Takeaways from the 2023 Paris Air Show-Part 2

This series of stories will cover our takeaways from the Paris Air Show from a strategic perspective on the topics of Technological Change, Aftermarket and Retrofit Growth, Urban Air Mobility, SAF, and Carbon Reduction, and Airbus continuing to pull ahead of Boeing in backlog and customer demand.

THE AFTERMARKET AND RETROFIT GROWTH

The aviation aftermarket will grow at a faster pace than new aircraft deliveries. Over the next two decades, the two major OEMs are projecting more than 40.000 new aircraft deliveries, an annual growth of about 3.5 percent. But Aftermarket and MRO annual growth is forecast at nearly 4 percent, and the OEMs are investing to position their own operations to capture additional market share of that revenue.

A key area of growth for OEMs will be in digital services. These services are expected to generate nearly as much revenue as MRO services over the next two decades. These digital services run the gamut from flight planning and systems to assist flight crew in their “electronic flight bags” to aircraft health management systems to detect faults and provide proactive preventive maintenance.

Digital Services

The three major players have a number of options for airlines in the area of digital services. The portfolio of services offered by OEMs encompasses virtually everything an airline needs, from training and maintenance management to flight planning, dispatch, pilot information, and communications capabilities.

Airbus offerings include its Airspace Link satcom for connectivity and IFE on its aircraft, as well as NAVBLUE, a navigation and flight planning system. Their electronic flight assistant for pilots provides flight preparation, weather, takeoff performance, flight documentation, and checklists in an integrated and easily accessible process through their electronic flight bags, including automated sending of reports to dispatch during and after flights.

Additional technologies range from aircraft health management to airport moving maps. For airlines looking for additional security, a “light” cockpit satcom is available for carriers who want to separate cockpit connectivity from the passenger cabin through a different channel.

Boeing has long been in the data services business through its subsidiary Jeppesen, which provides both hard copy and electronic charts for the industry. Advancements in technology have enabled their applications to be adaptive, such as highlighting items on an airport map in low visibility conditions.

Boeing’s global services unit provides a number of capabilities, including an Aircraft Condition Monitoring System for advanced data acquisition, fault capture, and trend analysis for predictive maintenance. Their system also enables airline-specific self-service analytics around service trends and aircraft health, as well as custom analyses by parameters, tail number, flight phase, and the like. These analytic options can extend to Flight Operations Quality Assurance in which the performance of individual pilots can be tracked so that any performance issues, such as hard landings, could be addressed in future training curricula tailored to the individual.

Embraer, which manufactures regional and small mainline jets, is not to be outdone in its offerings. Embraer’s offerings include its AHEAD aircraft health management system and multiple systems that support smaller regional airlines with advanced technology.

OEMs have a significant advantage in this marketplace because they have the largest datasets from which inferences and trends can be gathered. This is particularly important for predictive maintenance and failure analysis applications, where data from multiple customers can be analyzed. In some situations, a single airline dataset may not reveal a potential problem, but the fleet-wide experience can be used to predict future failures and adjust maintenance schedules to avoid aircraft-on-ground situations.

All of the OEMs have a very sophisticated suite of applications to support every element of flight operations and are upgrading those systems to capture additional market share from independent providers. The small players in aircraft analytics will have a difficult time competing with the resources and larger datasets available for analytical insights from the OEMs. The integration of artificial intelligence into those systems to find correlations and predict maintenance failures will be a differentiating factor in the new generation of systems for airline analytics.

Retrofits and Updating Existing Aircraft

Another important aspect of MRO growth will be upgrades to older aircraft to maintain their economic viability rather than simply purchasing new aircraft. One example that we’ve seen is the addition of winglets in the 1990s and 2000s. That experience is now being followed by a second generation of active winglet technology that can provide 7-12 percent gains in efficiency, depending on the aircraft. If a $5 million investment in active winglets could save 11 percent in fuel costs for a 737NG or A320ceo family aircraft, this could provide significant short-term benefits in lieu of waiting 5-7 years for a new replacement aircraft at a capital outlay of $45-50 million for a 15 percent benefit.

Active winglet technology has already been proven on several business aircraft, and an application for the De Havilland Canada Dash-8-400 was announced by an airline in Paris using the Tamarack active winglet technology. The economic savings from a 7 percent improvement in fuel economy is enough to change the aircraft economics from break-even to profitable on a number of regional routes. At the same time, the reduction in carbon emissions will help the airlines meet their aggressive carbon reduction goals more rapidly as the supply of sustainable aviation fuel ramps up slowly over the next two decades.

Upgrades and cargo conversions will also become a key MRO market. Cargo carriers globally need to upgrade their fleets in an effort to reduce costs and maximize the economic lives of aircraft. Two aspects of this market are important, replacement of older aircraft, and retrofit of newer aircraft for greener operations.

Boeing and Airbus each have factory-sponsored programs for passenger-to-freighter conversions, as well as independent parties, providing their own STCs and solutions for this market. While the growth in air cargo during the global pandemic has slowed, the opportunity to replace the oldest freighters with more modern equipment is a growing market. Although Boeing Global Services President Stephanie Pope said in Paris that the conversion capacity will not be expanded beyond what’s currently planned. And BGS won’t go into 777 conversions but leaves that market to other parties, notably Israel Aerospace Industries and its partners.

Upgrading older aircraft with fuel-saving technology can bring new cargo conversions close to the performance of new aircraft at a fraction of the cost. While an aircraft is down for conversion, it is the perfect time for upgraded engines, active winglets, or other improvements to minimize costs and environmental impacts.

The Bottom Line

Services have become a profitable segment of the industry for OEMs, who hope to capture a growing segment of the market for initial long-term service contracts on a “by the hour” pricing basis. Such contracts align the interests of both parties for keeping aircraft in the air and flying, providing an incentive to improve aircraft reliability from both parties, with the OEM reducing maintenance costs and the airline enjoying additional utilization.

While the engine market has long supported these types of contracts for 65-70 percent of new engines delivered, contracts for the remainder of the aircraft are now beginning to gain additional traction with airlines. As that happens, many independent MROs will need to partner with OEMs and become “authorized” centers to maintain their market competitiveness or find a segment of the market simply not available.

The aftermarket is changing, with more power going to the OEMs as “big data” provides an analytical advantage that independents will find more difficult to match. As new technologies in electronics and alternative propulsion emerge, OEMs will have a significant advantage in infrastructure and the knowledge base about those technologies. They are planning to exploit those advantages as we look ahead to the 2030s.