The reported dispute between Air France-KLM and Rolls-Royce over the engines for their long-awaited A350 order comes down to Rolls’ insistence that it perform the maintenance on the engines and Air France’s desire to not only do its own maintenance but to also be free to in-source work for other airlines.
One way engine makers make money on deals is to follow up the orders with MRO/spare parts contracts. It is not uncommon for the engines to be sold at huge discounts, far greater than those routinely associated with “airplane” sales, as long as an MRO/spare parts contract is connected to the deal. It’s also not unknown for the engine OEMs to actually give the engines away, as in free, in connection with an MRO/spare parts deal.
For example, in the lawsuit between Rolls-Royce and Pratt & Whitney, court documents revealed that discounts of around 80% or more were given for the engines on the A380. Rolls-Royce competes with the P&W-GE joint venture Engine Alliance Partnership to supply engines. Engines were being sold for this airplane for less than $3m.
Airbus and Boeing have been known to discount list prices by up to 60%, depending on the customer; 80% is unheard of when it comes to these deals, and of course, neither Airbus nor Boeing have been reduced to giving airplanes away free in return to MRO/spare parts deals.
Air France is still expected to place an order for the A350s, but it’s been “hanging” since the middle of last year. This is one of those cases where having a sole-source power supply is proving meddlesome. It won’t be the last.