Manufacturers of Engines and Planes are at Odds on Future Jet Servicing Earnings

A “once-in-a-lifetime” battle over how billions of dollars in future earnings will be distributed within the aviation industry is being set up by the introduction of a new generation of aircraft, with planemakers vying for a piece of engine manufacturers’ lucrative service fees.

At this week’s Farnborough Airshow near London, aviation companies were figuring out how to share the advantages of a new generation of aircraft with ambitious fuel savings while planemakers were sold out and the industry was resolving persistent supply issues.

A long-discussed problem has come to a head with the anticipated replacement of a generation of popular narrowbody models by about 2040: the opportunity for aircraft manufacturers to set up new agreements to access engine manufacturers’ maintenance, or aftermarket, income.

“There’s probably a once-in-a-lifetime opportunity to rebalance the business model and to participate in the three to four decades of aftermarket,” Lars Wagner, CEO of Airbus Commercial, said to analysts.

Both engine manufacturers like GE Aerospace (GE.N) and Pratt & Whitney (RTX.N) and airplane manufacturers like Airbus (AIR.PA) and Boeing (BA.N) make significant investments in technology, but the ways in which they receive their money back are very different.

Engine manufacturers sell their engines at or close to a loss and must wait years to recoup their investment in high-margin repairs and services, whereas planemakers receive payment upon delivery of new aircraft.

Planemakers contend that because they allow engines with few other uses to make money, they should be compensated. They will probably engage in comparable conflicts over other elements. They are the path to the market.

Nick Cunningham, managing partner at Agency Partners, stated, “They want to use that power to get some of the profit of suppliers.” He continued, “The airframers only have control over the supply chain when they are starting a new program.”

Engine manufacturers contend that they should receive a larger portion of the profits because they take greater risks for longer. This is made worse by the fact that they frequently take on additional risk by providing fixed fees per flying hour, like operating an insurance company.