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Airframe OEMs And The Aftermarket

Moves by the likes of Boeing and Embraer to bolster their aftermarket offering could lead to a different OEM and MRO dynamic.

At the tail end of last year, I wrote about the issues facing MROs as engine OEMs appeared desirous of limiting the extent to which third parties were able to service their latest offerings. That was shaping up to be an acrimonious issue and a number of MROs cried foul in relation to competition issues and the potential abuse of the OEM’s dominant position. The European Commission weighed in back in 2015 but only to the extent of making some enquiries, by way of questionnaire, about the practices of some engine OEMs. No formal investigation has been launched. This is not of course to say the issue has gone away.

However, to focus solely on the engine OEMs may be unfair. Over the past few years there has also been a gearing up on the part of airframe OEMs in capturing a segment of, what they have realised to be, a lucrative market.

Lately both Boeing and Embraer have announced ambitious MRO plans with Boeing in particular looking to triple its income from MRO services over ten years.  To evidence some of that ambition, Boeing has recently announced the building of a new maintenance facility at Gatwick Airport. Embraer are a little more conservative in their ambitions, looking for a 10% increase in revenue from these services over the next decade, from 15% to 25% of their total revenue, but it certainly marks another deliberate and focused push firmly into the MRO space.

Some commentators have considered that the provision of MRO services was thought to be “beneath” the airframe OEMs in the past, and this is why they were not minded to enter that particular space.  Others consider that the move into expanding airframe services has been a tougher decision given that that the majority of airline expenditure with MROs is actually in relation to engine and line maintenance.

I do not disagree with either view but also consider that the recent developments, much as we have seen in the engine world, may be premised on the costs of development of new, ever more complex technology and a determination within the industry (not just OEMs) to build greater resilience into business models following the financial collapse in 2008 and in a world ever less certain.     

Developing the technology of 21st century aircraft is costly and significant investment is required. The OEMs need to derive further, more diverse, income streams from aircraft to attract and provide adequate return to investors. Selling an aircraft is now only part of the income to be derived. Downturns in orders for aircraft as a result of financial crisis, terrorist events and global conflict, can perhaps be cushioned by the provision of MRO services for those aircraft already delivered. 

The ambitions are bold and may represent a further squeeze on third party MRO capabilities and revenues going forward. From what I can ascertain the moves do not seem, at this stage, to be attracting as much controversy as the engine OEMs’ stance, but perhaps this may all change if some of these ambitious airframer targets are hit over the next ten years.

TAGS: Airframes
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