Too much unnecessary inventory?

I was working with one of my airline clients a short while ago. They were looking to dispose of inventory and parts for various aircraft. The inventory that they were looking to off load from their shelves, were for old aircraft types that they no longer flew. There was no need for them to overhaul the parts, or the parts were no longer applicable to the present fleet.

As fate would have it, the aircraft that most of their excess inventory would be compatible with were barely flying globally. Most of the particular aircraft produced had been torn down and scrapped, but the demand for the parts that they had on hand was not going to find a new owner very easily, and certainly not very soon!

Their excess inventory after market analysis was valued around $20 million. However the "real value" was closer to $0!

This airline had found them self in a very costly position! A $20 million mistake. Even trying to offload at well below market prices, the airline would have received as much money recycling the metals and circuit boards from the electronics than they would have received trying to sell off the parts to other airlines, distributors or brokers in the aftermarket sector. What to do, but either way the airline was looking at multi million Dollar losses!

At the end of the option contract, the Buyer does not hold the liability and investment risk of the parts unnecessary to their present and future operations!

The Aviation Option Market allows for airlines and aircraft operators to hold and have access to the required parts for their present fleet through option contracts (The airlines and operators know the part numbers, serial numbers and exact location of the parts that they hold option contracts on).However since the airline and operators never actually take ownership of the parts until they exercise their option, long term ownership of inventory is removed from the airlines and operators and the financial obligations. The risk of holding millions in inventory beyond the purpose is removed!

My client mentioned earlier in this blog would not have sat with the $20 million liability and loss if they had held those parts in option contracts during the time that the parts reflected the requirements of their fleet. As the airline changed their fleet, so they would have allowed their options to run the course without renewal. New option contracts would be opened for parts and inventory to reflect the new fleet requirements.

The savings in operations can exceed Billions of Dollars per year for the airlines and operators. It is estimated that the unusable excess inventory exceed $10 Billion globally! Are you looking to operate your airline or aircraft in a more streamlined manner, contact FlyingParts and look at the Aviation Option Market.