Aerospace Industry Dynamics

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Airframe OEM / Component OEM / Engine OEM / Aerostructures / Raw Material Suppliers

NAVEO supports clients in all areas of manufacturing (from the smallest supplier to the largest OEM) to identify growth opportunities, increase efficiency and navigate supply chain headwinds. We keep abreast of trends providing relevant, timely insight in areas such as:

  • emerging technologies, including additive manufacturing and advanced materials,
  • big data analytics,
  • aircraft health monitoring, prognostics and diagnostics,
  • cost-reduction initiatives,
  • M&A trends and opportunities.


OEMs (Airframe, Component, Engine OEM)

OEMs want to increase their aftermarket service revenue and to avoid being side-lined by MROs from their airline customers. Rather than just selling piece parts to MROs, OEMs now realise that directly offering operators MRO solutions – such as asset management, health monitoring and analytics, and price-escalation guarantees – can generate lucrative revenue.

OEMs face challenges supporting aircraft in their mature and sunset stages of life. Traditionally, OEM offerings for these stages of an aircraft’s lifecycle have been viewed as expensive and ‘gold plated’. However, OEMs have been responding with new value propositions that leverage tailored workscopes, used serviceable materials and access to leased equipment.

A piece-part sale is a repair opportunity lost. Moreover, those that own the assets control the workscope decisions. OEMs can protect against PMA parts and margin leakage through compelling aftermarket service offerings. Avoiding the temptation to discount rotables in end of quarter fire-sales, also helps stem the margin leakage to surplus parts and better maintains pricing discipline.

They are also investing heavily in, and well positioned to exploit, big data analytics. Engine OEMs have been monitoring engines since the 1990s, but airframe and system OEMs are now focused on the latest generation aircraft. Those OEMs that can demonstrate value, enhanced reliability and responsiveness to airlines will be rewarded and create stickiness and close customer relationships.

MRO Integrators (multi-product MRO providers)

Integrator MROs, such as Lufthansa Technik, AAR, SR Technics, ST Aerospace, and Air France KLM E&M, face competitive headwinds from OEM focus on the aftermarket. In-sourcing and capability expansion at airlines, such as Etihad, Delta and Emirates, also provide further competition.

The component asset management market is increasingly commoditised and it’s difficult to differentiate when price is a determining factor. MROs need to reduce costs and leverage data analytics either through developing their own in-house system or partnering to increase reliability and programme profitability.

Integrators must learn how best to work with the OEMs, while also competing with them. They need to access intellectual property, proprietary repairs, parts and technical support at a time when OEMs are being selective as to which companies they closely partner with.

Airframe OEM broad component maintenance offering sales success have cut off the integrator from some airlines and caused price competition as all players seek to gain market share.

Independent MROs & Part Repair Providers

Independent MROs have seen a lot of M&A activity recently, as companies focus their activities on either working with OEMs and integrators, or growing capabilities to compete vigorously with them.

Their challenge is how to maintain their position in the face of the OEM’s greater pricing power, material supply and data analytics capability. Some ways to do so include differentiating (e.g. in engine part repair) and providing services to support OEMs, as well as leveraging surplus parts (including piece-part reclamation), DER repairs and cost-focused workshops.

Surplus Parts Traders & Asset Managers

Both airlines and OEMs are increasingly accepting used serviceable material (USM). They are incorporating it into their procurement techniques and into repairs of engines and systems respectively, as it is both cost-effective and a good way of alleviating long lead times for new parts.

OEMs are also looking to better understand the margin leakage from and revenue opportunity of USM, so are partnering with USM providers or establishing in-house trading capability to do so.

Over the next few years, increasing retirements of mature aircraft, such as 777s, A330s, 737NGs and A320s, will mean OEMs face greater competition from USM for provisioning and AOG sales. But, as supply of USM increases, it will provide cost-effective opportunities to airlines to substitute for repairs and leverage used material.

Some surplus part traders have started to include MRO capability for components, composites and engines. They want to offer a broader range of services to their airline and MRO customers than simply transactional used part sales.

Parts Manufacturer Approval (PMA) Providers

A combination of production ramp-ups and in-service reliability issues has caused new material supply to be challenged. It’s suggested that PMA providers, including those who are OEM-licensed, could help MROs and OEMs address part shortages. That’s worth exploring if they also have engineering talent OEMs could tap into.

Poor performance by OEMs on part delivery has been a key driver for non-OEM part development, instead of the perception that it is simply about cost. Many non-OEM parts have been developed as an alternative to long OEM lead times.

However, many operators still don’t accept PMA parts in safety critical areas. Furthermore, many lessors take a view that PMA reduces the liquidity of their assets and so typically expect OEM configuration from their customers.

Consequently, PMA suppliers have seen M&A activity and have grown their MRO capability and expanded into distribution thereby diversifying their revenue beyond traditional PMA parts.

Training Providers

The shortage of pilots, engineers and mechanics is well known. Dedicated training schools, OEM and MRO in-house training programmes are trying to address this issue. Training providers are exploring opportunities in growth regions with airlines and MROs seeking a supply of well-trained staff fluent in the latest technologies and production and maintenance techniques.


NAVEO assists investors seeking opportunities in aerospace production and/or aftermarket. It helps identify companies with differentiated technologies, intellectual property, leading value propositions and market positions that offer attractive investment prospects.

Whether it is in the identification of targets or buy- or sell-side due-diligence support, NAVEO can provide an independent assessment, including analysis on the target’s position, operating market, revenue outlook, management competence, competitive landscape, strengths and weaknesses, and potential growth and bolt-on opportunities. We can assess a target’s operational performance with customers and suppliers.

Disrupting Disruption

Manufacturing OEMs header Image - Plane in hangar

The airline industry is particularly susceptible to disruption.  From bad weather, industrial action or drones near runways to system outages, environmental protestors or volcanic ash—any delay can quickly cause knock-on effects across the world.  With the speed of social media, the travelling public may even know what’s happening before the airline or airport.


Sky-high compensation

European regulations (aka EU261) say each passenger may be entitled to compensation of up to €600 for delays to their flight.  There are some exceptions, such as ash clouds, strikes or severe weather, but maintenance delays are not typically exempt and so airlines have to pay out if there’s an aircraft on ground (AOG).

They don’t often reveal how much their total annual compensation payout is, but it has been estimated Lufthansa Group paid out more than €500m in 2018.  When compared to their net profit of just over €2bn the amount is staggering.

If Lufthansa could reduce delay-related compensation by just 10-20% it would save nearly €100m; enough to buy two narrowbodies.  We can easily assume other airline groups, such as Air France KLM or IAG, pay-out similar amounts. All told, the industry savings from reducing delays run into the billions.  


A wealth of data

I’ve written and spoken before about the opportunities and challenges more digitalized solutions can bring to this area.  The latest generation of e-enabled aircraft, such as Airbus A220, A320neo, A350XWB, Boeing 737 MAX or 787, gather a massive amount of data from aircraft engines, airframes and aircraft component systems. 

That’s only set to grow as the e-enabled aircraft fleet is expected to more than double over the next decade.  By 2029, more than 25,000 air transport aircraft will be equipped with aircraft health monitoring (AHM) capability.  Never before have we had so much aircraft data available and a plethora of IT solutions, associated systems and architecture ready and willing to host and analyze it. 

Until recently, though, the adoption of AHM services has been slow.  While it has been available on aircraft engines since the 1990s, the benefits beyond the engine to the rest of the aircraft systems are only now gaining traction.  As the connected fleet grows and service offerings mature to take advantage of big data, stakeholders are trying to better understand and leverage advanced analytics and predictive maintenance.


Added value

The main question is what form the analytics take and who performs the analysis.  For example, while airlines retain their own data, should a supplier analyze that data and provide insight and benchmarks to it, then it has value that can be given back to the airline.  That might come at a cost or included in a maintenance package. 

Less discussed is what is motivating the various stakeholders with their data offerings (e.g. an OEM, MRO or IT supplier) and how much of the savings they are willing to share with the airline.  With the entry-into-service of new e-enabled aircraft, the advantage in providing AHM systems has typically resided with the aircraft, engine and system OEMs. 

Larger MRO integrators, such as Lufthansa Technik, Air France KLM E&M, have developed their own analytical solutions.  Their aim is to avoid being reliant on a more OEM-centric aftermarket, but also to provide competition so the OEMs aren’t the only ones aggregating and analyzing data. 

This is important, because if OEMs influence most of the data in the future it’s going to be harder for independent MROs to compete, especially if OEMs, such as the airframers, are virtually giving away their data solution and/or MRO package to airlines as part of highly competitive new aircraft sales campaign.

That’s because the inclusion of some kind of data solution is almost mandatory in products, such as cost-per-flying-hour contracts.  Under such outcome-orientated contracts both MRO supplier and operator benefit from increased time-on-wing. For the MRO this means that the dollar-per-hour revenue continues to occur without a costly maintenance event.  For airlines, they appreciate the avoidance of shop visits and aircraft downtime.


Think fast

The ultimate aim is to reduce airline delays and operating costs (including maintenance) through better allocation of time, avoiding expensive AOGs and reducing costly spare-part inventory.  Real-time in-flight health monitoring and diagnostics helps airlines better plan maintenance decisions so that time on the ground is used more effectively.

However, the majority of airline operators utilize antiquated MRO IT systems that can no longer manage the data complexity.  Nor do they have the skills—or necessarily the desire—to turn this data into beneficial information. Therefore, the race is on to understand the digital environment and participate in it and new offerings are already being launched to help do that.

Many stakeholders are seeking a better understanding of the air transport digital innovation eco-system: the players and offerings, customer needs and evolving trends.  The desire is to better understand where differentiating value can be added, where customer relationships can be deepened and enhanced, where investments should be made, who to partner with and what to create in-house.  

The potential savings generated by reduced maintenance disruption are huge and part of an overall digital transformation affecting all phases of flight.  Tangible results are already being demonstrated. Every stakeholder needs to consider how AHM and digital solutions will impact their company, prepare and act.  Don’t get left behind. The digital race is on.