Simulator X

Introduction

The Arab Emirates in Gulf Cooperation Council (GCC) region is home to a lot of tourism and leisure activities. A popular tourism activity for international tourists arriving at the Emirates is guided air tours in rotary engine-based propeller aircrafts that offer a panoramic view over scenic spots in the Emirates region, and intercity travels between tourism hotspots. Fly Dubai, Fly Ajman, Fly Sharjah, and Fly Fujairah are 4 air transport operators that are in business in the region. From time to time, these aircraft operators need parts and services to maintain their respective fleet. These include spares and services for rotary engines, landing gear, wing flaps, rudder, hydraulics, bearings etc. The aircraft companies source parts required through the supply network. There are two options for purchase from the supply network: (1) Buy parts directly or indirectly from the Original Equipment Manufacturer (OEM), or (2) Buy parts from the used spare parts market through a certified broker or reseller.

The Used Spare Parts Market

The Emirate of Ras-al-Khaimah (RAK) is a hub for second hand parts of aircrafts. Aircraft disassemblers and used parts collectors from the local junkyard supply aircraft equipment and parts that are reusable, to the 2nd hand market at RAK. Regulatory norms require these parts to be audited and certified before reuse by the aircraft operator. Used spare parts that are certified for reuse fall under 2 categories: (A) Parts with quality rating > 70%, and (B) Parts with quality rating > 85%. While aircraft operators may purchase these 2nd hand parts only through a certified broker or reseller who are licensed to insure these parts, civil aviation guidelines require aircraft operators to maintain an average quality rating of at least 85% for components used in its fleet. OEM components have a quality rating of 100%.

Market Dynamics and Stakeholder Characteristics

Players in aero-supply network ecosystem negotiate on terms (price, quality, & delivery schedule) of the deal, within the regulatory framework, and often along the sidelines of RAK Aero-parts Brokers & Resellers Association (RABRA) conferences and Association of Propeller-Aircraft Operators (APO) meetings that happen from time to time.

The OEM sells parts with 100 % quality rating to any willing buyer. However, they have a limitation on the number of parts that can be supplied in each quarter (for example, say, 4 number of engines), as they also cater to markets outside MENA region.

The spart parts from the second-hand market are usually sold at a discount. However, there is a floor price set by the second-hand market. Used parts of 70% quality rating have a floor price of 50% of OEM price. Used parts of 85% quality rating have a floor price of 60% of OEM price. Like the OEM market, there is a supply constraint of 2 x OEM supply from the second-hand market per quarter, split at 50:50 quantity for 70% and 85% quality rated parts respectively.

There are 'n' number of Brokers and Resellers in the market. A broker may charge a percentage commission from any seller, and mark up the commission in the price of any deal that the broker facilitates with a willing buyer. The broker's markup (commission) is equally shared by the buyer and seller at the time of transaction. A broker has to charge a minimum of 1 percent commission for any transaction that the broker facilitates.

A reseller may buy equipment from OEM or second-hand market or another re-seller and sell it to any willing buyer (air operator on another reseller). Resellers unlike brokers have warehousing facilities and can stock inventory up to 3 numbers of spares.

Aircraft operators have quarterly requirement of spares. Usually, requirements vary between 2 to 4 spare parts per quarter. For example, an airline operator may need 2 components with 100% quality rating, and 1 component with 75% (or better) quality rating. If the spare requirements are not met in any quarter, the civil aviation regulator imposes a penalty on the aircraft operator by downgrading the average fleet quality rating of the operator. Each aircraft operator attracts customers commensurate to the quality rating of the fleet.

The buyers, sellers or enablers in the aero-supply network are only allowed to make spot market sales and forbidden from entering into forward contracts. All contracts can be made only on the basis of confirmed stocks in seller's inventory, that are available for delivery honoring any contracts made.

Objectives and Decisions

Each player in the aero-supply network seeks to be the dominant player (node) in the aero-supply network. While this may be generally measured by the volume of business, the objectives and winning criteria for players in different echelons (levels) in the supply network are different as stated below:

1. Brokers' Winning Criteria: Highest Revenue (cumulative) among brokers
2. Resellers' Winning Criteria: Highest Profit (cumulative) among resellers
3. Aircraft Operators' Winning Criteria:
   Lowest Cost (cumulative) among aircraft operators and an airworthy fleet with an average fleet quality rating above 85%

In each round (quarter), players in the market have to negotiate for the best deals. The simulation play will run for a timespan that may vary from 3 to 5 years (i.e., 12 to 20 quarters) as defined by your instructor. Please note the instructions carefully.

Compete yet Co-operate

While each player competes against each other for best deals, RABRA and APO meet once in a year to co-operate on collective bargaining strategies. Hotlines are established (see chat box online) for individual communication with players, as well as open communication with peers in RABRA or APO, as the case may be.

Good Luck!