Printed headline: The Hidden MRO Transformer
The revolution in new aircraft design and manufacturing is unfolding before us. From digital product models to composite structures to high-bypass engines, robotic assembly, additive manufacturing and networked cabins, new-technology aircraft are made very differently (and made to look very different) than their predecessors. Within the aftermarket, these advances in materials, construction and design have led to additional innovation in new material services, repair techniques and repair networks.
But take a pause and look a layer deeper. In doing so, we may see the real innovation and transformative change to the aftermarket may not come from visible innovation in the aircraft structures that we see but in software and data-generation innovation.
“New-generation” aircraft are defined not just by their new physical features, but by the degree to which those features are governed by software. A Boeing 787 has nearly 10 times the number of aircraft health-monitoring parameters as the Boeing 767. The Airbus A350 introduced three times the number of integrated modular avionics as the first generation of the Boeing 777. Splitting the difference between Boeing’s and Airbus’ 2018 estimates, roughly 75% of the global airline fleet will be “digital” or “e-enabled” by 2037, according to their respective 2018-37 outlooks.
To date, significant focus has been given to how these data can improve aircraft reliability and availability. Underlying this shift is how software-driven aircraft will reshape aftermarket services and the companies that deliver them. The growing role of software is both creating new aftermarket segments tied to data generation and analytics, and limiting the number of companies that can capture them.
Parts sales and maintenance will continue to be necessary components of the aftermarket, and many companies will serve those markets. But as aircraft evolve into platforms whose functionality, maintainability, availability and mission longevity are driven by software-based capabilities, an increasing portion of an aircraft’s long-term value will be tied to the ongoing optimization and improvement of that software.
This shift has two implications. First, the new aftermarket segments that are created by software, the data it generates and associated digital products will favor OEMs and Tier 1 suppliers. Second, those companies that deliver aftermarket software improvements will need to build skills in iterative, agile software delivery and data analysis.
While software and digital services are growing the total aftermarket pie, OEMs and Tier 1 suppliers can capture larger slices of that pie by owning the rights and intellectual property of that software and their inside track to analyzing the data that software produces. Unlike parts, an operator would be hard-pressed to justify “refurbished” or parts-manufacturer-approval software in its aircraft.
This creates a long-term and very sticky opportunity for the OEMs and Tier 1 suppliers that developed and delivered the software for the aircraft. As such, the digital aircraft has created a digital wedge for OEMs and Tier 1s in the aftermarket. Original software operates the asset, monitors its performance and can feed data and analytical services from the OEM, Tier 1 or its software partners. Legacy MRO players will contribute to the parts aftermarket, but the digital segments will be the provenance of a very few.
To effectively use software to maximize an aircraft’s in-service value, aftermarket providers will need to be able to deliver software incrementally to improve aircraft performance, safety, economy and passenger experience. As the aircraft becomes a platform upon which new apps are run, aftermarket providers must be able to build, test, certify and deploy software quickly. As data are being produced, data science and other skills will be required on the “receiving end” to close the software value loop. Aerospace and defense companies’ investments in digital organizations, digital factories and new software life-cycle management processes are targeting these areas and will need to continue apace.
Software is not killing the physical aftermarket. It is, however, putting a velvet rope across the door to high-growth areas such as data science, analytics and insights. OEMs and Tier 1s with software skills and a meaningful share of components on the aircraft are well-positioned for the new aircraft aftermarket. Large MROs will find openings through consortia and new aftermarket alliances. For those with both feet remaining in the physical aftermarket, it is time to innovate.