It should come as no surprise that the commercial aviation support services market is attracting a lot of attention. Boeing estimates this sector of the industry will be worth more than $2.6 trillion over the next 20 years - considerably more than the $1.4 trillion new aircraft sales market.
According to Boeing, over the next two decades the largest chunk of airline expenditure will be on heavy maintenance, aircraft servicing, airframe component repair, and airport route and infrastructure. Boeing also believes airlines will be looking outside for those services. "The shift from a regulated to a liberalised market has increased competition among airlines and is forcing them to operate at much higher levels of efficiency," says Randy Baseler, Boeing Commercial Airplanes Group vice president for marketing. "As a result, airlines are more interested in total lifecycle costs. They are redefining their business models and looking for ways to reduce their overall operating costs by either outsourcing non-core capabilities or diversifying to bring in revenue."
Outsourcing to focus on the core business is not a new concept to the airlines, of course. But what is dramatically different in the spares and maintenance sector is the number of new players offering their services. Two factors play a key role in this change. First, as Boeing's forecast underscores, the support market has become big business. Many eyes are looking at that $2.6 trillion figure with a view to getting a slice. Second, the explosion in e-commerce activity has offered up a new way for both traditional and entrepreneurial companies to get a foot in the door via business-to-business applications.
Airlines themselves have recognised this opportunity. While only 30% of airlines surveyed in this year's Airline Business and SITA IT Survey have created b2b e-commerce applications with suppliers, most of those are in traditional engineering areas led by links to manufacturers and spares and maintenance providers. Of the airline survey respondents that do have b2b applications, 64% are linked to an airframe manufacturer, 50% to an engine manufacturer, 50% to an aftermarket/spares provider and 50% to a maintenance/repair/overhaul provider (See table). Such figures are well ahead of the next set of existing b2b applications, such as those with alliance partners (32%). Also significant is that airlines that do not yet have a b2b application with an aftermarket/spares supplier or a maintenance/repair/overhaul provider place a high priority on establishing such a connection within the next two or three years. Around 50% of airlines surveyed say this is their intention.
Other studies support this view. A Goldman Sachs study, for example, says that, by 2004, it expects the aerospace industry's b2b market to be worth around $219 billion, with more than a third of transactions conducted electronically compared with around 3% this year.
With such big numbers at stake, and an apparent eagerness being shown by airlines, it is small wonder that the industry has seen a surge in the launch of new dot.com companies, many of which are targeting the maintenance, spares and support sector. Airlines now have no shortage of choice as they search for their b2b partners. But, to the frustration of many a dot.com venture, they are biding their time in that selection process and playing a wait-and-see game. That may partly be due to a lack of confidence as airlines try to work out which of these dot.coms will have staying power. They may also be taking advantage of the wide range of choice to cut the best deal or they may be developing their own b2b solution.
| Airline IT trends survey - business-to-business applications | ||
| In which of the following areas do you plan to or currently utilise b2b applications? | ||
|
| Within next 2-3 years | Currently utilise |
| Airline partners: alliance partners | 50% | 32% |
| Engineering: aftermarket/spare part provider | 50% | 50% |
| Purchasing: IT equipment | 49% | 32% |
| Engineering: maintenance/repair/overhaul | 46% | 50% |
| Purchasing: Fuel | 43% | 23% |
| Operations: catering services | 41% | 27% |
| Purchasing: office supply | 40% | 27% |
| Aerospace: engine manufacturer | 39% | 50% |
| Aerospace: airframe manufacturer | 36% | 64% |
| Airline partners: air freight/cargo partners | 34% | 23% |
| Note: *Only 31% of airlines currently utilise b2b application | ||
| The Airline IT Trends Survey is an annual piece of market research conducted jointly by Airline Business and SITA among the world's top 150's airlines. The latest survey was conducted during May-June 2000, with results featured in the August edition of Airline Business. For details of how to obtain a copy of the survey please visit www.airlinebusiness.com or www.sita.int | ||
The past 12 months, however, have seen a confusing array of options become available. They include:-
aeropspan.com
Aerospan.com, a joint venture between SITA and US spares' inventory management company AAR. At the Farnborough Airshow in July, Aerospan.com's initial operating system was launched and the company says it is doing controlled testing with an unnamed major airline. Hal Chrisman, Aerospan.com's president of marketing and business development, says airline customers can expect to see cost savings in the region of 26% and claims that this will become the "most comprehensive" e-marketplace for the air transport industry. To attract airline customers and parts suppliers, Aerospan.com is offering launch customers the chance to join its advisory council as well as an additional equity stake under its early adopter programme. The company is also making much play of the independence that the SITA name affords.
Aeromanager
Aeromanager, which brings together Rolls-Royce, ANXeBusiness, Data Systems and Enigma to offer airlines a range of engine aftermarket services via the Internet. Trials began in late July with demonstrations at Farnborough. Services on Aeromanager include 24h engine health monitoring, engine leases, repair and overhaul slot booking and reporting, and parts purchasing.
AeroV.com
AeroV.com, a partnership between AeroV, a subsidiary of First Aviation, and Arinc. Launched in July, it claims to be the only procurement platform that integrates Spec2000 electronic data interchange messaging, real-time inventory and order processing information, and express delivery tracking.
aeroXchange
AeroXchange, a b2b electronic exchange that will be officially launched later this year and which is being created by a group of airlines, including Air Canada, All Nippon Airways, America West, Cathay Pacific, FedEx, Japan Air Lines, Lufthansa, Northwest Airlines, Scandinavian Airlines System and Singapore Airlines. Oracle is the technology partner.
aviationX,
aviationX, a Virginia-based startup, launched at the beginning of the year to become a global b2b electronic marketplace, but may also be one of the first to be crushed under the dot.com stampede. Acknowledging that they were not prepared for the volume and speed of b2b venture launches this year, aviationX managers have adjusted their company's focus to concentrate on providing web-based software applications rather than an e-marketplace.
Avolo
Avolo, an independent marketplace based in Seattle, Washington, that was founded in 1999 by Andrew Fedak, former chief executive of SunCommerce. The company says that in the first two weeks of going live, its request-for-quote service enabled airlines and suppliers to conduct more than $1 million in transactions.
Exostar
Exostar, a joint venture between Boeing, BAE Systems, Lockheed Martin and Raytheon with b2b solutions provider partner Commerce One. The venture partners were bullish at their March 2000 launch, talking about a blockbuster global Internet trading exchange that would process a combined procurement outlay of more than $70 billion by the middle of the year. But at Farnborough, when the Exostar name was revealed, there was little else to announce. Like the other dot.com ventures, Exostar has not seen a rush of airline customers eager to sign up; the partners may also be disappointed that no other suppliers have joined. A planned mid-year service introduction has been pushed back to later this year. Still, Boeing chairman Phil Condit claims "amazing progress" has been made, with a definitive agreement signed by all partners and a web site activated.
FastAero.com
FastAero.com, another planned b2b e-marketplace venture that is based in London and pitching itself as the first Europe-based, neutral exchange. The company is putting together a $50 million finance package with the aim of being in service by the end of the year.
GE Customer Web
GE Aircraft Engines, which launched its Customer Web Centre at the beginning of this year and aims to have all 300 airline customers signed up by the end of the year. GE provides and customises each airline customer with all the computers and software necessary to do business with GE electronically. Around $2 million of transactions had been completed by early July.
IlSmart.com
IlSmart.com, run by Memphis, Tennessee-based Inventory Locator Service (ILS), a subsidiary of Aviall. It claims dominance of the aircraft parts online marketplace. ILS created the first online parts locating service in 1979. Additions this year include a Bidquest service and a pilot programme for PurchaseOnline.
MyAircraft
A venture between Honeywell and United Technologies, which has attracted new equity partner BFGoodrich Aerospace and dropped the dot.com from its name to demonstrate that it is "a real company with deep pockets". MyAircraft promises similar cost savings to those cited by Aerospan.com - 20-25%. The company says most of these savings will come from reductions in inventory that the portal will allow airlines to make; savings in parts procurement costs, meanwhile, will represent only about 2-4%. Again, this b2b site has been slow to pick up the much needed airline customers and additional strategic partners. But MyAircraft has passed a political hurdle, gaining the go-ahead from the European Commission's antitrust authorities.
myboeingfleet.com
Myboeingfleet.com, launched in May, now includes more than 1.5 terabytes of data, including millions of engineering drawings for almost all Boeing and McDonnell Douglas commercial aircraft. In July, Boeing added a searchable parts list, more than 11,000 component maintenance/overhaul manuals and a fleet status report to the portal.
PartsBase.com
PartsBase.com, a Houston, Texas-based b2b e-commerce provider that was launched in 1996 and has over 18,000 buyers and 2,500 suppliers listing more than 28 million line items of inventory. Members of PartsBase's e-marketplace include Boeing, Honeywell, FeEx, United Airlines, BFGoodrich and Southwest Airlines.
Skyfish.com
Skyfish.com, a joint venture between BACK Aviation Solutions and media strategy firm Synchronaut.com, Skyfish was unveiled at the Regional Airline Association show in San Antonio, Texas, earlier this year and has since formed an alliance with Sabre to create a b2b e-marketplace.
Spec2000.com
Spec2000.com, a new-generation, web-based version of the US Air Transport Association's (ATA) successful Spec 2000 exchange that supports 85 airlines and 250 manufacturers and repair agencies. E-commerce services such as auctions, reverse auctions, quotes and news services will be added to the new portal, to which airlines can subscribe for a flat $150 fee.
TradeAir.com
TradeAir.com, founded in 1999 by entrepreneur Bill Morales, This b2b exchange has partnered with First National Bank to offer integrated online financing options. A European launch was made at Farnborough.
TRW Aeronautical Systems
TRW Aeronautical Systems, the former Lucas Aerospace, which announced plans in September to launch a global b2b electronic marketplace. The technology partner for the un-named portal is Infobank and, while it is being launched as a company venture "in the interests of speedy implementation", TRW is actively seeking partners. TRW says this is a natural extension of its aggressively expanding e-business services in spares trading, automated repair logistics, catalogue procurement and electronic quotation requests.
The list of e-commerce b2b providers, while not comprehensive, gives an idea of how crowded this sector of the industry has become, with much of the activity taking place this year. The big question remains, how many of these service providers will survive?
What is already clear is that the portals are dividing into broad categories and to be a member of one does not necessarily preclude an airline, manufacturer or repair agency from participating in another. There are the independent startups, such as PartsBase and Skyfish, that are seeking niche markets and for which the risks are steep in this highly competitive forum. There are also the neutral conglomerates, such as Aerospan, MyAircaft and Exostar, that will be vying fiercely over the next few months to establish themselves as the platform of choice. Success or failure will depend on each one's ability to attract more industry partners as well as the all-important airline customer.
But none of these will stop individual companies - especially the large manufacturers such as Boeing and GE - from creating and operating their own 'storefront' sites in which they can enjoy a direct electronic connection to their customers.
As Boeing's director of e-business, Barb Claitman, points out: "myboeingfleet.com moves us very close to the day when our customers can get all the information they need to maintain and operate their Boeing fleets though a single Internet portal. We will continue to grow the portal as a platform for expanded support and services."
Then there are the 'customer-created' portals, like AeroXchange, in which airlines are pooling resources and clout to take advantage of the cost savings that e-commerce can offer. Ultimately, however, these airlines might decide that the operation of such sites is too distracting from their core business.
Most observers expect to see some consolidation as providers either find their feet or disappear. It is a view shared by Aerospan's Chrisman, who says: "There's room for three or four e-marketplaces to be viable and Aerospan will be one of these." For the time being, at least, his rivals are equally confident.
Source: Airline Business
