At MRO Network’s Engine Leasing, Trading & Finance Conference this week (June 24-26) delegates heard that airlines continue to drive demand for low-cost aftercare products.
For airlines stability is the key aspect in aftermarket agreements, and that often means having the right parts at the right time. OEMs, with their greater stock, clearly have an advantage in contract negotiations.
Engine lifecycle is also important though. “I think we are moving into a world that is more about service provision,” said Mark Kerr, head of customer service at Rolls-Royce. “We’ve done that with our power-by-the-hour (PBH) packages.”
Steve Williams, director of aircraft engine services at AJW, said that he suspected OEMs tended to bring service offerings to airlines, rather than the other way round.
But others argued that doesn’t mean airlines will necessarily buy those services. The comparison was made that airlines are like customers at popular restaurants and cafes. Sometimes they want Starbucks, and sometimes they want something a little fancier.
For Rolls-Royce, one problem is that TotalCare has become a generic term for PBH service agreements. It’s a bit like talking about Coke for all fizzy drinks, or Hoover for all vacuum cleaners.
In certain respects this is good for the company, making it a “household name”. The pitfall is that customers must be reminded that TotalCare has aspects that are unique to Rolls-Royce, said Kerr.
Another challenge for OEMs is the change in attitudes towards risk.
Ten years ago the industry established the use of risk transfer in contracts, but operators’ demands have become more diverse. Some run an engine for four or five years, and then think about heavy maintenance, whereas more conservative airlines want a service agreement before the engine is run.
Operators are also becoming more sophisticated in how they understand service packages. Airlines now want comparison points to understand what a particular package offers.
While it might seem that engine OEMs have a significant advantage in selling aftercare services, they must still prove that they can offer better value than independent MROs.