standardize, the use of PMA parts. "Before, the airlines apparently didn't talk much to each other [about PMA parts processing]," according to Gloria Nations, president of the Modification and Replacement Parts Association (MARPA) and attendee of the Seattle meeting. Spearheaded by Alaska Airlines, the meeting included presentations by invited association, government and industry officials. Airlines like United, Delta, Air Canada, Japan Airlines and, most recently, British Airways have struck strategic partnership deals with Heico, reputedly the world's largest independent designer, manufacturer and distributor of FAA- and EASA-approved alternative parts for aircraft and jet engines. American Airlines has a joint venture with the company to manage its alternative parts, while Lufthansa Technik actively encourages the development and production of PMA parts through its 20 percent stake in Heico.

Carl Pedersen, president and CEO of Cimber Air Support, a passionate advocate of PMA, told delegates that PMA will become more relevant than ever as operators are forced to cut cost without jeopardizing safety. "Yet, whenever the use of PMA parts is put up for discussion," said Pedersen, "the individual who tables the issue is often looked upon as 'the bad guy of the movie' which, to my mind, indicates that the subject of PMA is not fully understood.”

EASA will only grant approval to a PMA part today if it's not a critical component, it has been manufactured under license or if any minor changes or more major supplemental type certifications meet specific EASA approval.

But now, Pedersen said, EASA has plans in place for a European PMA equivalent to the FAA under the banner of an "EPA" part, for which a tender for review has been commissioned but not yet finalized. "It could be argued that design and manufacturing procedures are already in place under EASA's Part 21," said Pedersen, "but creating a recognized European equivalent will put European operators and MROs on an even footing with their U.S. counterparts, eliminating the unfair trade limitations we have today”. To this end, he said the issue of PMA might yet be included in the imminent EU/U.S. Bilateral Air Safety Agreement which, reportedly, currently is embroiled in the politics of fees and charges.

Yves Morier, EASA's head of product safety, confirmed EASA is discussing with its FAA counterparts how best to cooperate on PMA rulemaking. "Currently, there is no statistical evidence for safety concerns with PMA," said Morier. "But the overall experience may not be sufficient to draw definitive conclusions."

Chris Carter, who manages the FAA's Certification Procedures Branch, had a definite view. "PMA is here to stay," he said. "It's deeply embedded in our system, and there's an ever-growing demand, especially now that Pratt & Whitney is entering the market," he said. Moreover, in terms of PMA product quality, he confirmed the FAA has no "better than" or "safer than" criteria. The only bar required is the absolute safeguard of industrial regulation. Any latent risk in PMA has more to do with the financial standing of the PMA manufacturer than the PMA part itself, and, in his view, some PMA manufacturers are attaining the scale and stability of many OEMs.

Looking ahead, he told the delegates that the FAA will continually improve its processes and work very closely with MARPA (Modification and Replacement Parts Association) on upcoming policy and new changes. "We're also expanding delegation as the industry matures its capabilities and responsibilities," he said. Indeed, the U.S. has signed its first PMA bilateral agreement with Australia, which now has its own PMA approval processes, he said.

The greatest supporting fact that PMA is now being accepted is the defence from the FAA on the side of PMA. In an attempt to counter anti-PMA safety concerns, the FAA released Special Airworthiness Information Bulletin (SAIB) NE-08-40 on Aug. 8, 2008. There have been a few wording in some OEM manuals that drove the FAA to issue the bulletin as a closing statement in an ongoing argument about the validity of PMA parts. According to Jason Dickstein, president of the Modification and Parts Replacement Association (MARPA), the SAIB was driven by the FAA's dismay at the fact that some OEMs were using safety documents for competitive purposes. A MARPA release from Aug. 10, 2008, states that some manufacturers have made commercial statements designed to demoralize the public's confidence in PMA parts. OEM decisions cannot override the word of the FAA. “If the FAA approved a PMA part to be used, the OEM is in no position to tell you that the FAA's approval is invalid,” says Dickstein.

MARPA says that the FAA expects the industry to treat its approval of PMA parts with the respect to the FAA decision. “We are an extremely risk-averse industry,” says Dickstein. “Many industries will go with a new product as long as they don't see anything wrong with it. Our industry won't go with a product unless we see everything is right with it.”

2.7 Different views

As a customer, the airline industry comprises of many different subcategories. Each of them have a different approach on the PMA issue and whether they best fit into their operation or not.

2.7.1 The Airlines

It is in a very competitive business environment that airlines are operating, with profit margins so small, every dollar has to be treated as if it was worth a million. That is why all airlines are very interested at the low cost that PMA parts do offer. Most of the engine parts that must be replaced on a regular basis, needs to be changed periodically and the cost of sustaining such activity are directly proportional to the usage of the engine. This means that the more the engine is being used, the more maintenance that it has to go through and the more money needs to come out from the pocket of the airline. Maximising the usage of the airline's resources, in this case the aircraft itself, is very crucial in keeping the airline in business. Obtaining the less expensive part such as the PMA parts to cater to the demand of the ever increasing cost in maintenance is a very good move. The airlines are trying to control the amount of money that comes out from their pocket in order to operate efficiently. They cannot control the price of fuel, so the next best thing that they can control is the price of maintenance activity. But what scares them is the OEMs asking the billion dollar question: "Are you willing to risk lives, law suits and ruining your good name because you decided to buy cheap parts?"

In response to not knowing which part to be in, whether going to the people who say PMA parts are safe and inexpensive or the OEMs who say PMA parts are unsafe because they're inexpensive, some airlines conducted evaluations. Samples of an OEM part and its PMA equivalent are run in controlled tests side by side to evaluate their performance. Many airlines that conduct their own tests end up selecting certain PMA parts, while keeping some OEM components.

The buzz around the airline industry is that British Airways does not use PMA parts at all, but according to Michael Barnes, who serves as BA's design assurance manager, the UK's largest airline does use PMAs, although in a limited number, aboard its 230-plus aircraft. "Our leadership team is behind the PMA process," said Barnes. "We have an internal approval process we've had running for 20-25 years." He added that BA is looking for more, longer-term PMA relationships.

David Linebaugh, an engineer with Delta Airlines, and the only full-time engineer specifically assigned to PMA parts with Delta Airlines described his airline's dependence on PMA parts. "We need to know what you did and feel good that you did this part right," Linebaugh said to the PMA representatives present at the annual gathering. "We have to do what's in the best interest of Delta Airlines." In fact, according to Linebaugh, Delta approves 95 percent of the PMA parts they look at, mostly because if they find a deficiency in a component's design, they send it back to the PMA producer and ask for some modifications. Considering the size of Delta's fleet — more than 500 aircraft at any given time — the PMA manufacturer is just as interested in producing a high-quality, cost-effective part for the big carrier as Delta is in buying it. Linebaugh also said that more than 90 percent of the PMA "packages" they receive only need administrative review from Delta, as opposed to a full in-house technical review. He attributes that number to the detailed and meticolous efforts of the PMA companies to build a quality product and provide strong, verifiable technical data to support the airworthiness of the component.

Ameet Bhalla, technical manager, airframe systems at British Airways Engineering, says that those who are on the side of the OEM should remember that approvals for PMA parts and OEM parts are made by exactly the same people. "PMA are EASA- and FAA-approved parts," said Bhalla. "They're not bogus parts." He stressed that although BA is regarded as "anti-PMA," it actually has been using PMA parts since 1997 and introduced its own parts approval process in February 2006. BA had approved about 28 different parts since then, but they are looking to widen the usage of the PMAs. Through its partnership with Heico, Bhalla said BA will actively seek PMA opportunities and potential within the 95 percent of Heico's inventory that comprises non-critical items. "We will no longer be a cash machine for the OEMs," he said.

Aegean Airlines' CEO, Antonis Simigdalas, who attended the conference as president of the European Regions Airline Association (ERA), said the PMA issue is a clear demonstration of how the air transport industry is responding to issues that concern safety, suggesting that the anti-PMA lobby was "overdoing it a little." In his opinion, compromise on both sides could increase operating safety and potentially improve safety.

2.7.2 The lessors

Phil Seymour, managing director of the International Bureau of Aviation, pointed out that it is hard to differentiate the parts, whether it is an OEM or PMA, upon returning an aircraft from lease. This is because they seldom contain the "FAA PMA" suffix to show which part is which. This can only be determined by the documents and tags associated with each part during the maintenance activity itself. He also noted that the value of a used aircraft is usually assessed on what has been done to it throughout its operational life, for example a recent D check might add $2 million or $3 million to its value. But what if the previous operator had been using PMA parts during the D check rather than OEM parts? There must be differences in the quality of both parts and this differences, although small in number may eventually lead to bigger cost gap.

"Appraisers tend to look at the cost of added items rather than their value," said Seymour. "But how do we compare the values of two recently overhauled CFM56-3C engines, where one has only OEM parts and the other has been fitted with P&W life-limited PMA parts? We can't add the standard $1.5 million to the engine fitted with PMAs, because the cost of the PMA parts may only be $1 million. So, how much do we add in this case?"

Despite such conundrums, some lessors are slowly accepting the PMA. There have been recent lease contracts where the lessors are giving the option to the customer to use PMA parts, with the condition that they must be addressed before hand.

John Sharpe, CEO of Engine Lease Finance Corp., said investors prefer assets with long lives, strong value retention and wide re-marketability. So, their prime concern in terms of risk is: if one airline installed PMA parts on a lessor's aircraft, and then that aircraft was offered to another airline which used only OEM parts, the deal could never be done. "It's a very simple equation," he explained. "If only 50 percent of my customer base wants PMA parts in their engines, then that reduces my market by 50 percent, directly reducing the value of the asset."

Sharpe felt that OEMs are to blame for this value differential because the success of PMA puts their strategy of selling equipment with a lifetime spares package at risk. Indeed, by protecting their aftermarket with these guaranteed cost schemes, OEMs have tripled their market share over the past 10 years. As a result, OEMs are extremely concerned about growth in the PMA market. "They're the ones causing problems downstream for everyone else," said Sharpe, "particularly for independent MROs, non-OEM parts suppliers and leasing companies. So PMA is either going to be the death knell of a dying animal or a total game changer."

Another airline delegate, who preferred not to be identified, voiced his airline's frustration at being "stuck in a corner" because all of its aircraft are leased from lessors that don't that allow PMAs. "Our engine suppliers clearly state that no PMAs can be used," he said, "but we certainly will look at using low cost consumables."

Thanos Pascalis, technical director of Aegean Airlines, thought lessors should follow the example of "informed" airlines and discuss PMA's impact on component values. Additionally, PMA makers should support their products with appropriate documentation, like the OEMs do. Moreover, airlines should put pressure on lessors through their buying power and, where possible, limit the number of lessors per fleet to one or two companies. "Placing say 20 leases with one lessor might allow some arm twisting," he said.

2.7.3 The Cargo Carriers

Major cargo carriers have a different take on this issue. Operating in just a small number of fleet, they are not enjoying the same economy of scale benefits like the people carriers (airlines usually have bigger number of fleets). However, in terms of profits margins they are leading. Together, these issues make the financial consideration of PMA parts just a little less pressing than in the airline's corporate office. For them, in terms of the aircraft upkeep, OEM's higher price does not convey any problem. The availability of parts, however, is extremely important when it comes to moving cargo. Smaller fleets can mean less spare aircraft to press into service. Mechanics need to get broken equipment back into the air as quickly as possible, making availability of the needed part the key issue, not the price. If the OEM has it, fine. If not, they'll get the PMA on the line.

2.7.4 The Military

If there's one PMA customer with a deep interest in saving money on parts, it's the Department of Defense. In fact, even the history proves that the military is the one who started this whole PMA phenomenon. Many people credit the Air Force with making the PMA industry as successful as it is.

Back in the 1970s, government insiders leaked stories of $6,000 hammers and $2,000 toilet seats to the press, sparking public outrage. Taxpayers demanded better accountability in military spending and an immediate stop to paying high prices for seemingly simple items just because a contractor made it specifically for the government. Today, the Air Force is a world leader in the use of PMA parts, but all US military aircraft rely heavily on them. That's a substantial number, considering 29 percent of everything flying above the 50 states belongs to the Department of Defense. Best of all, complaints of paying excessive prices for parts have been greatly reduced.

2.7.5 The Commercial And Business Operators

Commercial air operators come in many sizes, with each one looking at the PMA world from a slightly different point of view. With the ever growing popularity of fractional ownership programs, the people who buy time with them are more than happy to relinquish the whole OEM vs. PMA parts issue to the program managers. And a formidable problem it is, too.

New Jersey-based NetJets is the largest fractional operation in the industry, flying 700 aircraft more than 370,000 miles per year. All of that flying means frequent visits to the shop to replace timed-out components and fix all of the unexpected problems associated with aircraft that are, by organizational design, kept very busy. With those many repair cycles, a fractional operation has to limit downtime in order to maximize profits. PMA manufacturers boast immediate turnaround on orders, which fractional operators love to hear. It doesn't hurt if the price is good, either, because even though aircraft availability is very important, competition is still out there. Corporate accountants, while concerned about having an aircraft on the tarmac when the boss needs one, aren't willing to spend more money than they have to for that service.

As it turns out, whether or not PMA parts are used is sometimes out of the hands of the fractional managers. Most contract their maintenance out to various shops selected for their skill, pricing, turnaround history and strategic location. Contracts between the fractionals and their repair depots can dictate which, if any, OEM parts can be replaced with PMA items, but it still doesn't end there. There's a little matter of resale value. Fractional plan aircraft come and go out of the fleet frequently, as older planes are dumped in favor of new ones, or at least ones that have a reasonable amount of time left on them before they too become liabilities.

For the most part, potential buyers are fine with knowing the airplane they're looking to buy is 100 percent OEM-equipped, but some people — the kinds the OEMs want everyone to think like — get nervous if they see a PMA component in the log book. That can give the fractional operator at least some incentive to use OEM parts. Some fractionals play both ends against the middle, opting to use PMA parts while an aircraft is in the program, then switching back to OEM parts as the time to sell off that aircraft approaches. The past presence of the PMA part will still be memorialized in the maintenance logs, but a potential buyer with anti-PMA sentiments will take solace in knowing that the plane is all OEM again.

As for the expensive business jets that are wholly owned and operated by one company, holding the cost of their upkeep to a minimum while simultaneously maximizing availability is extremely important. The OEMs' position is that using their parts may not be the cheapest, but they say they are the most reliable, and will fetch a better price when the time comes to trade the plane in. But up in the accounting office, the belief is that an FAA-approved part that's available today for a lower price trumps the OEM offering nearly every time. Corporate pilots, who are interested in safety and keeping the company's aviation department from going belly-up (in that order), are all for anything that will hold down prices, plus keep the executives flying. The price of PMA parts, and their availability to a one or two-plane operation, plays into those priorities.

2.7.6 The GA community

For the General Aviation community whether a weekend aviation enthusiast out for a day of sightseeing or a small flight school trying to turn a profit, PMA is considered to be their best friend. For them, money is very important and when it comes to replacing a part, an OEM warranty is not an issue. The difference in price between a PMA component and an OEM offering can literally make the difference..

2.7.7 Pratt & Whitney

Pratt & Whitney was once a vocal opponent of PMA parts, sending letters calling the PMA industry problematic to the FAA. Within five years Pratt & Whitney began offering its own PMA parts on CFM 56-3 engines. Not only does it have PMA parts on CFM 56 engines today, it also has a program to develop more. “Pratt & Whitney made a decision not to even develop an engine for the 787,” says Jason Dickstein, president of the Modification and Replacement Parts Association (MARPA). “Instead, they took the resources that might have gone into developing an engine for the 787 and they put those resources into developing PMA parts for CFM engines. Instead of putting all the investment into creating a new engine, why not just make money off the existing engine and get PMA parts for the existing engine? I think it was a very smart business move on the part of Pratt & Whitney. It also represented a major shift in policy from them having been anti-PMA to them having suddenly become a PMA company themselves.” If there is to be a "game changer" in the market, it most likely is to be Pratt & Whitney. It intends to seek PMA certification to manufacture up to 48 critical parts for the CFM56-3 engine by spring 2008. The first of these, high pressure turbine shrouds, received the FAA's PMA approval earlier this year.

Rick Deurloo, director of sales for Pratt & Whitney's Global Material Solutions, confirmed that 19 of the 48 parts will require supplemental type certificates (STC) because of design changes that P&W implemented. "We're not new to the PMA market," Deurloo insisted. "As an OEM, we've seen PMA market penetration on the JT8D, JT9D and now the PW4000, so PMA is out there, and we live with it. We made the decision to develop parts for the CFM56-3 primarily on customer demand. We believe they will complement our existing aftermarket and allow for future growth," he said.

Deurloo reported that lessors' reactions to P&W's move have been "more neutral than expected" because they still have concerns over asset marketability and residual values. However, in his view, demand will be the indicator of future marketability. Addressing risk issues, he said P&W is well aware that safety and reliability are key factors, which is why it is running its CFM56-3 life-limited-parts (LLP) program as an OEM program. "Even though it might take them six months or more, lessors will come on-board eventually," Deurloo predicted. "But the airlines will have to drive it by insisting lease contracts give them more flexibility."

2.8 Better understandings

"When we first started selling parts in the mid- 1990s the scenario was a lot like a guy holding a trench coat open: ‘Psssst! Wanna buy some PMA parts?'," joked Rex Kamphefner, co-owner and general manager of Aerometals, a California-based supplier of PMA parts forMD Helicopters. "There was a tendency to confuse PMA with the shady part of the market."

Other PMA parts manufacturers, like Larry Shiembob, president and CEO of Arizona-based EXTEX agree, and accuse the OEMs of implying to potential customers that after-market parts are incompatible, substandard and possibly dangerous. "One of the big things you hear from the OEM is that if you install a PMA part you won't have a warranty," said Shiembob, whose company builds parts for turbine engines. "...in reality, unless it's a new engine, you don't have a warranty anyway. If his part fails he has to warrant that product just as a PMA supplier needs to warrant their product. So, that's a great scare tactic: ‘If you put in a PMA part your warranty will be void.' That's untrue and that's probably illegal."

John Wicht is a project manager at Wisconsin-based Rapco, Inc., manufacturers of PMA engine, auxiliary power unit and brake parts. He actually agrees with the OEM's opinion of PMA parts, at least to a certain extent. "Lots of the OEMs like to say that PMA parts are not equivalent to the OEM design," said Wicht. "That's true. That's an accurate statement, they're not. In almost all cases they're superior to the OEMs."

Wicht supports his claim by explaining that PMA manufacturers have the benefit of monitoring the performance of the OEMs' components, then focusing a greater amount of attention on improving that part than the original builders are able to provide.

In addition to building a part that meets or exceeds the specification of its OEM counterpart, PMA manufacturers must also show a potential customer that the value of the after-market component — whether through its initial purchase price, durability or better operating efficiency — is more attractive than the OEMs' offering.

"Our parts are frequently 40 percent cheaper than the OEM; and who doesn't like that?" Kamphefner noted. "Our customers won't cut us a break on quality, however. Just because the parts are less expensive and available today, our customer still insists on perfect quality and they don't hesitate to call up Aerometals and raise a ruckus if they feel the part didn't show the service life they expect."

One factor that apparently stifles such potential is user misunderstanding of PMA parts, as was evident in the airlines perceived need to hold the Seattle meeting, and despite the PMA industry's 50-year-old history. Clarification in the Part 21 rules covering PMA parts would help eliminate the misunderstanding, and FAA's Aviation Rulemaking Advisory Committee (ARAC) Part 21 made recommendations that were included in a notice of proposed rulemaking (NPRM), released in January 1999. One key recommendation would assure that all parts makers, PMA and OEM, have in place production quality assurance systems and self-audit of all activities. Virtually all PMA parts makers have established these procedures, even though the NPRM never became a rule. Such a rule, which is still expected, would no doubt clarify airline perspective of PMA parts. A revision to Order 8110.42, which outlines the manufacturing procedure required to produce PMA parts, also would bring clarification. Order 8110.42.B, Change 1, currently being worked on, would, among other things, require that a parts maker must, first, assure a part's quality; second, track its use; and finally, make any correction that may be discovered from the tracking.

Through better understanding, clearer written rules and expanding international acceptance, the PMA parts industry may soon realize its full economic potential.

CHAPTER 3 : METHODOLOGY

3.1 Overview

This research will be conducted in order to determine whether PMA usage is acceptable by the people involved in the aviation industry. The advantages and disadvantages as well as the reliability of PMA parts were also part of the objectives. In order to answer these research goals, I opted to obtain the view of the employees of two different departments in line with this topic ; Finance Department and Engineering Department. Specifically, a total of 40 respondents from either two involved departments will be randomly selected to make up the sample. Selected participants will answer a survey questionnaire structure in Likert format. Data gathered from this research instrument will then be computed for interpretation. Along with primary data, I will also make use of secondary resources in the form of published articles and literatures to support the survey results.

3.2 Research Design

The descriptive method of research is going to be used for this study. To define the descriptive type of research, Creswell (1994) stated that the descriptive method of research is to gather information about the present existing condition. The emphasis is on describing rather than on judging or interpreting. The aim of descriptive research is to verify formulated hypotheses that refer to the present situation in order to clarify it. The descriptive approach is quick and practical in terms of the financial aspect. Moreover, this method allows a flexible approach, thus, when important new issues and questions arise during the duration of the study, further investigation may be conducted.

Descriptive research on the other hand is a type of research that is mainly concerned with describing the nature or condition and the degree in detail of the present situation. This method is used to describe the nature of a situation, as it exists at the time of the study and to explore the cause/s of particular a phenomenon. The aim of descriptive research is to obtain an accurate profile of the people, events or situations. With this research type, it is essential that the researcher already has a clear view or picture of the phenomena being investigated before the data collection procedure is carried out. The researcher used this kind of research to obtain first hand data from the respondents so as to formulate rational and sound conclusions and recommendations for the study. I opted to use this research method considering the objective to obtain first hand data from the respondents. The descriptive method is advantageous for me due to its flexibility; this method can use either qualitative or quantitative data or both, giving me greater options in selecting the instrument for data-gathering.

The research is using Finance and Engineering Departments employees as respondents from Malaysia Airlines System and/or AirAsia in order to gather relevant data; the descriptive method is then appropriate as this can allow the identification of the similarities and differences of the respondents' answers. For this research, two types of data were gathered. These included the primary and secondary data types. The primary data were derived form the answers the participants gave during the survey process. The secondary data on the other hand, were obtained from published documents and literatures that were relevant to PMA parts. With the use of the survey questionnaire and published literatures, I am doing this study taking on the combined quantitative and qualitative approach of research. By means of employing this combined approach, I will be able to obtain the advantages of both quantitative and qualitative approaches and overcome their limitations.

Quantitative data collection methods are centred on the quantification of relationships between variables. Measurement, numerical data and statistics are the main substance of quantitative instruments. With these instruments, an explicit description of data collection and analysis of procedures are necessary. The quantitative approach is more on the detailed description of a phenomenon. It basically gives a generalization of the gathered data with tentative synthesized interpretations.

Contrary to the quantitative method, qualitative approach generates verbal information rather than numerical values. Instead of using statistical analysis, the qualitative approach utilizes content or holistic analysis; to explain and comprehend the research findings, inductive and not deductive reasoning is used. The main point of the quantitative research method is that measurement is valid, reliable and can be generalized with its clear anticipation of cause and effect. Being particularistic and deductive in nature, quantitative method is dependent on the formulation of a research hypothesis and confirming them empirically using a specific data set. The scientific hypothesis of a quantitative method holds no value. This means that the researcher's personal thoughts, subjective preferences and biases are not applicable to this type of research method.

3.3 Participants

In order to determine the suitability of PMA in the aviation industry here in Malaysia, a total of 40 respondents will be asked to participate. The participants qualified for sample selection must be staff or employees of their respective department. This qualification ensures that the participants understand the nature of the questionnaire, making the survey items easy for them to accomplish. The respondents will be selected randomly. Simple random sampling was done for the sample selection. This sampling method is conducted where each member of a population has an equal opportunity to become part of the sample. As all members of the population have an equal chance of becoming a research participant, this is said to be the most efficient sampling procedure.

3.4 Instruments

The survey questionnaire will be used as the main data-gathering instrument for this study. The questionnaire will be divided into two main sections: a profile and the survey proper.The profile contains socio-demographic characteristics of the respondents such as age, gender, civil status, the number of years they had served the company as well as their assigned job position. The survey proper explored the perceptions of employees on the usage of PMA parts, particularly on matters that relate to the respondents department. The questionnaire proper section also contains questions that identify the advantages and disadvantages of using PMA parts in the department. The questions will be structured using the Likert format. In this survey type, five choices are provided for every question or statement. The choices represent the degree of agreement each respondent has on the given question. The scale below will be used to interpret the total responses of all the respondents for every survey question by computing the weighted mean:

Range Interpretation

5 Strongly Agree

4 Moderately Agree

3 Agree

2 Moderately Disagree

1 Strongly Disagree

The Likert survey was the selected questionnaire type as this will enable the respondents to answer the survey easily. In addition, this research instrument will give me the opportunity to carry out the quantitative approach effectively with the use of statistics for data interpretation.In order to test the validity of the questionnaire used for the study, I will be testing the questionnaire to 3 respondents. These respondents as well as their answers will not be part of the actual study process and will be only used for testing purposes. After the questions have been answered, I will ask the respondents for any suggestions or any necessary corrections to ensure further improvement and validity of the instrument. I will then revise the survey questionnaire based on the suggestion of the respondents.

3.5 Data Processing And Analysis

After gathering all the completed questionnaires from the respondents, total responses for each item will be obtained and tabulated. In order to use the Likert-scale for interpretation, the computation of the weighted mean will be carried out to represent each question. Weighted mean is the average wherein every quantity to be averages has a corresponding weight. These weights represent the significance of each quantity to the average. To compute for the weighted mean, each value must be multiplied by its weight. Products should then be added to obtain the total value. The total weight should also be computed by adding all the weights. The total value is then divided by the total weight.

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