The aviation aftermarket is being jolted by some bold moves from OEMs that could challenge conventional business models—or is this simply part of the next wave of consolidation?
Take Boeing Avionics. The OEM announced on July 31 that it is setting up the avionics unit to develop avionics for both commercial and military platforms. That means it will compete against some of its Tier 1 suppliers such as Honeywell, United Technologies Corp. and Rockwell Collins. The latter “saw its share price whacked on the Boeing Avionics news,” says Robert Stallard, an analyst at Vertical Research Partners, who points out Rockwell Collins stock “has since rallied.”
A few days later, on Aug. 4, reports started swirling that United Technologies might purchase Rockwell Collins. Keep in mind Rockwell Collins just finished acquiring B/E Aerospace, the cabin interior product and services company, on April 13, which expanded its interiors portfolio and established natural synergies and complementary services in areas such as cabin management, connectivity and communication. As Kelly Ortberg, chairman, president and CEO of Rockwell Collins, said after the closing, “The industry-leading products and solutions being brought together by this acquisition give us a much broader offering, increasing value for our customers and ultimately driving long-term, profitable growth and shareowner value.”
The key is value, because it transcends all those aspects. That is why MROs started broadening and bundling services a decade or two ago, which fostered the “one-stop-shop” concept, where airlines would benefit from scheduling downtime at one place for a variety of MRO jobs—from maintenance checks to cabin upgrades to paint or avionics technology enhancements. That led to efficiencies, less downtime and management of fewer vendors.
Now that some OEMs aim for more aftermarket revenue, it’s not surprising that they seek greater inhouse capabilities for an expanding market, which Aviation Week forecast to reach $74.3 billion this year.
Expect the market to continue expanding through the year. In Vertical Research Partners’ assessment of the global aerospace and defense market’s second quarter, released Aug. 7, it says the aerospace market grew about 7%, slightly higher than the 5% in the first quarter. Stallard says “high-single-digit growth in aggregate could be possible in the second half—similar or slightly higher than what we saw in Q2.”
While all this is emerging, Stallard also sees “a potential shift in the balance of power between the aircraft OEMs and their suppliers,” some of which “are struggling to keep up with the relentless price and efficiency demands of Boeing and Airbus.”
Could the tension lead to new pricing models? It’s no secret that many manufacturers recoup product development investment through aftermarket services.
In this fiercely competitive market, what does this mean for independent MROs? See James Pozzi’s analytical review on MRO14-16.
Check 6: Behind OEMs’ push into the aftermarket: AviationWeek.com//commercial-aviation/podcast-battle-aftermarket