“Maintain the Pace”: Digital Disruption in the Aviation Maintenance Industry

Digitalization disruption in the aviation maintenance industry changes the traditional supply chain structure and generates new expectations among customers

The aviation maintenance industry is considered one of the most fast-growing branches in the aviation industry. The industry’s value is estimated at $70 billion, and is expected to reach $100 billion within a decade, at an estimated growth rate of 6% [1]. At the core of the industry are several hundred maintenance players (MROs) who provide repair services and spare parts for aircrafts. These players form a link between aircraft manufacturers (OEMs) and airlines, and are distinguished by their geographic focus, the types of aircraft they handle, and the business models they offer.

Two parallel trends that have taken place in recent years have led to significant changes in the industry structure. At one end, aircraft manufacturers began to produce more sophisticated aircrafts, using information technology and networks connectivity. As a result, the maintenance players who until now had based their knowledge on “reverse engineering” have become dependent on the manufacturers’ willingness to share technical information with them. This dependence became even more challenging as the OEMs enter the aftermarket themselves and offer maintenance services directly to airlines [2]. At the same time, airlines gradually began to move away from the maintenance business, seeking integrated solutions (“nose-to-tail”) that would enable them to focus on operating. The trend has increased with the introduction of low cost carriers (LCC), who prefer to outsource all aspects of inventory management and spare parts. The airlines place high expectations on their suppliers: spare parts availability and transparency (JIT), rapid delivery, and comprehensive control over the new aircrafts’ technology [3].

AAR is one of the largest independent MROs in the world. The company’s headquarters is in Chicago and it is operating in more than 20 additional locations, working with dozens of airlines. In recent years, the company has made several changes to adapt itself to the new challenges of the digital era. Under these efforts, the company has developed an internal system for computerized inventory management (“1MRO”) and has recently begun to sell this system to additional warehouses; It has set up a portal for its subscribed costumers (“AARive”) through which they can manage their inventories “pool” in real time and order spare parts based on an up-to-date picture of availability; and it developed an online website (“pAARts store”) through which it offers spare parts in discounted prices (“Shop B2B with B2C user experience”). In addition, AAR has formulated new understandings with the major OEMs in an attempt to create cooperation that will ensure the availability of technological know-how. In return, the company was forced to commit not to use non-original spare parts, a commitment that creates a significant price advantage for the maintenance services provided by the OEM themselves [4].

Shop B2B with B2C user experience (AAR Website)

As a result, today most of the communication between customers and AAR is done through digital channels, using an ongoing statistical model performed automatically by IT systems. According to the company’s management, the steps taken were necessary to meet customers’ expectations and the changes that occurred in the industry. However, they assess that in the coming years AAR will be required to make additional adjustments to remain competitive in the rapid-changing market [5].

There are two areas that have become central in recent years in which AAR is almost not involved:

  • Preventive maintenance: the new capabilities of the advanced aircrafts allow MROs to perform preventive treatments on aircraft that will reduce both the frequency of repairs and the repairs’ costs. Airlines are showing great interest in the field and there is a growing expectation that maintenance companies will master such capabilities.
  • Additive Manufacturing: the gradual introduction of 3D printers into the industry has a potential to generate a revolution in the current supply chain structure. This emerging field is already leading to a sharp reduction in production and distribution costs, allowing anyone with the appropriate drawings and printing capabilities to produce the required parts on his own. It is estimated that in the next decade printing capabilities will lead to a significant change in the structure of the industry, and will require all maintenance players to acquire new capabilities in order to survive. Once again, the MROs’ ability to adapt depends on the nature and quality of their relationship with the OEMs, who exclusively own the diagrams of the original parts [6,7].

    Digitalization affects customers’ expectations from MROs

The changes in data management requirements and knowledge sharing trends are expected to challenge the current supply chain in the world of aircraft maintenance: to a certain extent, data generation and ownership will become even more important than materials manufacturing and distribution channels. These trends raises two main concerns: Will the independent MROs survive the digital disruption even while OEMs are doing everything in their power to establish their hold on the aftermarket? and will new production capabilities incentivize some airlines to manage their own inventories again? 

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References

  1. Johnathan Berger, “MRO Market Update & Industry Trends”, ICF International Presentation, May 2016, https://www.icf.com/-/media/files/icf/presentations/aviation/2016_alta_ccma_latin_america_mro_market_update.pdf, Accessed November 2017.
  2. Boeing, “Aerospace Services Market Outlook 2017”, http://www.boeing.com/resources/boeingdotcom/commercial/market/services-market-outlook/assets/downloads/2017-aerospace-smo.pdf, Accessed November 2017.
  3. Arthur D. Little, “Delivering long-term value in a transformed aftermarket”, 2016, http://www.adlittle.com/downloads/tx_adlreports/ADL_The_future_of_the_MRO_industry.pdf, Accessed November 2017.
  4. AAR Website: Digital Services, http://www.aarcorp.com/integrated-solutions/digital-services/, Accessed November 2017.
  5. MRO-Network, “AAR Launches Digital Solutions To Link Supply Chain”, October 2017, http://www.mro-network.com/maintenance-repair-overhaul/aar-launches-digital-solutions-link-supply-chain, Accessed November 2017.
  6. Stratasys, ” Additive Manufacturing Trends in Aerospace: Leading the Way”, http://web.stratasys.com/rs/objet/images/SSYS-WP-AeroTrends-03-13-FINAL.pdf, Accessed November 2017.
  7. Mckinsey&Company, “Developing the future of manufacturing”, 2017, https://capability-center.mckinsey.com/files/mccn/2017-05/DCC_Chicago_Brochure.pdf, Accessed November 2017.

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2 thoughts on ““Maintain the Pace”: Digital Disruption in the Aviation Maintenance Industry

  1. Fascinating piece about the pressures on aviation maintenance companies (MROs) to adapt to increasingly sophisticated airplane technologies and moves by airlines manufacturers (OEMs) to take on maintenance tasks themselves.

    I am a bit skeptical about the potential of preventative maintenance and additive manufacturing to improve prospects for MROs. If MROs are so unfamiliar with advances in aviation technology as to require training by OEMs to service various aircrafts, it seems unlikely that airlines would pay for preventative maintenance recommended by MROs over OEMs. If airlines were not paying for a recommendation but rather the simple execution of preventative maintenance, I could see an opportunity to outsource such work but equally an opportunity for OEMs to absorb this work as the article suggests.

    3D-printing or otherwise producing replacement parts through additive manufacturing seems like a risky proposition for MROs. Is this type of work really aligned with MRO core competencies and would the risks be commensurate with the potential rewards? 3D printing may indeed require less expertise than other manufacturing methods, but in my limited experience, a substantial amount of skilled labor is still required for post-processing of such components. This strategy would also be a capitally-intensive gamble for MROs that are already struggling to address fierce competition.

  2. Who hasn’t experienced long delays and multi-hour waits at an airport when an aircraft experiences a “mechanical”, and the part has to be flown to the airport from a hub city far away? This is all too common an experience, adding to the travel challenges of both business and leisure travelers, and the whole aviation repair and maintenance process seems ripe for disruption in the digital age.

    As Ryu points out, additive manufacturing may not be the short-term solution. Many parts that fail are highly complex electronic assemblies that are not amenable to 3D printing. The “pooling” of parts across multiple airlines, assisted by sophisticated digital inventory management and “first rights” ownership under the auspices of aircraft manufacturers in partnership with MROs may be the better solution. Multiple airlines operate similar aircraft from a small number of major aircraft manufacturers like Boeing, Airbus, and Embraer, and it should be possible to hold pooled inventory of parts at major airport sites that make these parts available to all airlines operating at those airports. A leading MRO like AAR can play the “trusted intermediary” by taking responsibility for managing this inventory and performing the repair for multiple airlines.

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