OEMs in the aftermarket: a quest for profit

While engine OEMs have been increasingly successful in securing aftermarket business through exclusive long-term deals, airframe manufacturers haven’t been as lucky in achieving the same results. For instance, a recent PWC analysis showed that less than 4% of the global airline fleet is currently under an airframe manufacturer's power-by-the-hour contract. Nevertheless, having identified the aftermarket as a clear source of revenue, airframers are still determined to get a piece of the pie.

As the global demand for air travel continues to grow, more and more operators tend to switch to new generation aircraft seeking to make the most from the performance and cost related benefits. As a result, the production rates of the two major aircraft manufacturers - Aircraft and Boeing - have never been higher. However, since in most cases the record orders coming from carriers are a result of solid discounts, OEMs have recently been increasingly relying on the aftermarket support to offset their declining revenues from new product sales. For instance, both Boeing 737MAX and Boeing 777X are being developed with an eye on the bolstering in-house aftermarket offerings. Upon the success of such strategy, the aftermarket should eventually catch up with the overall growth rate of Boeing commercial programs (10-15% annually).

“Recently several new trends have emerged in the aviation aftermarket, namely the increased popularity of used serviceable materials improved aircraft utilization and the growing presence of OEMs in the aftermarket processes. For instance, more and more airlines opt for acquiring entire aircraft for teardown to get the most of the cost-cutting benefits that surplus materials provide. At the same time, PBH providers have also started offering used parts to lower service costs, while some OEMs have been utilizing surplus materials in order to make product overhauls more cost-effective,” comments Zilvinas Sadauskas, the CEO of Locatory.com.

For instance, Boeing has recently started actively integrating aftermarket players into its spare parts website. Recently, the manufacturer has made a strategic move to increase the amount of used serviceable material for its aircraft (narrow-bodies, wide-bodies and regional jets) not produced by the manufacturer itself. This was done via a long-term agreement with GA Telesis. Under the agreement, Boeing will list the overhauled, repaired and new surplus material from GA Telesis on its parts marketplace, with the plans to start supplying engine material later this year. 

At the same time, the strategy Airbus has been implementing lately has been somewhat different. Instead of taking an advantage of spares sales, it has been focusing on client support, aircraft management, as well as data collection and optimization. For instance, the manufacturer seeks to ensure that when avionics components of its aircraft show an error, all applicable maintenance actions and memory readings are done to identify the root cause of the particular fault message and avoid unnecessary removals. Moreover, Airbus has been using its A350 program to raise the stakes on radio frequency identification (RFID) parts-tracking for new airliners, and seeking to broaden the effort to other aircraft. Besides increasing the visibility of inventory, permanent tags help mechanics pull such data as maintenance history and expiration dates on a cabin’s worth of seats within minutes, eliminating the time-consuming task of manually reading each tag.

“With their engineering legacy, manufacturers know how to handle large amounts of data and can thus use this knowledge to provide additional value to operators. As a result, using sophisticated sensors to monitor parts and key shipments - from components sent to bail out a grounded aircraft to the tooling needed to do the job - is currently becoming an increasingly larger business in the aftermarket,” says Zilvinas Sadauskas, the CEO of Locatory.com. “At the same time, while the strategy of offering surplus parts may prove viable for an OEM in need of gaining a much-desired competitive edge, it may actually reduce the demand for maintenance services (and, in turn, the cost of certain maintenance works). Therefore, it seems that harnessing inherent advantages, such as engineering knowledge and opportunities to bundle services into aircraft sales contracts, is the area where manufacturers may have the most to gain.”