The IATA-CFM International agreement which opens up the maintenance market to third-party competitors was disclosed at a time when much of Europe – France, in particular – had embarked on vacation.
This was not quite the burying of bad news for half-French engine maker CFM, but a way of slipping out details of a deal set to profoundly disrupt its aftermarket activity – which plays a central part in its overall business, as is standard in its sector.
Airlines and lessors negotiate considerable discounts when they order aircraft and engines. Long-term aftermarket support contracts and spare-part sales have therefore become a way of generating revenue that the manufacturers say is required to recoup the costs of developing new equipment.
Now, third-party maintenance and material providers are suddenly gaining access to a previously restricted market, opening up competition and choice for end users – and ultimately driving down costs.
Under the deal, designed to "foster robust and open competition", CFM will accept the use of non-OEM parts and repairs on the CFM56 and Leap engines powering Boeing 737 and Airbus A320-family jets and their respective Max and Neo variants.
Importantly, CFM has also committed not to discriminate against users or purveyors of such third-party equipment.
The manufacturer will adopt a set of new "conduct policies" for a period of seven years from 28 February 2019. These include a pledge to service engines and issue licences to MRO providers on a "nondiscriminatory basis". The policy document states: "CFM does not refuse to service engines on the basis that they contain non-OEM parts or repairs."
In a separate set of "implementing measures", CFM says that spares developed under a parts manufacturing authority (PMA) approval and repairs devised under a designated engineering representative (DER) certificate are "eligible for installation" in its engines.
The relevant airworthiness authorities approve PMA parts and DER repairs. But their use was previously not accepted by CFM.
OEM SERVICE AGREEMENTS
In addition, CFM will accept employment of third-party material in engines that are covered by OEM service agreements.
If non-OEM material is found during shop visits within the manufacturer's MRO network, "CFM will, at the option of the customer, either remove and replace or reinstall the parts concerned if they are serviceable".
It adds: "CBSA [CFM-branded service agreements] will allow, and CFM will recommend, that CBSA shops adopt the same approach as CFM with respect to reinstallation of... serviceable non-OEM parts or repairs."
CFM notes that the reinstallation principle also applies to OEM life-limited parts that have been "influenced" by third-party equipment.
The wording of the conduct policies is significant because it indicates a departure from the previous restrictive practices imposed by CFM and its partners.
CFM says "all" operators and MRO shops can purchase manufacturer parts or services "irrespective of whether they otherwise utilise non-OEM parts or repairs". GE and Safran – the two partners in joint venture CFM – will make "all OEM part repairs available for purchase to all operators and MRO shops", CFM says.
When a customer engages CFM to service a certain module within a whole engine, the manufacturer commits to addressing only the segment in question and will not "take any action on other modules... irrespective of the presence of non-OEM parts or repairs in these other modules".
WARRANTY RESTRICTIONS LIFTED
A source familiar with CFM's previous aftermarket practices tells FlightGlobal that in the past, inclusion of third-party material in engines was deemed to invalidate the warranty. Even if an OEM part failed in a way that was unrelated to the use of non-OEM material elsewhere in the engine, the manufacturer argued that the warranty was invalid.
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".
The manufacturer says now: "The mere installation of non-OEM parts or repairs in the engine does not in itself render the warranty void."
It adds: "The use of non-OEM parts or repairs is not relevant in the CFM warranty administrator's evaluation of any warranty claim unless CFM's engineering analysis... demonstrates that the condition was caused by non-OEM parts or repairs."
Aircraft operators, owners and lessors will have "freedom to opt" for OEM or third-party solutions to support their engines – and "may make their choice public".
An engine's MRO expenditure largely depends on spare-parts sourcing. Shop visit costs are more a function of material prices than of labour. CFM says it will not enter exclusive material service agreements (MSAs) – its term for supply deals with airlines – "except in response" to an operator's request for such a contract.
Airlines that have already signed up to exclusive MSAs will be given an opportunity to terminate existing deals and switch to non-exclusive contracts.
Nor will an MRO shop be required to sign an exclusive MSA with CFM, unless it requests to do so or is co-operating with the manufacturer as part of OEM service agreement.
Until now, MRO shops have been required by CFM to pay periodic fees – typically as lump sums – for each engine model they intend to support, and to pay separate fees for access to manufacturer technical data and to purchase spare parts.
The "technical data usage fee" covers CFM's engine shop manual (ESM) and other documentation – such as service bulletins and individual repair instructions – provided to the MRO facility at the manufacturer's "absolute discretion". The fee is based on a certain percentage of the shop's per-overhaul revenue.
However, the manufacturer stipulates in existing contracts that "all technical data" remains its property and can be used only for engine maintenance in the licensees' facilities. Customers "shall not use technical data for any other purpose whatsoever". Meanwhile, CFM has a right to terminate the contract "at any time" during a licence period and "without any reason".
Under the new conduct policies, CFM says it will no longer charge overhaul shops fees for using the ESM. The manufacturer may still impose a fee for technical support and other services, but pledges not to "arbitrarily change the fee structure... to compensate for this [ESM] fee reduction".
Elimination of ESM royalty payments will notably reduce costs for overhaul shops, an MRO provider tells FlightGlobal. This will be particularly relevant for third-party facilities unaffiliated with airlines, as operators have a right to access the manuals for maintenance of their equipment.
Furthermore, it used to be that shops applying for maintenance licences were at the mercy of the manufacturer when it came to approval and receipt of technical data. Now, CFM promises it will support "early execution" of licence agreements with independent MRO shops for the new Leap engine. "CFM will consider all requests for licence agreements from independent MRO shops," it says.
Perhaps the biggest effect of the IATA-CFM accord will be seen in the market for PMA parts and DER repairs.
In the past, several suppliers – including Pratt & Whitney – developed PMA parts and DER repairs for CFM56-3 engines, which power 737 Classics. But on subsequent models, CFM restricted the use of such material – as did other manufacturers, for their engines.
"Right now, I keep away from DER repairs and PMA parts even though some customers want them," says the MRO provider, citing concern over the possibility of jeopardising its relationship with CFM.
Under the new policies, aircraft operators and owners as well as MRO providers will be entitled to install non-OEM material in engines. But take-up will depend on how encouraged PMA and DER specialists feel to develop solutions for modern engines.
CFM declines to comment on the possible impact of the new policies on its aftermarket business.
Of course, CFM is not the only manufacturer of large civil aircraft engines, and there remains the question of whether others will also open up the maintenance market for their engines to third-party service providers.
CFM reached the agreement with IATA after the association filed, in 2016, a formal complaint with the European Commission over "alleged abuses of dominant positions by manufacturers". IATA's complaint supported an earlier tentative inquiry by the Commission into competitive terms within manufacturers' maintenance contracts for certain engines and components.
The inquiry – launched in 2015 – was focused on CFM56 engines and Rolls-Royce's Trent XWB, the sole powerplant available for the A350. The Commission sent questionnaires to airlines and manufacturers as part of a preliminary investigation.
Speaking during a results briefing earlier this month, R-R chief executive Warren East said the UK engine maker had received and completed the Commission's questionnaire. East asserts that the competition concerns raised under the EU inquiry related to engines powering narrow- rather than widebody aircraft.
R-R's commercial engine business spans powerplants for long-haul aircraft and business jets only. East says the manufacturer has heard "nothing" about the inquiry since it returned the questionnaires.