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ANALYSIS: CFM's new aftermarket policies spur MRO shift

CFM International's newly published aftermarket policies could spur reshuffling of the maintenance, repair and overhaul (MRO) industry, leading maintenance shops to adjust business models as airlines consider lower-cost maintenance options, insiders say.

With the policies, some CFM-licensed shops could begin selling non-CFM-approved parts and repairs, while independent shops could align with the engine maker, says Dave Marcontell, general manager of consultancy Oliver Wyman's Cavok unit.

"Previously, you had to be an authorised service center or independent, but not both," he says. "Now those shops can do different types of builds."

On 31 July, CFM released 41 pages of "conduct policies", broadly saying its service licenses and warranties do not discriminate against use of so-called PMA parts or DER repairs in engines.

PMAs ("parts manufacturer approval") and DERs ("designated engineering representatives") are regulator-approved maintenance alternatives.

GE Aviation and Safran Aircraft Engines jointly own CFM.

MROs generally welcome CFM's policies, but remain hopeful CFM's competitors will make similar changes, says Sarah MacLeod, executive director of the Aeronautical Repair Station Association (ARSA).

"They are really looking to see if this is going to set a precedent for other manufacturers," she says.

The policies are part of an agreement with trade group IATA, which in 2016 filed complaints against CFM and Honeywell with the European Commission's competition office.

The Commission has not released the complaints, which IATA said related to an investigation into "alleged abuses of dominant positions by manufacturers of aviation equipment".

IATA has now withdrawn its CFM complaint, saying CFM's new policies will boost competition among service providers. The Honeywell complaint remains open, says IATA.

The European Commission says the IATA-CFM agreement "appears to deal effectively with concerns that have been raised in the maintenance and repair of aircraft engines sector".

"CONDUCT POLICIES"

IATA's complaint presented CFM an opportunity to talk with IATA about airlines' concerns, and to address concerns with the policy document, GE Aviation general manager of services marketing Bill Dwyer tells FlightGlobal.

"This is about clarity and transparency," Dwyer says. "There have been a lot of things clarified that were misunderstood previously."

The policies specify that the presence of PMAs or DERs in engines do not void engine warranties – unless those parts and repairs caused a CFM part failure.

That has always been the case, but needed to be clearly communicated, Dwyer says.

Also, CFM specifies that its service licensees may employ PMAs and DERs. They may also maintain CFM engines containing non-CFM-approved parts and repairs, and do so using CFM's shop manuals.

If CFM unexpectedly finds non-CFM parts in an engine, it will offer to reinstall those parts if in working order, it says.

In a change, CFM will stop charging overhaul shops royalty fees to use engine shop manuals, the policy says. Airlines themselves already have free access to manuals.

CFM made that change because airlines without in-house MRO shops complained their contracted shops had to pay extra for manuals, Dwyer says.

CFM says the policies affirm its "commitment" to open competition and the "competitive nature of its MRO model".

The policies apply to CFM56 and Leap engines, and GE will apply the policies to its commercial engines, the companies say.

EXISTING FEDERAL REGULATIONS

ARSA's MacLeod views CFM's policies as positive, but says they largely acknowledge existing US Federal Aviation Administration (FAA) regulations.

Regulations require MROs follow carriers’ maintenance instructions, including requests to use PMAs and DERs, she says. Therefore, CFM lacks authority to prohibit airlines – and, by extension, their maintenance providers – from using FAA-approved methods, says MacLeod.

Likewise, a 2012 FAA policy statement already ensures MROs shops can receive OEM manuals from airline customers, MacLeod adds.

"To me, these are giveaways," she says of CFM's new policies. “The airlines, and thus their maintenance providers, shouldn’t have been restricted to begin with."

MacLeod urges aircraft buyers to leverage regulations when negotiating contracts.

"The proper use of the regulations during negotiation for new aircraft is paramount to stopping most of these restrictive practices," she says.

NEW BUSINESS OPPORTUNITIES

CFM's policy statement follows years during which OEMs sought to expand their aftermarket reach.

About 20 years ago, some OEMs, seeking to sell new parts, began stripping repair instructions from service manuals, insiders note.

OEMs formed global networks of licensed servicers that followed OEM guidelines, while non-affiliated "independent" MROs competed partly by offering lower-cost PMAs and DERs.

But CFM's new policies could encourage CFM-licensed shops to expand into PMAs and DERs, possibly taking sales from independent shops, Oliver Wyman's Marcontell says.

Likewise, airlines might increasingly ask CFM-licensed shops to perform such work.

"Now airlines can start to actually drive… decisions around what [is] an acceptable build, in terms of using PMA parts and DER repairs to lower costs," Marcontell says.

Some independents might suffer from new competition from licensed shops; but others, now having free service manuals, might expand by performing CFM-compliant repairs, Marcontell says.

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