Mention blockchain in casual conversation and interlocutors probably will think of the cryptocurrency Bitcoin—if anything at all. But now executives and advisors across commercial aviation, aircraft leasing and the aftermarket are starting to take a careful look at the distributed ledger technology to see how to use it to make real money themselves. In fact, some experts say blockchain could be responsible for putting some companies out of business—at least in the long term—if they do not adapt.
“A big vision of blockchain is eliminating middlemen that stand between an airplane and a part, and there is a whole industry out there standing between an airplane and a part,” says Chuck Marx, who was U.S. advisory leader for aerospace and defense at PwC before leaving to become an independent advisor on digital thread and blockchain for the firm’s clients.
“It’s huge,” he adds. “We’re going right to the heart of the business model. They’re going to have find other ways to add value to the ecosystem, and they can.”
Steffen Parth, manager for business development, innovation and products in the aircraft base maintenance unit of Lufthansa Technik, also sees great potential. “Look at the finance industry—here blockchain is already kind of a game-changer. It is a bit more difficult to predict blockchain’s effect on other industries, but I would say that aviation provides an environment where blockchain can be especially beneficial.”
High on the list of potential beneficiaries could be manufacturers, aircraft operators and lessors, according to several advisors. All are looking to improve aircraft availability and to cut down on aircraft-on-ground times, and if industry participants can team up—a big “if”—they could significantly ramp up asset utilization.
Craig Gottlieb, a principal director in Accenture’s aerospace and defense practice and co-author of the consulting giant’s recent blockchain and digital thread report, sees leasing and related contract management as two specific areas offering intriguing opportunities to exploit blockchain.
“If you are a lessor, what do you seek to do? Manage assets, make sure maintenance is up to date, all certifications are there and documented. At the same time, you also need to manage all the associated financial transactions such as contract payments,” he says.
“The lessor today needs to manage both of those things and doesn’t often have terrific visibility into those,” Gottlieb continues. “When aircraft assets come back off of lease, there is a tremendously long, physical process of, do I have all the latest documents? Do I have all the maintenance done? Do I have all the certified parts? All of that today really requires the lessor to aggregate from all of the multiple parties that are involved. Blockchain provides an interesting alternative for them to be able to get higher accuracy and higher timeliness to both the physical and financial flows of their [fleet] management.”
Considering the labor involved now in the lease-return process, the promise of relief is drawing attention across the industry. When aircraft are returned from lease, the paperwork can stack waist high, or fill eight banker’s boxes, according to observers.
Besides driving major costs, the process can have even worse ramifications when things go wrong. This summer, Wells Fargo sued American Airlines in federal district court after the latter allegedly was 45-49 days late in returning some Boeing 767s due to issues with collecting and providing the paperwork required.
“On the peak of a hype, many people will promise you many things, but there is definitely some truth to it [with blockchain],” Parth says. “In aviation, we deal with very valuable assets that change ownership frequently and regulation leads to tons of paperwork and time-consuming processes. Blockchain has the potential to help us make this more efficient.”
Proponents see many ways to take advantage of the new technology. Accenture believes it could take 20 days out of a 65-70-day engine overhaul cycle. “If I apply that to a lessor on the operational side of the business, that could be a pretty significant opportunity, as well,” Gottlieb argues.
Other benefits include better parts availability. That could expedite resolution of aircraft-on-ground issues for operators or for an MRO shop doing medium-level maintenance checks. Another example: soliciting bids for aircraft parts, according to PwC Industrial Products Advisory Partner Rachel Sealy. She talks about clients receiving 10 responses, eight of them from resellers adding a premium on top of the cost of buying the parts from the other two respondents.
Opportunities are also seen in inventory reduction and improved aircraft availability, because operators’ predictive analytics work better. “The more you can know about an airplane that is knowable, the better off your analytics are going to be,” Marx says.
Not surprisingly, interest in applying blockchain is significant. According to an Accenture study from July, 57% of A&D executives surveyed are exploring use of blockchain to manage aircraft configuration data.
But financial projections for savings or new revenue to be generated thanks to blockchain are few and far between—or at least none were available from several sources.
Meanwhile, concerns about blockchain remain. Many business projects have potential, but careers have been lost to chasing bright shiny objects that prove deceptive. Blockchain’s effectiveness relies on separate companies sharing access to proprietary data about aircraft and parts, and potentially with competitors, especially as business models change. There is also pressure from boards of directors and executives for a relatively quick return on investments in new technologies, plus a latent belief that maybe things are fine as they are since companies are making money.
Moreover, many in industry do not know where to begin. “You can think of blockchain as a toolbox which is full of unknown tools,” Parth says. “Initially, you won’t know what to do with these tools, and they will neither help you to fix all your problems nor will they help to build all the things that you have in your mind. But they will help solving some of the problems around you and build some solutions relevant to you.”
Companies are dabbling. In June, aerospace precision-control parts and systems provider Moog and the National Center for Manufacturing Sciences unveiled an 18-month joint effort to apply Moog’s VeriPart blockchain technology for additive manufacturing. Within the Lufthansa Group there is WindingTree, a decentralized travel platform that Lufthansa has been tooling with since last year, and recently the Lufthansa Innovation Hub and SAP launched their worldwide “Aviation Blockchain Challenge.”
Airbus and Boeing are also known to be looking into the technology’s use. “All the airframers are kind of on board, but they don’t know what to do first,” Marx says. A major Tier 1 provider is also interested, he claims, but its unidentified CEO says it will not work until a threshold is reached in which 150 parts providers are recruited to join.
One Tier 1 known to be looking into blockchain is United Technologies Aerospace Systems. “We know where everybody wants to go, the longer-term vision,” says UTAS Chief Digital Officer Laura Merling. “But we also know to get the broader ecosystem on board with using blockchain and all the technology and infrastructure and consortium that needs to be put in place needs to start now, but we also all need to start with practical examples.”
In turn, UTC has been looking at ways to manage production flow and impact: for example, in shipping parts such as a nacelle among UTC facilities, setting up a private blockchain within parent United Technologies Corp. “We’re looking at ways to look at things like blockchain in that early model,” she says.
For their part, consultants are trying to kick-start wider adoption and participation, and for somewhat obvious reasons. For a blockchain to work, you need critical mass and a sponsor. Whoever sets that up will enjoy the “platform effect” that will either “prevent other people from getting into the business or will take business away from other people,” Accenture’s Gottlieb notes. His company is talking with the Aerospace Industries Association about setting up a minimum viable ecosystem.
Likewise, PwC is shopping its Air Trace software-as-a-service and is in talks with 12-18 companies, from passenger and freight operators to MRO shops, Tier 1 suppliers, aftermarket parts resellers, lessors and even caterers. Marx and Sealy say Air Trace, built in hyperledger fabric, a blockchain technology used by Boeing and SAP among others, could have “all tail numbers” in it and go live by the end of the year. All that is needed is a sponsor who needs it.
Besides Accenture and PwC, several other organizations are tackling blockchain questions for A&D, including the National Defense Industrial Association, the American Council for Technology and Industry, industry consortium-born Exostar, law firms and numerous services companies.
The challenges to adopting blockchain are serious. “This is an industry that does not share information. Everyone is building their own ledgers, their own view of those tail numbers,” Marx notes.
But he and many others say blockchain’s adoption and exploitation is not a question of if, but when.
“It’s been slow to get off the ground, but everyone is interested in it,” Marx says. “All the boards are talking about it. There are a number of concepts being played with in industry around the world, but nothing in production yet. In my opinion it’s going to happen, and it’s going to happen pretty soon, and once it starts, it’s going to roll fast.”