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Aircraft and engine manufacturers intend to grow their aftermarket support business – and big-data initiatives to improve airlines’ flight and maintenance operations are at the heart of their expansion strategies.
Airbus and Boeing have been increasing their aftermarket activities for some time in a bid to replicate engine manufacturers’ efforts since the 1990s to win much of the engine overhaul business from airlines and third-party maintenance providers. However, it is the rapid increase in available operational and technical data on new-generation aircraft – and the possibility of centrally analysing that information to gain efficiencies – which pose an opportunity for manufacturers to boost their aftermarket standing at last.
AIRBUS'S DIGITAL DRIVE
“We are at a turning point of our industry,” Airbus head of services Laurent Martinez told delegates at the MRO Europe conference in October. He notes the MRO market is “fragmented” – with services being supplied by airframers, engine and systems manufacturers, airline-associated and third-party maintenance providers, and a wide range of repair specialists – while the manufacturing sector for large aircraft is a duopoly between Airbus and Boeing. But he foresees consolidation as manufacturers target a larger slice of the aftermarket, specialist equipment suppliers become part of wider groups – examples being United Technologies’ and Safran’s planned acquisitions of Rockwell Collins and Zodiac, respectively – and as digital services play a bigger role in aircraft maintenance. “We will be in a different place in 10 years’ time,” Martinez says.
Airbus unveiled its digital services initiative Skywise at this year’s Paris air show, having worked since 2015 on the platform, which provides access to aircraft onboard data and analytical tools. AirAsia, Delta Air Lines, EasyJet, Emirates, JetBlue and Peach were “early adopters”, Airbus says. In terms of flight operational improvements, Martinez foresees fuel-burn savings between 2% and 5% for airlines using Skywise.
A central objective for Skywise will be to analyse aircraft health data in order to employ predictive maintenance. Rather than replacing components when a fault has occurred – or during regular checks according to conventional maintenance schedules that are based on average failure rates – the intention is to automatically monitor equipment and replace parts when a performance degradation has been identified, ahead of a failure. Operational disruptions could thus be reduced up to 30%, predicts Martinez.
Data availability clearly is key to development of analytic functions. Airbus’s latest model, the A350, can transmit around 400,000 parameters per flight – some 60% more than the A380. Meanwhile, A320-family jets provide 400 parameters per flight and the A330 around 1,500.
To boost the data volume on the older types, Airbus intends to line-fit, from 2018, A320-family jets with a Rockwell Collins-supplied data recording and transmission unit – dubbed the flight operations and maintenance exchanger, FOMAX – which will increase the number of available parameters to 24,000 per flight. On the A330, that number is set to rise to 40,000, and FOMAX will be available for retrofit on in-service aircraft.
Raising the data is also a means of directing customers to Skywise. Martinez acknowledges that data collected in-flight belongs to the operators. But information from FOMAX will be accessible only via Skywise. Serge Panabiere, vice-president of marketing and business for Airbus’s services division, told FlightGlobal at MRO Europe that operators wanting to have access to data from their aircraft will have the option of a free, basic subscription to Skywise – provided they agree to their anonymised information being combined with that of other airlines on the digital platform. For Airbus, the objective is to gain visibility across as many aircraft and operators as possible.
In order to support carriers’ aircraft, Airbus has teamed up with a range of maintenance providers under a partnership named MRO Alliance. Initial partners were AAR, Aeroman, China Airlines’ technical division, Etihad Airways Engineering, Guangzhou Aircraft Maintenance Engineering and Sabena Technics. The list additionally includes wholly or part-owned Airbus aftermarket ventures.
The MRO Alliance is a replacement for the airframer’s previous MRO Network. Martinez describes the disbanded MRO Network as a “club” of maintenance providers that co-operated with the manufacturer. The new alliance, he says, will be a much closer partnership with Airbus “where we are sharing know-how”.
Martinez insists that operators will be able to choose between MROs within the alliance “depending on the capabilities they [the providers] have and depending on the region where the airlines are operating”. But he says: “Our alliance will be limited to a very small number of MROs.”
Airbus’s services division increased revenue 18% last year, to $2.8 billion, and Martinez forecasts that the segment will grow at a similar rate this year. Airbus’s total revenue increased 3% to €67 billion ($78 billion) in 2016.
BOEING GOES GLOBAL
Boeing, meanwhile, consolidated all its aviation services into a new business division – dubbed Global Services – that started operations in July. Previously, the US manufacturer had offered those services through its commercial airplane and defence, space and security units.
During the July-September period, Global Services earned an operating profit of $506 million, equating to 19% of Boeing’s total $2.7 billion operating profit in the third quarter, the airframer notes. Global Services earned that half-billion dollar profit on $3.6 billion in revenue – split roughly even between commercial and defence services – which translates to a standout operating profit margin of 14.2%.
By comparison, Boeing’s commercial airplane unit earned a $1.5 billion operating profit at a 9.9% margin in the period, and its defence, space and security business earned a $559 million operating profit at a 10.2% margin.
Parts and supply chain services accounted for 40% of Global Services’ sales; modifications and maintenance accounted for 40%; and digital products, analytics and training generated 20%. “It’s a good, solid foundation to start,” said Boeing chief executive Dennis Muilenburg in October. “By getting all of our efforts aligned under a single business unit we expect… to accelerate our growth,” he says.
Over the next decade, Muilenburg foresees Global Services’ revenue will reach $50 billion a year – roughly tripling the unit’s turnover today. Boeing says it will expand all offerings, including the company’s “core” parts sales and modification work, as well as upgrade, training and supply-chain services. Noting that 40 airlines signed up for digital navigation products during the third quarter, the airframer indicates its information and data analytics services will play a growing role in the business.
Global Services vice-president of sales and marketing David Longridge said at MRO Europe that a shift is taking place in the Boeing’s aftermarket activities “from manual to analytical skills”, and that the airframer intends to capitalise on its engineering expertise to assist airlines when managing their aircraft’s maintenance – not just for Boeing types. Muilenburg says Boeing will make “a number of investments to help grow our portfolio”.
EMRAER'S SINGLE SERVICE
Embraer combined in late 2016 all aftermarket activities across its commercial, military and business aviation segments in a new, single division named Services & Support. The Brazilian manufacturer plans to grow the support business’s 15% share of overall revenue to 25% by 2020.
The division’s chief executive Johann Bordais told FlightGlobal at the Paris air show that Embraer is evaluating establishment of additional in-house maintenance facilities, potentially in Asia. Today, Embraer has a US commercial aircraft service centre in Nashville, and is the majority shareholder of Portuguese maintenance and aerostructures specialist OGMA.
Bordais cautions that any new in-house maintenance operation would need to be either a profitable business in its own right or a facilitator of an aircraft deal. The manufacturer does not want to open a site for the sake of MRO network expansion.
Noting that OGMA already has maintenance capabilities for A320-family jets, Bordais says Embraer is open to maintaining other manufacturers’ aircraft too. He adds that Embraer will not expand maintenance capabilities to other types just to compete in the MRO market, but if an Embraer operator – or prospective customer – requested support services for additional aircraft, then the manufacturer would consider establishing the required capabilities. “We want to be agnostic,” says Bordais.
ATR TARGETS GROWTH
Turboprop manufacturer ATR generates around 17% of its total revenue through aftermarket support, and according to senior vice-president programmes and customer services Tom Anderson, it is – at around 10% of annual growth – a key business.
Much of that activity centres on hour-based component maintenance agreements. The manufacturer additionally handles propeller and landing gear support and, in some cases, even heavy maintenance and engine services for airlines. “The breadth of what we do spans beyond what people are traditionally thinking an airplane OEM would do,” says Anderson.
He acknowledges other manufacturers’ efforts to boost their aftermarket business through new digital services, and indicates that ATR too is evaluating options to include data analysis in its services. However, Anderson argues the typical operation of ATRs – with short sectors and high frequencies, often in remote areas – does not lend itself to data analysis in the same way as large aircraft. Furthermore, he says: “The amount of data coming off an ATR is relatively minuscule compared to the amount of an A350 or 787…. We have to come up with a solution that works for the data set that is coming off an ATR and the nature of the ATR operators, which is very different than the average Airbus operator.” (See box, above.)
As some airlines fly ATRs alongside Airbus and Boeing types, Anderson acknowledges that operators might want to manage their entire fleet on a digital services platform and that the turboprop’s data would thus need to be available to those tools. However, Anderson says no decision to that extent has yet been made, and he indicates that having an “incredible diversity of operators” – which, the manufacturer notes, have on average less than 10 ATRs – complicates development of analysis tools. “The challenge we have is when you sit down with the data scientists you know everything is possible, and when we talk to our airline customers they know everything is possible. But they [airlines] want something that is actually… helping to improve their business.”
R-R AFTERMARKET BOOST
In June, Rolls-Royce opened at its Derby headquarters what it terms an “Aircraft Availability Centre” in a bid to boost its aftermarket business. Tom Palmer, senior-vice president services for the UK engine maker’s civil aerospace division, said during the centre’s opening that Rolls-Royce’s aftermarket support had thus far been concentrated on engine health monitoring and co-ordination of MRO activities to keep equipment in operation. However, he says that engine overhauls represent around 4% of airlines’ operating costs, while engine operation has a direct impact on 65% of those costs.
Under the new strategy, the manufacturer intends to provide broader services in order to assist airlines with operating and managing their aircraft. Rolls-Royce says it will combine “analysis of digital data from our engines with those of our customers and partners to make dramatic improvements [in] airline economics, in terms of aircraft availability and fuel efficiency”.
New services include advice on aircraft deployment based on an airline’s individual route network and prevailing weather conditions; line maintenance control; spare-parts provisioning; fuel-saving initiatives; and engine lease management.
Palmer says the manufacturer will provide a “much more complex and challenging service”, utilising an increased volume of data from different sources, including aircraft, operators, and suppliers beyond Rolls-Royce. Under its previous set-up, the manufacturer collected several million data points per annum from its engine fleet. In future, it estimates it will handle 20 billion data points per day.
The Aircraft Availability Centre’s creation is part of a wider re-organisation of Rolls-Royce’s support operations, under which activities that were previously handled from Derby have been delegated to new regional customer service centres in Abu Dhabi, Beijing, Derby, Singapore and Washington DC.
Around half of Rolls-Royce’s 2016 underlying revenue of £13.8 billion ($18.1 billion) was generated by the aftermarket activities, the manufacturer notes.
Manufacturers’ efforts to grow their aftermarket business are not only about re-organising their support activities and expanding digital services – OEMs are also building partnerships to create additional maintenance capacity.
Singapore Airlines’ engineering arm SIAEC has revealed new projects with all three major engine manufacturers. With General Electric, the MRO specialist intends to establish a joint venture to maintain GE90 and GE9X engines. GE is to have a 51% shareholding in the business – with SIAEC controlling the balance – but the engine manufacturer notes that other details are still being worked out.
At Paris air show, Pratt & Whitney disclosed plans to upgrade its overhaul joint venture Singapore Engine Center with SIAEC to support, from 2019, PW1100G geared turbofans powering A320neo-family jets. And in September, Rolls-Royce revealed establishment of a research and development lab for new manufacturing and maintenance technologies, which will be jointly operated with Singapore Aero Engine Services – the UK engine maker’s overhaul JV with SIAEC – and Singapore’s Agency for Science, Technology and Research.
Airbus’s Services division includes a dedicated unit to facilitate cabin upgrades. Qantas engaged the airframer to refurbish the upper-deck cabins across its A380 fleet from 2019 until 2020. Malaysia Airlines has tasked Airbus to increase seat capacity on its A380s from currently 496 to around 700 as the carrier intends to deploy the aircraft for seasonal Hajj and Umrah pilgrimage services from 2018. With Thai Airways, Airbus has tentatively agreed to establish a maintenance operation at U-Tapao to provide line and heavy checks.
In Europe, Boeing plans to build a hangar at London Gatwick to facilitate MRO services for aircraft all the way up to the 747 from 2019. It says the facility will “primarily” be used to support customers of its Global Fleet Care aftermarket services programme. “Boeing will own and operate its new hangar facility at London Gatwick airport, working closely with its suppliers,” the airfamer notes.
Meanwhile, in Poland, GE has started constructing with Lufthansa Technik a jointly owned overhaul shop for GEnx-2B engines – which power 747-8s – and GE9X engines for the under-development 777X. Named XEOS, the facility near Wroclaw is scheduled to open in 2019.
On the growing number of JVs between OEMs and third-parties, Airbus says that such arrangements “bring added value” to the market in terms of residual value conservation and “close the loop” with engineering. “It is in the industry’s best interest to bring that value to the market as quickly as possible,” the airframer says.
For Fred Cleveland, leader in consultancy PwC’s transportation and logistics practice, the manufacturers’ efforts to expand their aftermarket business can be seen as a means to maintain revenue and industrial production should orders and deliveries slow. “The production engine is fired up and running at speeds we have not seen before,” he says. “The smart money is on those who are agile enough to pivot from a production mode to a support mode.”