Since IATA disclosed in July an agreement with CFM International that will see the market for MRO services on the manufacturer’s engines opened up to more third-party competition, there has been considerable debate as to whether the deal represents a shift in the GE-Safran joint venture’s support policy.
IATA describes the agreement as a basis to “enhance the opportunities available to third-party providers of engine parts and MRO services on the CFM56 and the new Leap series”. The pact was an out-of-court settlement, and conditional on the airline association’s withdrawal of a 2016 complaint to the European Commission regarding CFM’s aftermarket practices.
The airline association says that airlines, lessors, third-party maintenance providers and parts suppliers stand to benefit from the new agreement. IATA director general Alexandre de Juniac stated in July that the accord will “reduce airline operating costs and help... keep flying affordable”.
As part of a new set of “Conduct Policies” scheduled to come into effect from February 2019, CFM acknowledges that it made changes in certain areas, including fees and service instructions for overhaul shops, material supply contracts, customer communication, and appointment of an independent trustee to ensure compliance with the new guidelines.
But regarding the contentious topic of non-OEM material employment – spares developed under a parts manufacturing authority (PMA) approval and repairs devised under a designated engineering representative (DER) certificate – CFM says it merely “clarified” its position and will ensure “consistent and transparent” communication with customers in future. The manufacturer insists that it has not changed its technical support and warranty policies.
“There are parties that want to promote [the IATA-CFM deal] as a massive change,” GE Aviation general manager of services marketing Bill Dwyer tells FlightGlobal. “It’s primarily to make sure the industry understands these policies,” he says.
Dwyer asserts that CFM has always competed with PMA suppliers and third-party maintenance providers under the manufacturer’s “open, competitive MRO model”. He says: “We have never had a prohibition of a customer – an airline or MRO – using PMA. In our model, customers have choice, and we have always competed with PMA. We have not restricted the use [of] PMA.”
Multiple sources have told FlightGlobal, however, that CFM advised operators not to employ PMA parts as the non-OEM material would invalidate warranties. One MRO provider says that PMA spares utilisation was seen as a “no-go” area, and that CFM was understood not to provide technical support for engines containing PMA components or DER repairs unless those parts were replaced with OEM material.
Eric Mendelson, co-director of spares supplier Heico, told FlightGlobal in August that, in the past, the US company supplied airlines with “hundreds” of PMA components for CFM56-3, -5A and -5C engines – which power Boeing 737 Classics, early Airbus A320-family jets and first-generation A340s, respectively – and other manufacturers’ engines.
Mendelson and other MRO provider sources tell FlightGlobal that CFM curbed the use of PMA equipment through its aftermarket policy on later CFM56-7B and -5B models – which power 737NGs and the majority of A320ceo-family jets, respectively – as did other manufacturers for their equipment.
Heico developed “a series” of PMA parts for CFM56-5B/7Bs, and the company gained customers for that material, says Mendelson. But he adds: “It has been very difficult to sell [these parts].”
A CFM contract seen by FlightGlobal says that the manufacturer’s warranty is “applicable only if the product [an engine or spare part] is operated, handled, maintained, or repaired in accordance with the then-current recommendations by CFM”.
Dwyer asserts: “Our warranty policy has never been that if you use a single PMA part anywhere in the engine, the entire warranty is invalid.” Instead, he notes, CFM’s warranty policy is cause-effect-based – OEM part failures will not be covered if the condition was caused by non-OEM material. “That is the case historically and… going forward, no change there,” says Dwyer.
He does acknowledge, however, that operators and MRO suppliers may have “misunderstood” CFM’s aftermarket policy, and that “part of the reason why the [IATA] agreement was signed… is because we are making sure that we are consistent with communicating our warranty policy”.
He concedes: “If someone misunderstood it, it is partly on us… We haven’t made a good enough job to make sure the industry universally understands that [policy].”
Noting that CFM reviewed records dating back as far as 1997 under the Commission’s anti-trust probe, Dwyer says the manufacturer has not rejected a warranty claim “simply because there was a PMA part somewhere in the engine”.
Under the new conduct policies, overhauls completed by CFM will generally employ OEM material, as has been practice in the past. But the manufacturer has agreed that if non-OEM material is “unexpectedly” found in an engine – say if the asset owner acquired a second-hand engine and was unaware of its configuration – CFM will re-install the third-party equipment provided it is serviceable.
In all other circumstances, Dwyer says “there is no instance where we will use non-OEM parts”.
However, CFM’s pledge to service engines and to license overhaul shops on a “non-discriminatory” basis suggests a departure from previous practices or that, at the very least, the manufacturer’s position was not clear.
The conduct policies state: “CFM does not refuse to service engines on the basis that they contain non-OEM parts or repairs” – and “the mere installation of non-OEM parts and/or repairs in the engine does not in itself render the warranty void”.
Dwyer acknowledges that concern among operators about spare-part price escalation by the OEMs – which he describes as a “lightning rod” issue within the industry – was a key driver of IATA’s complaint to the EC. But he asserts that maintenance cost per flight hour has fallen, as average engine on-wing time before a first shop visit has increased. This has risen to eight years on CFM56-5B/7Bs, from three years on previous-generation engines.
He argues the longer an engine is on-wing, the greater an operator’s risk of potentially jeopardising the per-hour maintenance cost by changing the engine’s configuration. And in his view, the employment of non-OEM material results in “some risk that you would have [a shop visit] early”.
Describing the IATA agreement as a “first step” that will “not dramatically” change aftermarket dynamics, an MRO provider tells FlightGlobal the accord has nonetheless started the development of more competition in the sector. Another maintenance provider foresees the deal will have a “huge effect” on its business.
In July, IATA expressed hope that the CFM agreement will be “an example for other manufacturers to follow”.
GE Aviation has pledged to “voluntarily” adopt the conduct policy to its own commercial engine range even though, the CFM parent notes, it is “not a party” to the IATA agreement.
But without a similar anti-trust case, will other manufacturers follow suit?
MRO sources believe that given the widespread adoption of similar practices, several other OEMs could have been subject to a similar EC investigation.
FlightGlobal understands that IATA originally filed a complaint with the Commission about anti-competitive behaviour in the aftermarket, without naming specific OEMs.
The EC subsequently sent out questionnaires to airlines and manufacturers to assess terms in aftermarket support agreements.
While manufacturers examined by the questionnaires included CFM, Honeywell and Rolls-Royce, the EC later concentrated its efforts on CFM and Honeywell; the probe into the US avionics and APU specialist is still ongoing.
Dwyer confirms that the Commission’s involvement was a key “motivation” to reach an agreement with IATA as the regulator’s investigation was a “very serious enquiry, [a] very serious accusation”.
He claims CFM was “surprised” it had come under scrutiny, but says the manufacturer viewed the 18-month talks with the Commission as a way of engaging with the “voice of the customer”.
Dwyer is philosophical about having to change aspects of CFM’s aftermarket policy as a result of the inquiry: “One point of view of being part of that process is maybe better than not being part of it.”