LONDON—Airlines perennially voice concerns about original equipment manufacturers (OEMs) controlling the commercial aftermarket at trade shows, but this year, the conversation has echoed outside the conference hall at MRO Europe, with news that the European Commission (EC) is looking into the competitive landscape for provisioning MRO services.
“The European Commission is closely monitoring competitive conditions as regards maintenance of engines and components for large commercial aircraft,” said a statement provided by the EC, attributed to Ricardo Cardoso, an EC spokesman. The EC did not elaborate further on the scope or nature of the probe, first reported by the Financial Times on Oct. 9.
As part of that process, the regulator is sending questionnaires to relevant companies in order to learn more about how they develop maintenance contracts, among other things.
Documents seen by Aviation Daily say that the EC is investigating “alleged anti-competitive behavior,” as it relates to provisioning MRO services on large commercial aircraft, and show that there are at least two versions of the questionnaires, tailored to focus on either engines or components. They ask questions about several topics, including: the main things companies agree to in purchase contracts; reasons why operators would sign maintenance contracts when purchasing aircraft; perceptions about the safety of parts manufacturer approval (PMA) parts and design engineering representative (DER) repairs, and whether manufacturers have failed to honor warranties for using them; and the percentage of airlines’ MRO costs that go to spare parts.
Those specific questionnaires mentioned two platforms: The CFM International CFM56 engine, and Honeywell APU and APU starters. Both Honeywell and General Electric—which makes the CFM engines under a joint venture with the Snecma division of France’s Safran—have confirmed with Aviation Daily that they have received questionnaires themselves, and are cooperating. Safran has said that about 65% of CFM56 shop visits are done at OEM shops, or under a services agreement.
Rolls-Royce—which sells about 90% of its Trent engines with a long-term maintenance agreement attached—has also confirmed that it has received a questionnaire. Germany’s MTU Aero Engines, which offers MRO services for the CFM56 as an independent provider, says it has not received one. Pratt & Whitney declined to comment.
Trade groups have also received questionnaires as well, including IATA. The airline organization says that aircraft MRO represents 10-13% of airline costs, which are rising above the inflation rate despite the industry’s efforts to reduce them. It estimates that a 1% reduction in maintenance costs could mean $800 million in savings for the industry.
“There has been limited entry in the market for MRO services,” IATA spokesman Perry Flint said. “We are encouraged that the European Commission will give some attention to driving competition and efficiency in this area.”
Aviation Daily understands that the questionnaires are voluntary, and that this step is a preliminary measure to gather information to help determine whether a full investigation should take place. Therefore, it is too early to tell whether the probe could have any long-term implications for the market. It is not clear how many firms have received questionnaires, although a source close to the issue estimates that the number of recipients is close to 100.
Several airlines have been vocal about keeping maintenance costs down. At last month’s World Financial Symposium in Barcelona, IATA Director General Tony Tyler said that 20-25% of airlines’ expenses are related to aircraft-ownership costs. He even mentioned that IATA was examining options—including legal ones—for helping airlines manage aftermarket costs.
“Unfortunately, certain OEM business practices drive up costs by blocking new entry into the market for maintenance, repair and overhaul services,” Tyler said. “As a result, airlines often have little alternative but to sign onto long-term OEM maintenance and parts agreements containing pricing escalations that are often above the inflation rate. IATA is examining commercial, legal and economic options where we may be able to contribute to efforts to rein in runaway aftermarket-related costs.”
At IATA’s annual general meeting in June, IAG CEO Willie Walsh said that airlines need to start pushing back on costs in areas where their choices are restricted by a limited number of suppliers controlling the market.
“I think as an industry, we need to start taking action, or our maintenance costs will definitely rise,” he said. “If we don’t challenge the restrictive practices that exist, we will be held captive, and costs, as we have seen before, will rise, and will rise well in excess of anything that is justified.”
In some cases, airlines have opted for alternatives to using repairs or material from the major OEMs, including DER repairs at independent MRO facilities and PMA parts from other suppliers. But even then, some have said that OEMs limit the information included in maintenance manuals—using remove-and-replace instructions instead of providing repair details, for instance—to keep a proprietary edge.