You’re on your honeymoon. Your eyes are a-glaze with thoughts of a tranquil reverie with your beloved. Soon the honeymoon will be over and you’ll come home to the new reality of the challenge to make the relationship work. And so it is with airlines…but how so? 

You have a new and young fleet. The aircraft, engines, and components are covered by warranty. Even as those warranties expire, it will be some time before many of those parts reach their forecasted MTBR’s (Mean Time Between Removals). All of this keeps the Maintenance (MX) portion of the airline’s CASM or CASK (Cost per Available Seat Mile or Kilometer) very low. In fact, during an aircraft’s life cycle, the MX costs will never be as low as when it’s first introduced into service. Operators lovingly call this period the ‘honeymoon’. After the honeymoon, MX costs rise as forecast, but:

In this article, Royboy is predicting that certain MX costs are going to rise higher than forecast and therefore constitute an unexpectedly higher percentage of CASM than budgeted for.

Before we go any further, I’m going to ask you to carefully, critically read another article I wrote titled “OEM ANTI-COMPETITIVE, MONOPOLISTIC PRACTICES IN THE AFTERMARKET”. Here’s the link:

https://www.aviationsuppliers.org/OEM-ANTI-COMPETETIVE-MONOPOLISTIC-PRACTICES-IN-THE-AFTERMARKET

Having read that, it’s just a matter of time before the OEMs ‘mitigate’ their aftermarket competition, and guess what happens to pricing when there’s hardly any competition? This is the basis for my prediction; left unchecked, it will happen. So why currently aren’t the airlines, independent MROs, and distributors who would be victimized raising a cry? There are many reasons, here are some: 

• The ‘mitigation’ of competition in the aftermarket is occurring very slowly; figuratively speaking, the frog is staying in the increasingly hotter, and about to boil pot, but the frog isn’t jumping. 
• Fuel prices are still relatively low (now rising) and passengers are flying in record breaking numbers, so the airlines are making money; don’t worry, be happy! 
• The airlines have learned to rationalize the over-capacity problems of the past. This further enhances profitability and marginalizes sideline issues. 
• The aforementioned honeymoon effect. 
• New aircraft have been superbly engineered; parts are staying ‘on-wing’ longer (bigger MTBRs) and scheduled maintenance checks occur at longer intervals. The resulting lower total MX costs may mask the rise in the costs for individual Rotable repair and overhaul. 

All this contributes to an atmosphere of ‘irrational exuberance’ which masks and creates a ‘fog of war’. Due to the multitude of dynamic market, MX, and operational factors, is there a way to properly gage the predicted phenomenon? Professor Royboy suggests using the following simple formula: 

The formula should be normalized for the following factors: 

• Use the same period; for example ‘annual’ 
• Exclude parts under factory warranty 
• Adjust for normal and expected annual economic influences on growth 
• Derive and include data from PBH agreements 

These average costs are the subject of this article. 

The formula should be looked upon as a rough order of magnitude, and any significant deviation from your historical levels should trigger further analysis. 

But back to the Pachyderm in the Parlor: Is anything being done to address the purported anti-competitive monopolistic practices? 

The previously cited article mentioned that the European Commission and IATA were actively looking into allegations of monopolistic anti-competitive behaviors in the aftermarket by OEMs. Since that article, CFM and IATA settled on issues which were hailed as a watershed moment. In that decision, CFM clearly articulated as a matter of policy, that it would accommodate such practices as PMA parts, DER repairs, and access to OEM Manuals¹. 

It was widely hoped that this would be a herald to other OEMs. But has anything changed? 

• If you ask independent firms in the aftermarket (who would otherwise compete with OEMs), they’ll give you a resounding no! In other words, many of the OEM practices in the aftermarket cited in my previous article are still widely practiced by many OEMs (not CFM). 
• CFM claims that although the settlement resulted in stated Corporate Policy, that the issues involved were really already allowed².

There is talk that IATA issued additional complaints against other OEMs, but as of this writing there have been no public acknowledgements or outcomes. 

One of the issues continuing to restrict competition is access to OEM manuals. How can an independent, qualified AMO or Repair Station compete if it is not given access to the OEM’s Maintenance Manuals? Recently the US Federal Trade Commission held a workshop titled “Nixing the Fix³”. Among the many issues discussed was the FTC’s desire to shed light on the challenges faced by repair stations when trying to obtain Maintenance Manuals. There are existing regulations whereby the OEMs must make available these manuals to qualified MROs, but there is wide consensus that since there is no enforcement, many OEMs continue to restrict access. In the USA, that enforcement must come from the FAA. I support and have a great deal of respect for the FAA and their leadership, but I just can’t understand why this issue does not get enforcement support. 

To be clear, there are many OEMs who are not engaging in the sort of behaviors discussed, but unfortunately there are enough major OEMs who are, and they are setting the precedents for others to follow if the behaviors remain unchecked. 

Your comments or counterpoints are welcomed in the comments section at the end of this article. 

Over ‘n out 

Roy ‘Royboy’ Resto 

AimSolutionsConsulting.com 

¹ https://www.cfmaeroengines.com/press-articles/cfm-international-iata-sign-landmark-agreement/

² https://www.mro-network.com/maintenance-repair-overhaul/what-does-cfm-iata-deal-really-change

³ https://www.ftc.gov/news-events/events-calendar/nixing-fix-workshop-repair-restrictions