Rising Commodity Prices Create Challenges and Opportunities

We are already hearing about large manufacturers who are unexpectedly raising the price of aircraft parts in response to a confluence of cost increases. This signals both opportunities and challenges for FAA-PMA manufacturers.

Aircraft parts have many costs, including:

• energy costs
• raw material costs
• labor costs
• freight costs

It is not difficult to find articles in the news about increased costs in all of these areas. In fact, President Biden’s most recent State of the Union address addressed a wide range of increased costs, including: ocean freight rates, minimum wage levels, and even minimum corporate tax rates (adopted globally). The price of strategic metals that are used in aircraft parts, like nickel and steel, has spiked, and other raw materials, like titanium,. could become difficult to source.

With the input prices going up, some large manufactures have already announced price-increase plans and at least one manufacturer has announced to its customers a plan to apply a surcharge to articles that were already delivered during the first two months of this year.

Air carriers are also feeling the pinch. Fuel prices are skyrocketing. And we should expect that fuel price increases will increase the pressure on maintenance departments to cut costs (without cutting quality or safety)! So expect air carriers to be put in a difficult position where they cannot afford the expected price increases for aircraft parts.

The opportunity? FAA-PMA parts are typically sold at much less than the corollary TC/PC parts. FAA-PMA parts are also approved by the FAA. Twice! The FAA approves the part’s design and the FAA also approves the FAA-PMA quality assurance system. Approved designs are “frozen” and the FAA provides ongoing inspection and oversight to approved production systems. The FAA’s oversight provides a high level of ongoing safety assurance in all FAA-PMA parts. With FAA-approved safety and a lower base price, FAA-PMA parts may be exactly the right way to reduce maintenance costs without a negative impact on safety.

Rising input prices are a challenge for everyone. If you are a PMA manufacturer and you need to engage in an unusual price increase as a consequence of rising costs, then we recommend that you carefully approach this issue with your customers and explain why you need to make the price-list change. We are all reading the same articles about inflation and commodity/energy/freight cost increases. But we also recommend that you highlight the difference between your own price increases and those of your competitors.

And if you are in a position where long-term negotiated supply contracts give you lower prices on commodities, then take advantage of these low prices and make sure that the customers know that you are holding prices low for them while the competitors may not be doing the same!.