March 23, 2016 9:19 am
Airlines have lodged a formal complaint with European regulators over the $60bn market for spares and repairs on the world’s fleet of 24,000 aircraft, as EU investigators intensify their preliminary inquiry into whether carriers are being forced to accept anti-competitive maintenance contracts.
Iata, the airline industry lobby group, last week sent a letter to the European Commission listing grievances such as requirements by engine and component manufacturers to use only their spare parts for repairs.
The preliminary probe, first revealed by the Financial Times last year, is focused on maintenance support for the CFM56 turbine and Rolls-Royce’s Trent XWB engines, as well for components including auxiliary power systems made by Honeywell.Meanwhile, Brussels is demanding further information from aircraft suppliers in a sign that it is deepening its informal inquiry into the workings of the maintenance and repair market. No formal investigation has yet been launched.
Safran, the French engine maker, and CFM, its joint venture with General Electric of the US, are among those to have received a follow-up letter to the original questionnaire sent to dozens of suppliers last autumn. Rolls-Royce and Honeywell said they had not as yet received a second request for information.
The rising costs of aircraft maintenance have been roundly attacked by airline chiefs at British Airways, Air France, Ryanair and Lufthansa. Carriers complain that some original equipment suppliers are withholding repair information from qualified third-party maintenance shops, which they say limits competition and pushes up prices. They want the commission to set limits on what equipment suppliers can define as intellectual property, which would open up the maintenance market to a wider range of suppliers.
However, suppliers such as engine manufacturers rely on the lucrative aftersales service market for their profits. New engines are often sold at a loss, with the returns made on long-term service contracts. Attempts to disrupt this model could force airlines into bigger upfront expenditure, say industry experts. Components suppliers are also looking to tap into the higher margin aftersales service market to make up for demands from aircraft makers that they take on a greater share of the risk in new aircraft programmes.
The trend to limit the choice of engine and other components on new aircraft programmes has given added urgency to airlines’ complaints.
“When airlines are negotiating with suppliers they do not have the leverage they would have in a normal competitive situation,” said a person with knowledge of the situation. “Are manufacturers right to say that airlines have to buy spare parts from them in perpetuity?”
The commission refused to comment beyond confirming that it is “closely monitoring competitive conditions as regards maintenance of engines and components for large commercial aircraft”. Iata confirmed it had lodged a formal complaint.
The maintenance, repair and overhaul market is set for robust growth over the next decade thanks to the unprecedented number of new generation aircraft coming into service. Aerospace consultancies such as ICF International and Technavio estimate the market will grow from $60bn this year to more than $80bn by 2025.
Maintaining and repairing an aircraft accounts for roughly 10-13 per cent of an airline’s operating costs and the complex job of servicing the roughly 30,000 components on an aircraft is often outsourced to a third party.
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