By Randy Starr and Dennis Santare
Randy Starr, an ex-Army commander of an airborne rapid deployment force, and Dennis Santare, a former Marine Corps pilot, are partners in the firm’s aerospace and defense practice.
One of the principal choke points behind low mission capability rates for US military aircraft has been insufficient inventories of spare parts. Time and again, the defense supply chain has failed to maintain adequate stocking levels of components, leaving dozens — if not hundreds — of aircraft of all types sidelined for months waiting for the right parts. The result: Supply chain inefficiencies have become one of the most pivotal factors behind dismal readiness ratings for the fleets of all four services.
Maintaining the competitive aerial advantage of the nation’s military fleet is a critical priority of the Department of Defense (DoD), especially as geopolitical tensions with Russia begin to resemble the Cold War era and relations with China remain strained. Mission readiness requires a large percentage of fully mission capable aircraft, which hasn’t been the case for at least a decade, according to a 2020 US Government Accountability Office study.
A partial solution is available if the DoD is willing to incorporate certified used replacement parts into the military’s procurement program in the same comprehensive way commercial airlines worldwide have depended upon them for decades.
Follow commercial carriers’ lead
Relying on used serviceable material (USM) is a common practice among carriers around the world. It is a proven strategy of a highly regulated, safety-first industry that has allowed airlines to cut overall costs for parts replacement by 30% to 50%, based on prices for new components from aerospace manufacturers. For instance, the military realized a 33% material cost savings on an overhaul of a CFM56-7B engine using USM parts instead of out-of-the-box components from manufacturers, according to our analysis. That’s substantial, especially if it can be replicated for other aircraft.
Additionally, and perhaps more importantly when it comes to readiness, USM offers a faster solution given long lead times associated with procuring new parts, which can run six to 12 months, based on the experience in the commercial world. USM can be harvested, recertified, and shipped to a waiting aircraft or inventory location 20% faster on average than new components.
Mirroring USM practices of the civilian fleet could afford the DoD an opportunity to improve its commercial derivative aircraft fleet’s readiness metrics, while also saving money with no loss of either reliability or safety. We estimate the military could save at least $1.8 billion through 2029 on maintenance if it pursued a USM strategy limited to commercial derivative aircraft — referring to aircraft originally developed for civilian use and modified for military application — such as the KC-10, P-8, C-40, or C-32. But the biggest potential benefit of USM would be improving the fleet’s mission readiness.
The military already uses some USM in certain program supply chains, and those aircraft have some of the best mission-capable rates in the fleet, including the C-32A and the C-40B. Both aircraft boast rates around 90%.
One of the highest performing programs called out by the 2020 GAO report was the KC-10 Extender, a program that also relies heavily on USM consumption. But DoD isn’t getting the most out of USM because its use has been incorporated in a non-strategic way and limited to certain aircraft and buyers.
There has always been some reluctance to fully embrace USM because of unfounded fears about the parts’ reliability. Yet, studies have shown that components tend to fail at random intervals rather than through age-related deterioration regardless of whether the component is new, overhauled, or USM. All USM must undergo Federal Aviation Administration (FAA) approved recertification processes before being deemed ready for service and are as reliable as new manufacturers’ components, based on safety data.
USM includes aircraft engines and components salvaged from retired aircraft. It refers to repairable assemblies or components without defined life limits or life-limited parts (LLPs) that have significant service time remaining. During the COVID-19 pandemic when so much of the commercial fleet was sent to storage or retired early, there was an abundance of USM because out-of-service aircraft were being cannibalized for parts. It helped airlines save money during a tough financial time.
Growing supply of USM
In part because of the prevalence of USM available through commercial aircraft retirements, the consumption of USM by commercial airlines is expected to rise steadily for the rest of the decade. In 2022, we estimate it to be about $6 billion, or 9% of total replacement parts. We expect it to plateau at $11 billion in the last couple of years of the decade, representing between 14% and 15% of parts.
On average, a USM part can be 50% to 70% of the price of a new replacement part from an aerospace manufacturer, with costs fluctuating depending on market dynamics, aircraft class, and type of part. USM pricing is bound on the low end by the cost to repair the part and on the high end by a discount to the manufacturer’s catalog price.
USM can be cost-effective in cases where the repair and overhaul costs of rotable components exceed the costs of a simple replacement. It becomes increasingly important as fleets age and aircraft classes are discontinued. With as much as 85% of the cost of engine overhauls driven by parts, using USM to minimize costs makes financial sense without compromising safety or quality.
Admittedly, DoD procurement teams face a much more strictly mandated process when buying parts. They also operate on a different business cycle than commercial operations to accommodate the necessary advanced planning, lead times, and quantities of the military. And among the steps DoD can take is ensuring that procurement teams are educated on the economic value of leveraging USM and encouraged to embrace safe, FAA-certified commercial aviation industry practices.
There are many other steps the military can take to better incorporate USM, but the first must be to recognize the value used parts play in making the supply chain more efficient and economical.