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OEMs In The Aftermarket: Open For Business?

A steady influx of new options to power next-generation aircraft is presents a sizable force in the market.

With the past year seeing the emergence into the market of CFM’s Leap 1-A and Pratt & Whitney’s PW1000G engines, the steady influx of new options to power next-generation aircraft is presenting a sizable force in the market: The combined orderbooks of CFM and Pratt’s new-generation engines exceeds 13,000.

At September’s Aero-Engines Europe 2016 conference in Lisbon, debate centered on whether OEMs are making their aftermarket networks more accessible for independent providers and whether airlines and lessors are seeing more choices for services.

In a discussion about new engines, representatives from Pratt & Whitney and Safran argued the case for OEMs fostering more open MRO networks, while downplaying concerns that new-generation engines will be more expensive to own than their predecessors.

Jean-Thomas Rey, marketing manager for commercial engine services at Safran Aircraft Engines, said as part of its CFM 50-50 joint venture with General Electric, the OEM has around 30 providers and 45 shops servicing its CFM56-family powerplants. “We may not have the same for the Leap, but we at least want to give customers choices, as this is good for airlines and competition,” he said.

This notion was disputed by Klaus-Peter Leinauer, vice president for Europe and the Commonwealth of Independent States at SR Technics, who said: “Despite opening the market, the OEMs are still limiting the shops and heavily controlling the aftermarket, which from my point of view as an independent MRO provider, is a concern.” 

The dominance of OEMs in the aftermarket was highlighted by the fact that operators spent an estimated $32.4 billion in 2015 on OEM new parts compared to $13 billion on alternatives such as parts-manufacturer-approval components, according to data provided by ICF International.

In a separate discussion on industry competition, cooperation and diversification within MRO, the role of used serviceable materials (USM), valued at $3.9 billion in 2015, proved equally contentious. Forecast to become a $20 billion market, of which $17 billion will be engine material, the notion was raised that by limiting airlines to buying new components for engines rather than allowing them to install USMs, OEMs will effectively kill the competition.

“I can understand the need for OEMs to protect their market, but is it rational to put new material on 25-30-year-old engines when USMs are also available?” said Pascal Parant, vice president of marketing at AAR, adding it is important for airlines to have a choice of maintenance sources.

Despite the ongoing fractious OEM and MRO relationship, it was generally agreed that the overall positive outlook for long-term growth in the engine maintenance sector and airlines’ spending will continue, creating opportunities for all concerned.

This was reinforced by Richard Brown, principal at ICF International, who outlined in his market forecast that more than 77,500 engines are expected to be in service in 2025, with the global MRO segment expected to grow 4.1% annually to $96 billion by then. By that time, ICF International estimates 41% of all MRO demand will be in engines, with the Asia-Pacific region surpassing North America and Europe to hold more than 50% of the market. 

AERO-ENGINES EUROPE IN QUOTES

“HNA’s acquisition of SR Technics is interesting: Could this bring a new, very strong independent to the forefront?”
Katia Diebold-Widmer, head of marketing at MTU Maintenance, on China’s HNA buying a majority stake in SR Technics.

“New-generation engines will be more efficient, and the customer will see an advantage in terms of reduced fuel burn and less cost, but I believe overall cost will be more expensive.”
 
Klaus-Peter Leinauer, regional vice president for Europe and the CIS at Swiss MRO SR Technics, on costs related to new-generation engines entering the market.

“OEMs are making more reliable engines. This is good for airlines but not necessarily for MROs.”
David Hygate, regional sales executive at Delta TechOps, on the growing number of newer engine types requiring fewer shop visits.

“The OEMs are trying to control the aftermarket in various ways. In some ways, this is an opportunity for others, as it gives everyone an outlet for an engine; but in the long-term, I don’t believe it’s in the best interests of the market.”
Cliff Topham, Werner Aero Systems, on OEM aftermarket incursion.

“The European Commission’s investigation into aftermarket malpractice domination by the OEMs is making people nervous. Lessors could be a solution by partnering with OEMs, as they have big financial capabilities; they can work together to supply the market and avoid monopolies forming and conflict with the regulators.”
John Sharp, CEO and president of ELFC, on the impact of the EC-led investigation into OEM practices in Europe. 

TAGS: Europe
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