As the aircraft services market continues heating up, three major aircraft manufacturers are providing a closer look at their strategies for tapping the rapidly-expanding sector.
Speaking during the recent MRO Americas trade event, executives at those companies – Airbus, Boeing and Embraer – laid out markedly different paths forward.
Boeing wants to be a global powerhouse, Airbus has embraced partnerships and Embraer views the aftermarket as a bridge to future aircraft sales.
But they all see room for growth, particularly in the realm of data-supported predictive maintenance, a field that airlines say is really starting to pay off.
Meanwhile, other servicers are seeking partnerships with big OEMs while also finding ways to differentiate themselves from the crowd.
"[We] have seen a structural shift on the part of the OEMs to really focus on the aftermarket… They are using the next generation of technology to sell their aftermarket services," says John Holmes, chief operating officer at US-based MRO shop AAR.
"We find ourselves on different sides of different deals, depending on what makes sense for the customer," Holmes says.
In other words, AAR sometimes partners with OEMs – it was an early member of Airbus's MRO Alliance service network – and sometimes competes.
AAR's chief operating officer John Holmes says the services market underwent a "structural shift" in recent years as OEMs dove headlong into services.
To compete, AAR in recent years embarked on vast aftermarket expansion, landing deals with airlines worldwide, buying parts inventories, expanding spare part pools and building a narrowbody aircraft MRO shop in India.
"We see the OEMs coming into the market… and they have deep pockets," says Gavin Simmonds, chief operating officer at UK-based parts and MRO provider AJW Group. "The market is shifting toward consolidation."
AJW likewise works with OEMs on some projects, but has also had success supporting fleets of smaller aircraft, like Bombardier CRJs and Embraer E-Jets, Simmonds says.
"If the OEM wants the deal, they'll get it," he says.
The push by OEMs into the aftermarket accelerated November 2016 when Boeing announce plans to merge its commercial, defense, space and security aftermarket services into a single business unit called Global Services.
Boeing chief executive Dennis Muilenburg said the restructuring put Boeing on a path to generate $50 billion in services revenue within a decade – triple its services revenue at the time.
Boeing sees opportunity across the board, from supply chain and parts to pilot training, from airframe maintenance and modifications to digital services, the company has said. Boeing already owns navigation service provider Jeppesen and parts provider Aviall.
Airbus has also used acquisitions to grow, buying companies like navigation and air services provider Navtech, parts supplier Satair and flight training centre Strategic Simulation Solutions.
But the European manufacturer's aftermarket strategy largely rests on partnerships with other providers, particularly in the heavy maintenance sector, says Airbus head of services Laurent Martinez.
"Our DNA is partnerships," he says.
Airbus in 2017 launched its MRO Alliance, a programme through which Airbus certifies providers that meet the manufacturer's standards. Initial partner providers included AAR, Aeroman, Sabena Technics, Etihad Airways Engineering, Guangzhou Aircraft Maintenance Engineering Company and China Airlines, Airbus said.
Unlike Boeing, Airbus has not consolidated services into a single unit – it still offers the work through its helicopters, defence aircraft and commercial aircraft units.
"Defence and helicopter customers are very different from airlines. We believe it is more flexible this way… more tailored to customer needs," says Martinez.
Airbus seems poised to further expand its aftermarket reach when it closes a pending deal to acquire majority stake in Bombardier's CSeries. Airbus and Bombardier have said the deal could close in the middle of this year.
Bombardier has not discussed specific services expansion plans, though it has pushed into the data business with its CSeries health management system. Through that product Bombardier collects data on a range of aircraft systems and transmits that data to airline customers.
Embraer announced in 2016 it, too, would consolidate its commercial, defense and executive aircraft services into a single unit.
With that announcement, the Brazilian company set a goal to boost the service unit's share of Embraer's total revenue from 15% to 25% in four years. It also aims to increase services revenues to $3 billion from $1 billion in ten years, says Embraer head of services and support Johann Bordais.
While Embraer sees opportunity in a range of services, it has a narrower goal: to support customers with the aim of generating future aircraft sales, Bordais says.
"We want to make sure they come back and buy more airplanes. That's why we are in the business," he says.
That means supporting existing Embraer customers and potential future customers, even if they don't currently operate Embraer aircraft, he adds.
For instance, Portugal-based OGMA, which is 65% Embraer owned, maintains Lockheed Martin C-130s operated several nations in Africa, Europe, North America and Latin America. Embraer pitches its KC-390 as a C-130 replacement, and the Portuguese air force has committed to, but not finalised, an order for six KC-390s.
"A customer of the C-130 will probably likely be looking at… the KC-390," says Bordais.
Strategic differences aside, OEMs see massive upside in the aftermarket, citing studies predicting continued upward trajectory.
In January, consultancy Oliver Wyman upped its long-term MRO growth forecast, predicting MRO spending will increase 4% annually for ten years, from $77 billion to $115 billion by 2028. One year earlier, Oliver Wyman had predicted 3.8% annual growth for ten years.
Fleet expansion will drive aftermarket demand; Oliver Wyman estimates the worldwide turboprop and jet fleet will increase an average of 3.7% annually for ten years, from 26,307 aircraft today to 37,978 aircraft by 2028.
MRO executives who completed Oliver Wyman's 2018 survey named OEM expansion as the top aftermarket industry "disruptor". Respondents raised particular concern with efforts by OEMs – particularly engine and component makers – to tightly control intellectual property.
"The challenge is whether or not OEMs are providing [other service providers] with access to repair data and schematics and manuals," says Richard Brown, principal at ICF International, another consultancy.
Intellectual property concerns escalated as companies like Boeing and Airbus brought more work in house recently, Brown says, citing nacelle production.
Indeed, Boeing in recent years took nacelle and propulsion system work back from suppliers, and Airbus has been developing A320neo nacelles to compete against existing supplier UTC Aerospace Systems.
AIRFRAMERS AIM TO EASE WORRIES
Airframer executives who spoke at MRO Americas downplayed such concerns and defended the need to protect property. They also insisted room exists in the aftermarket for everyone.
"Everybody in the world is trying to protect their IP. That’s good policy," says Boeing's Deal. "I thoroughly believe there is room for growth for all."
"Of course we are asking our partners to respect Airbus IP," adds Martinez. "There is ample opportunity to work together."
But Martinez also insists Airbus wants data to flow more freely between airframers, operators and MRO providers. Doing so, he says, can help the entire industry improve.
He cites Airbus' recent launch of Skywise, an "open data' platform that collects and distributes airline operational and other data. Airlines get free Skywise access in exchange for sharing their own data into the system, Martinez says.
Airbus, which also upsells Skywise-related paid services, says the product has the potential to help airlines reduce operational disruptions by 30%.
"Are we in a world where we are protective with our IP? Or, are we moving to a world – like with Skywise – where we are sharing information, sharing data?" Martinez says. "My conviction is that we are moving to the second one."
Concepts like predictive maintenance and prognostics have for years been tossed around, but airlines increasingly say the technology has matured to the point of providing significant benefit.
Speaking during the MRO Americas event, Delta Air Lines' managing director of engineering Gary Martin said prognostics enabled Delta to prevent 1,200 maintenance events in 2017.
Prognostics and other factors helped Delta reduce its number of maintenance cancellations from about 5,600 in 2010 to just 78 in 2017 – a 98% reduction, a Delta executive said.
"We believe we are setting a new standard in this business," Martin said.
Story updated on 26 April to note that Embraer supports C-130s in Portugal via OGMA, of which Embraer owns 65%.
Source: Cirium Dashboard