Aftermarket Disruption Predicted in 2017
Anand Parameswaran, Sr. vice president aerospace & defense at Cyient, looks at what 2017 may have in store for the commercial aviation aftermarket.
One of the most dynamic areas of the aerospace industry, moving into 2017, will be in aftermarket services. With the efficiencies being imposed on manufacturing, Tier 1 suppliers are looking to garner more of their profits from the aftermarket business. They will continue to take more control of this area, either by signing long term maintenance contracts or by signing Pay-By-The-Hour agreements with airlines. But this move does not come without resistance from the rest of the market, as they will be jostling for space with traditional MROs that already operate in this space.
The aftermarket is certainly going to be the area to watch for two reasons: first the growing presence of OEMs in the aftermarket and second the disruption caused by new technologies that drive improved aircraft availability. On newer platforms, OEMs are increasing their footprint in the aftermarket and are incentivising buyers to enter into all-inclusive ‘aftercare’ packages, rather than engage with different MROs on a case-by-case basis. While OEMs see a positive long term revenue outlook here and are breaking even on new platforms faster, the buyer must accept that, given the level of IP protected technologies on-board, the OEM is better placed to manage this than any third-party MRO.
While for the older programs, OEMs are disrupting the direct component/part supplier chain by trying to become super suppliers. If we try to understand the effect based on the “type of the operator”: smaller and newer ones will be more willing to be a part of OEM ‘aftercare’ packages, so they focus on their operational efficiencies and save their base maintenance CAPEX. Larger ones, who tend to have their own MROs for component and base maintenance and drive their operational costs down through direct component/part supplier sourcing, will now look towards OEMs for part supplies. With the newer platforms still settling in, it will be interesting to see how traditional third party independent MROs face this disruption.
The technological revolution in the aftermarket
The aftermarket is also where we are going to see digital transformation have the most impact. In 2017 we will continue to see sizeable investments going into big data and analytics, focussing on developments in health monitoring, predictive maintenance and driving efficiencies throughout the MRO ecosystem.
New players are breaking into the market and the search for real-time health monitoring of the entire aircraft and predicting unforeseen maintenance requirements could dramatically reduce costly aircraft on ground incidents and maintenance costs.
The rising challenge from the East
Though not an immediate concern, the industry is keeping a careful watch on new entrants to the market and the customer receptiveness to newer platforms like the Bombardier C-Series. However, the question on everyone’s minds moving beyond 2017 to the next 10-20 years, is “What plans does China have for the aerospace market?” While the introduction of Asian platforms like MRJ, ARJ, Comac (C919, C929), and CJ series of high bypass turbofans bring some fresh air, sooner or later we could soon see China raising its head above the parapet with genuine contenders to challenge traditional Tier 1 supplier platforms.
If executed correctly, new entrants from China have the potential to transform the way that planes are sold and disrupt the entire lifestyle of the aircraft – from manufacture through to delivery and maintenance. With aggressive pricing, and by leveraging their large cash surplus to upend current leasing models, Asian aerospace companies could pose a threat in new markets like Africa, using this base to launch into the more established European and American markets.
As technology continues to transform the way the aerospace industry manufactures, sells and maintains its aircraft, companies throughout the supply chain must evolve, and fast! One thing is for sure, following on from a year characterised by global political and economic uncertainty, 2017 is set to be an exciting and turbulent year, and it will be fascinating to see how the race for aircraft production unfolds.