AJW is one of the world’s major players in the aircraft parts and spares market. Although the firm was established back in 1932, for most of its history, AJW remained a small operation employing a handful of staff in the South of England.
It is only over the last couple of decades, under the leadership of Christopher Whiteside, that AJW became a large and diversified international group with a major presence throughout the MRO supply chain.
In an exclusive interview with AeroTime, Whiteside discusses this fascinating story of growth and offers a glimpse of the current dynamics and trends in the MRO market.
We discussed the aftermarket structure, how cycles in aircraft manufacturing and airline demand shape the industry, which technologies can help streamline the supply chain for aircrafts parts and spares, and the perspectives for the MRO and aircraft parts market.
We started by asking Whiteside about the origins of the AJW Group success. How did it grow from its small pre-war roots to a large global business, turning over three quarters of a billion in annual revenue?
Whiteside explained that AJW started in 1932, marking its 90th anniversary last year, and how his family acquired the business in 1961. AJW was historically an aircraft distribution company for Piper aircraft and Continental Engines before the Second World War. After the war, it dealt with military surplus, which at the time meant mainly Douglas DC-3 aircraft. Later, other aircraft types such as the (Vickers) Viscount and the BAC 1-11 were added, and, more recently, Airbus and Boeing.
Whiteside started in business fairly young, when AJW was a small business with about 12 employees and a modest turnover. Now it focuses its activity on the servicing of Airbus and Boeing fleets worldwide.
It has been in the last 25 years that AJW’s turnover has gone from a couple of million to three quarters of a billion (GBP) as the company has diversified into various business lines including their state-of-the-art MRO facility in Montreal, AJW Technique, as well as AJW Technique Europe, AJW Technique Interiors, AJW Leasing, and AJW Engines. Today AJW supports over 1000 airlines across 100 countries.
You could count the companies able to manufacture modern airliners on one hand. In fact, as far as some major market segments are concerned, this industry is pretty much a duopoly. If we are talking about the parts and components market, there are also just a handful of major operators, including the Original equipment manufacturers (OEMs) and their major first-tier suppliers, able to operate at scale.
In this context, the AJW Group is a rare example of an independent player that has managed to thrive. How does it manage to remain relevant in such a competitive environment?
Whiteside confirmed the exclusive nature of the top–tier of this industry.
“The level that we operate at, which is current production, modern airplanes, the people that operate them are financially astute and successful organizations. However it’s a very restricted marketplace, you could have all the spare parts in the world, but if you’re not on Airbus’ or Lufthansa’s accreditation list you just can’t get through to that marketplace.”
Whiteside explained that he has three strategic business goals: to remain large, to remain independent, and to remain relevant. He added that, while most people understand what independence largely means, they don’t normally understand what it takes to be relevant in this market.
“To remain relevant, I can go with my contracts and my inventory and say to the big OEMs: ‘Look, this is our book of business, let’s have a conversation about how we strategize our long-term business relationships’. If you look at something like a Boeing 787, you can go to a market and find a bargain, but you can’t get it fixed or repaired or maintained, because the OEMs won’t work with you. The first thing Collins or Honeywell will say is ‘Who are you? Where did you get it from?’ So, it’s important that you maintain those strategic relationships, not just with the client, but also with the supplier.”
How does AJW work? What is the business model behind its success?
At this point, Whiteside explained his preference for long-term relationships with customers.
“We call it ‘contracted services’, the minimum [term of contract] is three years, but due to calendar maintenance intervals there are financial benefits to contracting for five, seven, or preferably 10 years as we can amortize our costs over the longer period, which benefits both parties. The transactions themselves take different forms, whether a sale, a lease, or an exchange. There are different ways to transact, although AJW’s model is solidly based around Airbus and Boeing rotable components and vertical integration”.
“We own the asset; we repair the asset. We do the logistics; we move the asset around a network. We work with a global network and then we will finance the asset,” he explained.
“Our intention is obviously to get to a stage where you can identify the parts through an app, where you want it, what you want it for. These [parts] would obviously have to be pre-authenticated in terms of security protocols and regulations etc, and the objective is that it then arrives in an AJW box at the destination that the client desires. So, it is going more towards an online digital supply model.”
AJW also has a marketplace called “AJW eventory”, a pre-priced marketplace where the user can get a price online, view certification, and have full visibility of the transaction.
Most transactions continue to take place offline. Whiteside explained: “It’s still terribly old fashioned [the spares and parts industry – ed. note]. The business is like ‘Have you got one? -Yes. Where is it, in America? -No, I’m in England. I need it here, is it certified? – No.’ Even if it is certified and available now in England, you may not be an approved vendor. It’s very clunky […] It does need radical, big improvement, this whole transaction framework.”
What is the value of remaining independent in the aircraft parts and spares market? What additional value can an independent player deliver when competing with those operators that are often affiliated with the industry giants?
Whiteside used an analogy that was easy to understand. “You can go to the butcher, the baker, the candlestick maker, or you can go to a department store. We are the department store and aim to supply everything…We are vendor-agnostic,” he stated.
He explained that, while there are many firms that trade in aircraft parts, AJW only has about half a dozen competitors of significant scale.
He said: “There are thousands [of companies] in the business, but they’re almost all 2 to 3 million dollar operations. North of even a 100 million benchmark, it is a rarefied atmosphere”.
“Then you’ve got the OEMs themselves – Collins, Honeywell, Safran, Rolls Royce, GE. Then you’ve got the airlines. The airlines do a good job, but obviously, it’s not their primary business, except I’d say Lufthansa Technik, which of course is an industry leader and most likely an industry benchmark. And then you’ve got the manufacturers, who give it their best shot.”
For Whiteside the main challenge, aside from the development of the digital business (online trading and delivery), is continuing along the path he started 25 years ago, professionalizing AJW and changing its perception from being a kind of market trader into a branded enterprise, remaining clear on what it stands for, its quality and its principles.
A crucial factor to consider here is how much capital requirements have gone up in this industry.
“When you’re engaged in these high value asset classes, the assets themselves just become unbelievably expensive. When I was in my 20s – I’m now in my early 50s – if you had a particular asset class and, in those days, it would be 737 –300, -400, or -500 series, if you had $2 to $3 million–worth of inventory for that airframe, you were a player, you were respectable, you could really look after that aircraft”.
“I did a bit of analysis in January, and I noticed that on our balance sheet, we have one single line item, and we carry hundreds of thousands of line items, in which we have invested $13.7 million of capital. Now, for us, that is a reasonable amount, but it’s not business critical. When you got individual components costing between $1 and $3 million, it used to be engines that cost between one and $3 million, there’s a natural law of the jungle there, which just means the capital is not there. Secondly, you can’t even do it, you can’t even buy it unless you are an airline, or you’re accredited.”
He added: “As we’ve now reached maturity on the 787, and obviously the next is the A350, and so on, you will just find that will be a natural wastage of competitors.”
How commoditized is the aircraft parts and spares market? What matters most to companies – searching for parts, price, or any added-value services that operators can offer alongside?
“I would say, above all, the customers value reputation and deliverability. I never want to be the cheapest, I never want to be the most expensive, I want to be a fair price for what I have in inventory. And the investments are really significant by anybody’s standards,” Whiteside said.
“We don’t do naked leasing. We will only do a lease if you have a contract with us. Therefore, we obviously want to have a contract with you by which we repair in our own facilities, which then becomes a branded product. Then we want to finance it for you and then take it back. We just do an operating lease; we don’t do a finance lease. It always remains our equipment.”
He added: “In a world of everything becoming virtual, in terms of virtual booking and leasing the airplane, it becomes a millennial-type situation where you don’t buy the yacht, the house, the car, or the jet. It’s all just ‘take it for the day and send it back’.
“Just being in that environment is the reason why it’s so significant to remain relevant. I’m in competition with not only industry-known names, I’m in competition with household names. So, for example, if I’m not able to service that customer because I don’t have a relationship with that OEM, say, Collins or Safran, it immediately gives my competitors the advantage”.
Whiteside continued: “To own a business that is even spoken of in the same breath as Lufthansa Technik is obviously a tremendous source of pride to me, and to our people and our suppliers and our customers”.
“Also, I think being nimble and flexible really is a skill. We like to be flexible. We’ve probably been too flexible, to an extent. Our process had become so bespoke it could have become unmanageable and that’s something we’re trying to get right.”
Does this industry have a counterfeiting problem? How can dealers and operators guarantee the authenticity of the parts and components that circulate in the market?
Whiteside was adamant about the difference between counterfeit and bogus.
“It’s basically like tax avoidance or tax evasion. It’s not the same thing, although people think it is,” he explained.
Bogus can be a paperwork discrepancy, whereas counterfeit is, for example, selling some component as if it is made by a certain supplier when it is not. Whiteside added that, in his experience, while this is a topic that can easily make headlines, it happens rarely.
Can technology help streamline some of the processes in the parts and components market, where the levels of paperwork can be notorious?
“Yes, technology can certainly help streamline processes. One area where it is particularly useful is in supply chains and logistics management. By using advanced software systems and databases, we have automated many of the processes involved in ordering, tracking, and shipping parts and components”.
“Utilising electronic data interchange (EDI) systems, we automate the exchange of data between suppliers and buyers, reducing the need for manual data entry and paperwork. Similarly, using RFID (radio-frequency identification) technology and other tracking systems, we can track the movement of parts and components through the supply chain, reducing the risk of errors and delays”.
“Another area where technology can be useful is in the management of documentation and regulatory compliance. The industry is required to maintain extensive records and documentation to comply with safety regulations and industry standards. By using document management systems, companies can more easily track and manage these documents, reducing the risk of errors and ensuring compliance with regulatory requirements”.
Is blockchain the answer?
While there are market players looking into this technology (Whiteside referred, for example, to projects with technology and software firm SITA) he argued that, to have a practical application, it will have to start at the manufacturing stage.
He said: “I think it applies to quite a narrow band, hypothetically speaking. For example, an aircycle machine for the 737 MAX is probably half a million dollars. It doesn’t really matter to me, because you take it apart, you overhaul it, it’s all made brand new again. It’s not time controlled and off you go.
“There’s another argument about predictive maintenance, of course. I think it would be very helpful if all manufacturers of LLP items, starting with engines and landing gear as an example, to blockchain encrypt these assets.”
The parts of an aircraft are in constant renewal. At any one time a commercial aircraft may have only a relatively small portion of the original parts left, as they undergo constant maintenance.
Whiteside said: “What’s more important is the fatigue of the airframe because the parts are in a constant state of renewal. That of course is why it is very safe. There’s redundancy and there are very few items which are absolutely flight-critical, even up to the engines.”
This is why parts supplied by companies like AJW are so ubiquitous. 67% of all Airbus and Boeing airplanes flying worldwide today have parts that have been repaired, sold, exchanged, or programmed by AJW.
The Boeing and Airbus aircraft are AJW’s bread and butter, but the company has a niche presence in other segments of the industry too.
“Our MRO facilities in Montreal and West Sussex repair parts for Bombardier and Embraer, as well as escape slide and batteries for helicopters and private jets. We overhaul them, and we buy and sell them,” Whiteside explained.
AJW Technique Interiors is a complimentary new business line to the Group and introduces a revolutionary new seating material called SkyLeather, which is sustainable and eco-friendly. The material is 25% lighter than hide leather which converts to a considerable and measurable reduction in fuel consumption for airlines. The interiors business is agnostic [when it comes to aircraft type – ed. note], but since the business is based on volume, it doesn’t want to fit, for example, one helicopter with eight seats, we are focused on larger projects, for example, 100 Boeing 737s with 200 seats per unit.
Volume has a quality of its own in this business.
“We try to be in the mainstream, which of course is narrow-body, in terms of volume. And that’s difficult when you’re trying to enter a market like the Airbus A220, where there are only a few hundred airframes in service and you compare that to the 737s or the A320s, with 10, 12 or 15 thousand aircraft flying,” he said.
“And then you go to the other extreme, really high-end wide bodies where they’ve made more than 1000 units – the 777 or the A330. Then you go up another step to the replacements in the form of the 787 and the A350, and then you get into the two big problems: capital and relationship with the OEM.”
More generally, we had the opportunity to ask Whiteside about the forces that drive the parts and components market. On one hand, the world aircraft fleet is expanding as more people travel by air and we leave the COVID pandemic behind. On the other hand, do modern aircraft, manufactured to the highest production standards, need as many spare parts as they used to? Here is what Whiteside had to say about this matter.
“You can run into full lifecycle issues, such as how you deal with composite fuselage and so on. Yeah, we’ve all got in our memory the 737 in Hawaii with the roof missing with passengers sitting strapped in a convertible airplane, because that’s fatigue and so on”.
“We would issue three times as many spares to a 737 Classic as we would to an NG.”
And what next for AJW group? What are the trends to keep an eye on? Shall we expect further consolidation in this industry?
Whiteside returned to the topic of the rising capital expenditure required to be in this business, but it is not just the material that is getting increasingly expensive. There has also been a reduction in competition, with more control being exercised by fewer OEMs. That in itself is potentially an issue for the manufacturer. (He classifies Airbus and Boeing as manufacturers, while suppliers such as Safran, Collins, etc. he refers to as OEMs). The few OEMs left, according to Whiteside, apply all those principles not just to commercial aerospace, but also to military, rotary, corporate, and executive aviation, so more of the industry is controlled by a smaller number of players.
He said: “If you took a 737, where you could have a choice of Honeywell or Collins – okay, there’s a choice. The same, obviously, with the engines. But I think what happens is a bit like the art of diplomacy, of telling somebody ‘No’ and they think you said yes. So, there is a perception of choice, but in reality, there isn’t a choice”.
“I think that the challenge for the airline, the manufacturer, the aftermarket, and the OEM is how to actually control it. Because they want to – they’re investing tens of billions in the new products and programs that are loss leaders at the outset to be on the program. Obviously, they’re looking for 20–30-year returns once they are in service, and that’s fully understandable.”
He continued: “But I think also, some behavior is perceived to be frankly outrageous and predatory where there is a sole source. I would sum up by saying that you don’t really mind how much it costs you to have the most amazing lunch as long as it’s perfect. The problem is if you find this enormous escalation of price and really bad service”.
“I think that is something that everybody is very critical of. Airbus and Boeing tend to be very timid around how they manage those OEMs, because I think they’re all kind of afraid of each other.
“What happens is that the service degrades in terms of processing time, reliability, software upgrades, and so on. And everybody’s paying millions and dollars, so this isn’t good. It’s not good equipment and it’s not good service. Again, it’s fine to be paying a million dollars for an engine accessory, but it needs to be on the wing for 5-10 years. That’s a current issue, but it just manifests itself now with fewer people to complain to. There are fewer competitors, and everything’s costing much more money.”
We also asked about the upcoming AJW Group centenary. What is the secret to this longevity?
On this point, Whiteside is straightforward: “I’m expecting to notify you in nine years that we’ve been in business for 100!”
He added: “No matter what the perception of my brand is, my brand is people. My whole thing is about people. It’s been like that for 25 years, and I’m very proud of that. And people emulate it, which of course is very flattering, if not irritating to me”.
“But you know, you have got to be pretty conservative, if you want to get through a COVID or a SARS or a war or a banking crisis. So many people may think AJW is this sort of Maharaja operating in the cloud, but actually, we’re not. We just like steady growth, and steady profits.
We’re fairly humble out there.
“The brand is good, but we’re just trying to do our job consistently and practically and reliably and honestly on a day-to-day basis,” he concluded.