Many of the world's airlines are making ongoing improvements to their onboard products in response to various economic and competitive pressures. But resulting demand for interior products such as seats is placing a growing strain on the relatively few manufacturers, resulting in new business opportunities for smaller, upstart providers, sources say.
"At long last, it appears that we have found ourselves in the midst of an epic global battle to improve aircraft interior product quality and comfort," wrote Jonathan Berger, vice-president of aerospace and MRO at consultancy ICF International, in a recent blog post. "Should the major cabin interior suppliers fail to get their respective acts together – and soon – then we should logically expect to see a proliferation of new market entrants."
American Airlines' manager of onboard products Jay Mapston tells FlightGlobal: "It's a small supply chain." He notes that suppliers such as Zodiac Aerospace and B/E Aerospace dominate the interiors industry. "When the entire industry is relying on that small supply chain, everyone is eating from the same tree, and it runs out of apples," he says.
Indeed, demand has surged in recent years amid a worldwide flood of new aircraft orders and booming demand for overhauls of existing aircraft cabins. Between January 2010 and October 2016, Boeing's outstanding commercial aircraft orders jumped 78% to 5,612, while Airbus's outstanding orders doubled to 6,749, according to the manufacturers and Flight Fleets Analyzer.
Top US carriers such as American Airlines, Delta Air Lines and United still have hundreds of orders outstanding each, many for fuel-efficient types like the Boeing 737 Max, 787, Airbus A320neo and A350. Boeing predicts in its 2016 market outlook that the number of aircraft in service will double to 45,240 by 2025, with nearly 40,000 of those being new aircraft.
Interior providers are busy equipping all those new aircraft, but at the same time several factors are leading carriers to update cabins of existing aircraft. For starters, airlines are seeking to compete with rapidly expanding Middle Eastern and Asian carriers, many of which provide an improved onboard product, Berger notes.
Combine that with a broader battle to attract lucrative business travellers, rapidly advancing technology and availability of cash thanks to low fuel prices, and carriers see good reason to make their cabins sparkle, he adds. "Historically, airlines refresh their cabin interiors once a decade during a major aircraft overhaul. Today, the situation has clearly changed," Berger writes. "Similar to the constant need to upgrade your smartphone every few years, the fiercely competitive airline industry must keep up with the rapid pace of onboard product and technology innovation."
ROLE OF MERGERS
Fred Cleveland, managing director of PwC's transportation and logistics practice, notes the "merger mania" that swept the USA left consolidated companies with giant fleets and differing onboard products. For example, the 2008 merger creating the current Delta brought together roughly 450 Delta aircraft with 350 from Northwest Airlines, Flight Fleets Analyzer shows. Likewise, the United-Continental Airlines and American-US Airways mergers brought hundreds of aircraft together.
The resulting mega-carriers have since been standardising and upgrading their fleets, outfitting aircraft with "slimline" and lie-flat seats, premium economy sections, new carpets and sidewalls, and upgraded IFE systems, Cleveland notes.
American, for instance, is now removing first class from its 777-200s, adding lie-flat seats in business class and international-style premium economy seats as part of a mid-life upgrade to the roughly 15-year-old aircraft, Mapston notes. The project should be completed in the third quarter of 2017. "The cabins we had were getting older and the market has changed," he says. "The move into the two-class configurations – that's become a big industry trend."
Berger, however, says that in moving to "two-class" aircraft, airlines have, in effect, really just shifted their product and retained three classes: business, premium economy and economy.
American is also fitting 24 757s with lie-flat business-class seats and equipping 777-300ERs, 787s, A330s and A350s with international premium-economy sections. The carrier rolled out premium economy on newly delivered 787-9s this year, and expects to complete the installations by 2019. It is also standardising "trim and finish" inside its 737- and A320-family aircraft, a project that includes new seats, carpets, IFE and power ports.
Likewise, United's more than 200 narrowbodyies are being fitted with new first-class seats, and the carrier recently announced plans to equip widebody aircraft with a new business-class product dubbed "Polaris". Widebodies will get new lie-flat business-class seats manufactured by Zodiac, 16in entertainment screens, privacy dividers, improved meals and new amenity kits, United has said.
The carrier plans to roll out Polaris in December on newly delivered 777-300ERs and expects to equip 767-300s, 777-200s, 787-10s and A350s with the product, it has said.
Delta expects to receive in autumn 2017 its A350 with international-style premium economy seats and suite-style lie-flat business-class seats with privacy doors. The carrier will install premium economy on other widebodies, and, working with Zodiac, will equip 126 A319/A320s with new IFE systems, overhead bins, galleys and "pod-like" over-seat control units, it says.
Other carriers are also revamping cabins. For instance, Zodiac is helping Air France revamp its A330 cabins, and Iberia is adding premium economy to A330s and A340s.
Likewise, JetBlue Airways has been adding lie-flat seats on many aircraft, Alaska Airlines has been upgrading 737s with new seats, and Hawaiian Airlines is replacing traditional business-class seats on A330s with lie-flat seats.
All those orders have placed immense strain on interior suppliers, and have put retrofit orders in competition with new interior orders, Cleveland says. At the same time, suppliers are seeking certification of new, lighter-weight designs, adding complexity to an already tight production schedule, he adds. "They are really, really going to be struggling to get all that done at the same time," Cleveland says of suppliers. "The pipeline is flooded with new interiors."
Berger writes: "The cabin suppliers are attempting to simultaneously manage both historic OEM demand to meet record aircraft production rates and surging airline demand for the latest cabin interior products." He adds: "The supply chain is clearly overwhelmed and simply cannot keep up."
That demand bodes well for the modification industry, which was worth $4.4 billion in 2015, or 7% of the $64.3 billion global MRO industry, ICF estimates. The company forecasts the modifications sector will grow an average of 5.3% per annum up to 2025, reaching $7.4 billion, or about 8% of a $96 billion MRO industry.
The size of the interior modifications industry, a subset of the larger modification sector, will grow 5.9% per annum for 10 years, ICF predicts. By comparison, it forecasts that the engine and component MRO segments will each grow slightly more than 4% per annum to 2025, line maintenance demand 3.6% and the airframe sector 2.8%.
No doubt modification providers will be busy, but surging demand has meant bottlenecks. "Ask any airline or OEM who their lowest-performing suppliers are, and their answer is unanimous: 'Our seat and cabin interior suppliers'," writes Berger.
France-based Zodiac has faced among the most-visible production problems. In 2015, American announced it was replacing Zodiac as supplier of 777-200 and 787-9 business-class seats because of delivery delays. "Zodiac has not been able to deliver new seats in a timely fashion according to the terms of its contract," American told FlightGlobal in 2015. "The seats are far behind schedule and continue to cause significant delays."
Such troubles are not unique to American. "The issues we are having with suppliers – other carriers are facing them as well," says Mapston.
Zodiac's production problems, including a shortage of lavatories, also delayed A350 deliveries and weighed on Zodiac's earnings.
The A350 problems resulted from "quality issues" at a plant in California and a slower-than-expected ramp-up at a Montreal facility, the company has said. Also, the angled layout of business-class seats caused more complex certification requirements, Zodiac tells FlightGlobal.
Zodiac insists the issues are being fixed, noting that it has opened a third production site in Germany, hired new staff and created processes with the goal of achieving normal operations by the end of 2017.
Meanwhile, airlines still show confidence in Zodiac, with news breaking in September that Lufthansa will equip A350s with Zodiac seats.
Aircraft manufacturers have also become involved. "Late delivery of cabin components to Airbus is challenging – especially on the A350 – and we are working closely with our cabin suppliers to resolve these issues and to minimise delays," says Airbus, which notes that it has improved production planning and supplier management, and, with Zodiac, "identified the main bottlenecks".
Airbus adds: "Good progress has been made on solving the issues, but full recovery will take months."
Boeing says it has worked with seating suppliers for two years to address delays: "Boeing is also adding several new suppliers in order to expand the global supply of seats and provide new options and greater affordability to our customers. Airplane deliveries have been proceeding as normal this year, but we continue to monitor this closely."
Those production problems are creating inroads for a handful of smaller seat suppliers, some of which have recently landed new deals. "A lot of smaller start-up seating companies have emerged," says Mapston. "I don't know if it can solve the overall industry issue of lack of competition and supply, [but] there is a shifting there."
German seat maker Recaro disclosed in April 2015 that it had signed a "supplier-furnished equipment" deal to provide Airbus with A320 seats. Recaro says it has invested "significantly" in its production sites, processes and products over the past decade. The supplier adds that it has not had delays that have kept customers from meeting agreed schedules.
And news broke in April that a relatively new company called LIFT, a unit of US-based interiors supplier EnCore, will supply Boeing with 737 Max seats, with deliveries in 2017. LIFT, launched by executives who in 2005 sold C&D Aerospace Group to Zodiac, announced in October orders from two unnamed airline customers.
Another German seat maker, Zim Flugsitz, has landed recent deals, including contracts to supply seats for Lufthansa and Singapore Airlines.
CAPACITY IN PLACE
UK-based Acro has supplied seats on Boeing and Airbus aircraft operated by several carriers, including the UK's Jet2, Iceland's Wow Air and US carriers Spirit Airlines, Allegiant Air and Hawaiian Airlines.
The company has infrastructure needed to meet demand, having moved into a new production facility in 2014 and opened customer centres in Miami and Kuala Lumpur, says Acro commercial director Andrew Bowen.
Hawaiian also chose a smaller player, Italy-based Optimares, to design new lie-flat premium seats for its A330s. The seats are light in colour and have few physical barriers, making them ideal for Hawaiian's target customers, which tend to be families and couples travelling together, says the carrier's senior vice-president of marketing, Avi Mannis.
Hawaiian chose Optimares because major suppliers’ seats tended to be dark in colour and boxy, designed for privacy so as to appeal to business travellers, Mannis notes.
In April, UK-based Mirus Aircraft Seating announced AirAsia as the launch customer for its "Hawk" economy seat. The seats will be installed on up to 312 of AirAsia's A320-family aircraft, said Mirus.
As start-ups seek market share, large existing interior providers are benefiting from strong demand while developing new products. For instance, in 2014, Zodiac announced that it had agreed with Airbus to develop the A320 "Space-Flex v2" rear lavatory and galley module, which provides more galley space and is marketed to carriers that provide full-service catering.
Zodiac is also marketing redesigned overhead bins, modern IFE products provided by its Zodiac Inflight Innovations subsidiary and other upgrades, the company says.
Meanwhile, B/E on 23 October announced that strong performance of its commercial aircraft business had helped push third-quarter net earnings up 75% year on year to $83.3 million. B/E's commercial aircraft division saw third-quarter revenue jump 14% year on year based on demand for aircraft seats, galley equipment, lavatory systems and other products, the company said.
In a July earnings call, B/E executive chairman Amin Khoury predicted B/E's aftermarket business would "grow disproportionately" in the next 20 years as a result of an expected doubling of the commercial aircraft fleet. "Our commercial aircraft segment is strategically positioned to outperform in this environment," he said.
B/E declined to comment about the interiors market to FlightGlobal, but growth opportunities apparently caught the attention of Rockwell Collins, which on 23 October announced its intention to acquire B/E for $6.4 billion.
Speaking to investors on 24 October, Rockwell chief executive Kelly Ortberg said the deal would give Rockwell a foothold in the aircraft retrofit market: "I believe we are coming into a major cycle where a lot of widebodies are coming off lease and will be returned to the lessors. And with that we are going to see great opportunities for retrofit of the cabins.”
He foresees the acquisition combining Rockwell's systems integration expertise with B/E's interiors experience, enabling the group to develop high-tech cabin products that are linked into larger aircraft networks. Such a move would bring the interiors business into the broader big-data revolution sweeping aviation.
"All of the galley equipment is going to need to be a node on the network, to either provide a better passenger experience, to allow the crew to interact differently with the passengers or for improved maintenance actions," Ortberg says.
"Everything is going to become a smart device," he adds. "If you look five years, six years ahead, you'll see that this is a much different looking product line with... embedded sensors, controls, wi-fi interfaces, secured networks throughout the airplane."
Source: Cirium Dashboard