What Is An Exchange?

What is an exchange? An exchange is like free money. It’s wine and roses, and you can go home early today. Or it’s a long slide down a rusty razor blade banister into a pool of rubbing alcohol.

The first exchange programs featured sneaking onto the airfield in the middle of the night and swapping parts with someone else’s plane. This had the benefit of low cost and zero paperwork, but paying bail could be problematic.

Today, an exchange is a way to loan a rotable part to an airline.

Here’s how it works: Let’s say that an airline is caught short and suddenly needs a pneumatic starter – and it needs it fast. But it doesn’t have one in stock, and it doesn’t want to spend the cash to buy one outright. After smacking the slacker inventory planner on the back of the head, what does the buyer do?

The answer is to purchase an exchange unit from a supplier who has one in stock in airworthy condition. The airline buyer pays a fraction of the value – typically 10% - and agrees to send the supplier their off-unit within 2 weeks.

The airline keeps the good starter on the plane, and the supplier now owns the airline’s broken one, now called the return core.

It’s not over yet. The supplier will then send the off-unit starter to a repair station, get it overhauled, and the airline pays for the overhaul. If the return core doesn't survive the trip to the shop, the airline is obligated to fork over the entire outright cost.

Everybody’s happy: the airline got a starter at low cost, the supplier got free money (the 10% value) and a freshly overhauled unit that can be exchanged again (and again and again) or sold outright to someone else.

It’s that easy, right? You kids are so cute when you’re dumb!

That’s the short story, but be aware that exchanges are complex deals, and if your idea of complex is solving one of those 5-piece wooden puzzles they give to toddlers, maybe exchanges aren’t right for you.

Here’s how it REALLY works:

Unable to borrow a starter from another airline, the poor airline buyer has to hold his lucky rabbit’s foot in a death grip and look for an exchange on the aviation aftermarket.

The purchasing agent runs the ILS to see who claims to have the starter in stock. After mentally ruling out the blacklisted scoundrels and chronic confabulators, the airline buyer sends out inquiries to the remaining vendors advertising the starter. Guess what – most of them don’t have it. This explains why airline buyers have a haunted, hungry look, and mumble in their sleep.

Eventually, the buyer finds a company on their approved vendor list (AVL) that appears to have an acceptable starter.

And y’know what? Those companies may not even own the starter that they’re selling on exchange. They are brokering an exchange! It is a lot of work, but the only investment is time, and that’s why they get the big bucks.

Now the fun begins: The buyer asks for a copy of the 8130-3 maintenance release form, shop teardown report, the ATA-106 material cert (including non-incident statement and non-government statement), and a copy of the trace to the last FAA-authorized source. That trace likely includes removal tags and additional trace and certs from everyone who previously owned that part. This paperwork uses up all the toner in the copier and kills a small forest.

The buyer then must make sure that there are no “holes” in the paperwork package, and then organize and staple the pages together. If the airline QC manager spots a problem, the whole deal could fall apart.

And let’s not talk about payment terms. If the airline doesn’t have healthy (high-limit) credit terms with the vendor, you’ve got prepayment issues to hammer out…and the clock is ticking. Stress!

At this point in the day, it’s 5:20 (Friday, of course!), and everybody wants to go home. Guess what – ain’t gonna happen. Grab a cup of coffee, friend, you’ve still got some high pressure waiting around. Did that wire payment go through? Call shipping & receiving and make sure someone’s there to prepare a shipping container and able to stay late. Your courier had better be on speed dial because FedEx and UPS are long gone. That coffee is vile; it's been cooking all day. You drink it anyway.

Assuming that the paperwork and payment terms are acceptable, the buyer sends the supplier an exchange purchase order, usually with a drop-ship delivery address. Upon receiving the exchange order, the buyer writes up the exchange sale and sends an exchange contract to the buyer. The buyer must sign and return that agreement, knowing that an AOG could cost an airline $50K per hour.

Nobody really knows what’s in an exchange contract because nobody can read the 4 pages of microscopic fine print, and there's no time for that anyway. Only the highlights matter, especially the outright cost and the length of time that the buyer has to send the return core.

A side note about the outright cost: Yesterday the supplier would gladly have sold the starter for $60K, but this is an exchange, and he holds the upper hand. He writes the exchange agreement with an inflated $70K outright value, not-so-secretly hoping that the airline’s return core has suffered a catastrophic failure and will go BER at the shop. This happens often, with the result that the owner of the company will forever enjoy that new-car smell on the way to work.

By now everyone is running on fumes and wishing that they were home watching reruns of Gilligan’s Island, but here they are, still at work.

They pack the box, call the courier, and stick around until the box is out the door.

Congratulations - you did all this and you only worked half a day.....12 hours.

With any luck, you can do it all again on Monday!

#brucemiller #aviation #av101