Report by Karen Walker in Washington DC
The dot.com companies no longer sound so sure of themselves. It remains trendy, of course, to line up your management team in matching polo shirts or baseball caps, but is it still cool to be a dot.com in the light of Nasdaq's nasty tumble? At least one of the new portal ventures has decided not. MyAircraft.com - a joint venture between US giants Honeywell and United Technologies, parent company of Pratt & Whitney - is dropping the dot.com and wants to be known from now on merely as MyAircraft. "We want the image of a very real and serious company," says one manager. "This is not about three people in a garage. This is a real company with deep pockets."
Very deep pockets are probably what will separate the survivors from the fallen in the e-commerce battle, as they fight for an online share of an airline procurement market estimated to be worth $200-300 billion a year. While airlines are curious about what the various portals can offer, they expect real returns for their participation. They expect to save time and money, not end up supporting someone else's scheme to get rich quick. Even more important, airlines suspect that they are in danger of ending up on too many e-commerce bandwagons, duplicating effort and wiping out the promised cost savings.
So, for the main part, carriers are frustrating the launch efforts of portal companies by choosing to play a wait-and-see game. They are also trying to get a step ahead and present a unified approach before the vendors pull them in too many irretrievable directions.
At the International Air Transport Association's (IATA) annual meeting in June, airline chief executives patiently sat through a panel of presentations and PowerPoint charts from e-commerce experts telling them why they needed to be e-commerce savvy. At the end of the session, however, the airline chiefs turned the tables and mandated IATA to explore the possibility of setting up a single portal for all members.
Such a portal, if possible, would give the industry a powerful tool - a common door at which all suppliers, partners, manufacturers and information technology (IT) providers would have to knock before entering. Behind that door, each airline could conduct its own e-business as it sees fit. As director-general Pierre Jeanniot puts it, IATA would provide "the vanilla ice-cream on which individual airlines can put their own toppings".
On the procurement front, this tempting dessert already exists. Long before dot.coms and portals entered everyday language, the US Air Transport Association (ATA) was blazing a revolutionary trail by creating a common data standard to enable airlines and suppliers to communicate within an established set of rules when buying and selling spare parts. This system has evolved into Spec 2000, supporting 85 airlines worldwide and 250 manufacturers, repair agencies and distributors. Spec 2000 went live on the Internet three years ago, but a new-generation, web-based version was rolled out early this year.
Spec2000.com holds a considerable number of advantages over other portals. It is widely accepted by both airlines and suppliers, its neutral position is unquestioned, and it provides a real-time, interactive marketplace that includes pricing information. It is also cheap. Airlines pay a flat nominal fee of just $150 each to subscribe. To compete, other portals will need to offer more than just another on-line marketplace.
Certainly, they will need deep pockets - Spec 2000 represents an investment of 50 man-years and many millions of dollars - but they must also provide added value, a justification for making an airline hop between web sites. In Jeanniot's terminology, a topping that enhances the vanilla.
That realisation is now sinking in and some of the new portal companies are already shifting gear. Many observers believe this industry, while still in its infancy, is heading for a major shake-down by the end of the year, with some players joining forces, others making substantial changes in what they offer, and yet others disappearing altogether.
Virginia-based startup company aviationX, for instance, was launched at the beginning of the year with the promise of providing the airline industry a global business-to-business (B2B) electronic marketplace via its aviationX.com web site. Six months later, the company has changed focus and will instead promote itself as a provider of web-based software applications.
"We are taking time to adjust and understand what is happening in the marketplace," says Jeffrey Saunders, executive vice-president of strategic development and marketing. "There are a lot of people in this space who don't really know what they want to do with it. It is a land grab where people are saying 'we have to claim space'.
"We knew it was going to happen, but didn't think it would happen so quickly and so recklessly. In this early rush, people are focused just on the procurement and exchange side and we think there is very minimum value-added you can offer here."
Platform approach
Managers of MyAircraft are also keen not to be thought of as merely an electronic marketplace. "This is not a buyers' club and it is not a sellers' club," says Scott Clements, vice-president of MyAircraft, which has been set up as an autonomous company, separate from Honeywell and United Technologies, with its own board of directors. What MyAircraft is touting is a broad platform that will roll out three major web-based services by the end of this year covering: trading and information; supply chain management; and technical publications.
MyAircraft admits that savings in parts procurement costs are likely to be small, perhaps 2-4%. But it believes savings from the inventory reduction resulting from using MyAircraft's sophisticated, integrated technology could add up to 20-25%. "Value will be created as people move from web sites that enable buying and selling to intelligent e-business that synchronises everything end-to-end," says Clements.
So MyAircraft will automatically adjust the inventories of both supplier and purchaser after each transaction, ensure that all necessary approvals are in place and notify all the relevant departments as well as take care of the order. Such a system should reduce purchase cycle times by as much as 75% and administrative costs by 70%, says MyAircraft. But the company admits that the airline customers it needs to make the system viable remain in a wait-and-see mode. "There will be news in a few months, but airlines won't make their strategic decisions until they see something real and running," says Mike Dumais, a MyAircraft vice-president.
The big guns
Large-scale e-business portals include Boeing's myboeingfleet.com, which was launched in May and includes millions of engineering drawings for all Boeing and McDonnell Douglas airliners and a searchable parts list. Later this year, a global aerospace exchange web site for parts is expected to be launched. Major partners so far include Airbus Industrie, Boeing, BAE Systems, Lockheed Martin and Raytheon.
SITA has joined forces with AAR to create Aerospan.com, and SITA is also busy developing an information portal specifically for aircraft maintenance manuals. Meanwhile, Sabre has linked with startup company Skyfish.com in yet another portal offering.
In June, IBM announced a new joint venture with Intentia, Mercury Systems and Siebel Systems. Airline customers, who can choose either to outsource the ConnectEdge system to an IBM-hosted facility or run it under licence via their own data centres, will be announced "soon", says IBM. ConnectEdge is not an on-line marketplace, but is pursuing the niche that aviationX has since identified - the need to provide applications for airlines so that they can take full advantage of their e-business options. Under the ConnectEdge banner, the partner companies will market and sell applications that can auction seats over the Internet, create e-tickets that can be transferred from one airline to another, maintain aircraft, match flight crew and aircraft with particular routes, and strengthen links with customers.
General Electric, meanwhile, has adopted yet another route on the e-business highway. In January, the company launched its Customer Web Centre, kicking off with Delta Air Lines and swiftly following with Lufthansa. There are now 150 airlines signed up to the Centre, of which 80 are actively using the site to do all their GE transactions, receive service bulletins and technical manuals. The aim is to have all 300 airline customers signed up by the end of the year. By early July, GE had already logged around$2 million-worth of transactions via the Centre. GE has even sold its first spare engine via the Internet - to Delta.
GE's approach to e-business is subtly different from others in the race. The company regards it not as an opportunity to make money, but as a way to serve customers better and maintain their loyalty. So with each new airline that signs up, GE provides all the computers and software necessary for the airline to do business with it electronically. The investment is paying off. GE now has a separate building in Cincinnati dedicated to its Customer Web Centre and aims to do $1 billion of business electronically by the year-end.
"We are trying to transform our business through e-commerce," says James McNearney, president of GE Aircraft Engines. "Our decision to create our own site is a strategic decision because you either go horizontally and join one of these other ventures or you invest in your own brand. GE has chosen the latter because I think our customers should define the environment, not our competitors. I don't want anyone standing between me and the airline."
The airlines themselves are not standing still, however. As well as reviewing the portals on offer and the opportunities to join forces in cross-airline sites, the most e-commerce-aware carriers are making sure all their options are open. Delta's attitude is typical. "The ability to integrate buyers and sellers and to have visibility of inventory is key," says the airline's vice president of purchasing, Patrick Widenburg. According to software suppliers, Delta is spending more than $10 million a year for the next five years to enhance its communications capability into a common language.
AviationX's Saunders says this search for a common language is the real crux. "What everyone is concerned about is how to have collaboration across multiple players with multiple processes and different systems. How do you integrate those into one common system? That's the big nugget of gold."
Spec 2000 pushes ahead
Spec 2000 has gained industry-wide respect is in its efforts to do just that. On buying, selling and pricing, it has struck gold and created a common standard that is now live on the Internet. "We went down deep and dirty and asked ourselves how should Spec 2000 work?" says Brad Ballance, managing director of the ATA's Spec 2000 programme, explaining the approach behind the latest generation Spec2000.com.
The first step was to create a database system that allows suppliers to post their available parts and prices in real time and on demand. Within a few weeks Spec2000 will add the technical information component, allowing each airline access to all of its technical data, one standard interface. "That's unheard of in the industry" says Ballance, adding that later this year the group will then add e-commerce services including auctions, reverse auctions, quotes and news services. The ultimate goal is a global parts tracking system that will operate "from cradle to grave".
Ballance believes no other portal offers anything as comprehensive as Spec2000.com, but he agrees this has not prevented a lot of people from "jumping at the easy bits". He wonders at the motivation. "There are a lot of people scratching their heads right now. A lot of what I call e-confusion. In the middle of all this Internet hype, people have said there is an opportunity here, but I think they are looking at power and profits."
Within that hype, and as they wade through the myriad e-business options, airline managers will do well to keep in mind the words of SITA director-general John Watson: "The key word in e-business is not 'e'; it is 'business, and no business is created without a clear strategy. Like a duck out of water, there's no future in being web-footed. We must be web-wise and sure-footed." In other words, use a bit of dot.common sense.
Source: Airline Business
