As any Investment Adviser would counsel, a recommended strategy is that you diversify your portfolio. In the last decade there has been a noticeable change in the landscape of the aircraft parts aftermarket. One of the evolutions involves the scope of work performed by distributors. In the past, firms whose only model was to broker, search and resell parts seem to have, in many cases, gone away. On the other hand, those who survived the economic turmoil following 2008, and which continue to survive despite the OEMs expansion into the aftermarket, appear to have done so due to their deliberate business plans to diversify. A short list of options to diversify would include:
Starting a Repair Station Engaging in Disassembly tear-down projects Applying for, or partnering with PMA firms Establishing strong ties to OEMs Leasing Entering the drone/UAV market Developing niche specializations in certain parts, aircraft, commodities, or ATA Chapters And the topic of this article, entering the defense and government markets Why? Consider this:
Global defense spending hit $1.917 trillion in 2019, a 3.6 percent increase over previous year figures and the largest increase in one year since 2010, according to the annual report by the Stockholm International Peace Research Institute1 Global defense spending is expected to grow at a CAGR of about 3 percent over the 2019–2023 period to reach US$2.1 trillion by 20232 Due to its huge economy, the USA spends the most in raw numbers, but it is customary and a better measure to cite Defense Spending as a percentage of the nation’s Gross Domestic Product, GDP. By that measure, the USA ranks around #19 at over 3 percent, with Saudi Arabia at the top, spending 8.78 percent. Since the USA spends the most, this blog will focus on some basic things you need to do to qualify for entry into this marketplace.
In this article we’ll give quick overviews of:
CAGE Codes DUNS Number NAICS Codes FARs National Stock Numbers PSC Codes Registering with the government’s SAM (System for Award Management) Search for Solicitations Marketing Beware the “.COM” websites vs “.GOV” Leveraging your minority or other special status Help Before going down this road, here’s some counsel from Royboy
PRECISION: Your registrations will be vetted carefully. If the address on your Articles of Corporation when you first formed your company don’t match the address on your registration it may be rejected; if it does not match your tax returns- possible rejection; if you omit one part of your legal name, for example giving AIM Solutions Consulting, rather than AIM Solutions Consulting LLC-rejection. PATIENCE: This whole process to register can be numbing. You must be detail oriented and have patience to work the system. Consultants like myself are frequently used to ease the pain of registration. CAGE CODES:
Commercial And Government Entity. A CAGE code is a five-character alpha-numeric identifier assigned to entities located in the United States and its’ territories. The DLA (Defense Logistics Agency) CAGE Program Office is the only activity authorized for assignment or update of a CAGE code. An NCAGE is assigned to firms outside the USA and is a NATO CAGE code.
The CAGE code is used to support a variety of procurement and acquisition processes throughout the U.S. Government and yes, it is required. It will be assigned during your SAM registration, see below.
You can search CAGE codes at this web site: https://cage.dla.mil/search
A virtual cigar to the first person to post the name of the firm belonging to 6TC01 in the comments section of the blog at the end.
DUNS NUMBER:
If you don’t already have one, get this first you’ll need it for the SAM Registration Process. https://fedgov.dnb.com/webform/
NAICS CODES:
A NAICS Codes is simply a six-digit code which represents and describes the industry you’re in. A NAICS (pronounced NAKES) Code is a classification within the North American Industry Classification System. The NAICS System was developed for use by Federal Statistical Agencies for the collection, analysis and publication of statistical data related to the US Economy.
It was adopted in 1997 to replace the Standard Industrial Classification (SIC) system in cooperation with the statistical agencies of Canada and Mexico.
These codes don’t always exactly match what you do, so the trick is to find the ones which most closely match. It’s common for firms to list themselves with several NAICS codes to make sure all the possible topics are covered. For example, in my consulting business I list three codes, 541618, 541611, 541990. Look here for a search: https://www.census.gov/eos/www/naics/
For distributors, consider using 423860 For Repair Stations, consider using 488190 The significance of these codes for use lies in searching for opportunities as well as making it known what you do . You’ll need to establish the ones applicable to your firm for the SAM Registration Process . The government posts opportunities for you in the form of Solicitations. Each Solicitation is meant to target firms with the applicable NAICS code, so you can search for Solicitation opportunities by the codes. More on Solicitations shortly.
FARs, FEDERAL ACQUISITION REGULATIONS
A former boss once asked me fill out a lengthy questionnaire since I was the FAR expert of the firm. I looked closely at the cited FARs and shook my head, wait, there is no FAR 52! My boss had seen the FAR citations and assumed it meant Federal Aviation Regulations; it did not. This was my initial foray into the exciting world of Acquisition Regulations. These FARs direct with whom, and how the government performs acquisition of goods and services with suppliers.
It’s important that you have a working knowledge of these for two reasons:
In the SAM registration process you will be asked to attest that you have read and are familiar with the requirements of the many cited FARs. You will also have to do this annually after your initial registration. Each Solicitation (contract) awarded will have a list of FARs which are applicable. Conceptually, these are the terms and conditions of the Solicitation and are frequently called its Clauses. If you are a subcontractor to the firm who was awarded the work, you can expect the Clauses to be flowed-down to you. If your goods and services are destined for Department of Defense use, it is likely that your Clauses will include DFARs, Defense Federal Acquisition Regulations.
Whereas Federal Aviation Regulations are found within Title 14 (Aeronautics and Space) of the CFRs, (Code of Federal Regulations), Federal Acquisition Regulations and DFARs are found in Title 48 (Federal Acquisition Regulations System) of the CFRs. Here’s a link to title 48:
https://www.ecfr.gov/cgi-bin/text-idx?SID=2674eb75d75ed7e758ea82a33688726a&mc=true&tpl=/ecfrbrowse/Title48/48tab_02.tpl
NATIONAL STOCK NUMBERS (NSN):
Some of you may have worked for airlines who have their own internal system of part numbers called Company Part Numbers. These are always in a standard format, for example a part with a CPN of CON7023 may mean a Controller, and in the listing for CON7023 is the OEM’s part numbers. There are many advantages to this arrangement, for example, CON7023 may list more that one part number as acceptable for use.
National Stock Numbers, NSNs, are the government’s Company Part Numbers. Every OEM part number will have an assigned NSN. NSN’s are all structured the same. Here’s a training excerpt:
The first 4 digits are particularly helpful because it tells you what type of part it is. For example, every aircraft wheel and brake system component will start with 1630. In the commercial world it’s kind of like knowing the ATA Chapter; if you know the ATA Chapter, you know the system the part is installed on. Google ‘Federal Supply Class’.
PSC CODES
In any NSN the first four characters are traditionally called the Federal Supply Class or Codes. Those codes are also referred to as Product Service Codes The significance of these codes for use lies in searching for opportunities as well as making it known what you do . You should establish the ones applicable to your firm for the SAM Registration Process. https://psctool.us/
Go there and search on “Aircraft Parts”. The search results are about 180. Pick the ones that represent what products or services you sell. A small example from this search might be:
1560 – Airframe Structural Components
1630 – Aircraft Wheels and Brakes
P200 – Aircraft Salvage (AFRA members may use this one)
J016 - Maintenance, repair and rebuilding of equipment: aircraft components and accessories (For repair stations/AMOs)
SAM, SYSTEM FOR AWARD MANAGEMENT, REGISTRATION:
Now that you have your DUNs number, NAICs Codes, and PSC Codes, you’re ready to start the most important process required to do business with the government or military: your SAM Registration; a lengthy process. Here’s a snapshot of the home page:
The government recently switched the login procedure to a common process reflected in the Login.gov website. Previously each government website platform had its own login functionality requiring you have multiple passwords for each .gov website. This new method introduces a welcomed standardization and commonality. Your initial setup may seem tedious, but be patient, it’s a good thing!
Follow the steps. Take the time to familiarize yourself with the many tabs on this site, there’s a plethora of helpful, downloadable information. It’s beyond the intent of this article to duplicate those instructions and explanations.
SEARCHING FOR SOLICITATIONS:
At this point, if you’ve completed your SAM registration, congratulations! Your next step should be to start looking for opportunities. Previously, the platform to search for these opportunities was FBO or Federal Business Opportunities, commonly referred to as FedBizOps. This system recently migrated to https://beta.sam.gov .
To start, conduct your initial searches of solicitations that are targeting your NAICs and PSC codes. You can save your searches and have them forwarded to your email daily.
For those of you used to simple commercial RFQs with just price and qty, you’re in for a shock. The first time you look at a solicitation, you’re going to be overwhelmed with the depth of information and requirements in order to participate and bid. If you intend to submit a bid, the instructions must be followed impeccably .
If you’re not awarded the bid, it’s still possible for you to participate. The government will announce the winner, and it common to reach out to them and ask to be subcontractor supplier.
HELP:
There are several free https://www.dla.mil/SmallBusiness/PTAP/
Another free source of help is the Small Business Administration, SBA. Here’s a link to their Federal Contracting assistance: https://www.sba.gov/federal-contracting
MARKETING:
If you are already are in the commercial market, you likely have a budget established for marketing, for example attending trade shows, advertising, booth displays, customer visits, etc. You need to do the same if you intend to enter the government/DoD arena.
BEWARE THE “.COM” WEBSITES VS “.GOV”:
When you register with SAM you will be asked if you want your registration to be ‘searchable’. I recommend yes since it gives your firm a degree of visibility. Firms seeking to partner for particular work can then find you. The flip side of this is that you will likely see your inbox frequented with emails cloaked in official sounding titles for services, most of which you will not need. If you grow weary of these, a simple test is whether it came from a ‘.gov’, ‘.mil’, ‘.US’, or ‘.com’. You can ignore most of the ‘.com’.
LEVERAGING YOUR MINORITY OR OTHER SPECIAL STATUS
The government has a great number of Solicitations which are loosely called ‘Set Asides’. For example, this means the work will be awarded to firms listed as minority owned firms. I’m both a Veteran and a Service Disabled Veteran Owned Small Business. Some set-asides are for such firms. I greatly encourage, and you should leverage, any such status. All of these are typically tied to the majority owner of the firm. During the SAM registration process you’ll be asked to make all such declarations. Note that some declarations may require that you be independently certified as such. The SBA, Small Business Administration is a great source of help in this area. See HELP section of this article.
Best wishes, and over ‘n out!
Roy ‘Royboy’ Resto
AimSolutionsConsulting.com
1 https://www.defensenews.com/global/2020/04/27/global-defense-spending-sees-biggest-spike-in-a-decade/
2 https://www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-2020-global-aerospace-defence-outlook.pdf
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