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I have noticed that Air France KLM offer a Maintenence (MRO) service for aircraft and jet engines. This sounds like a potentially big threat to engine manufacturers like Rolls Royce who makes around 50% of its revenue from its TotalCare MRO servicing contracts.

I would have thought the price of buying saying a Rolls Royce jet engine would be far higher if an airline customer did not take the MRO TotalCare package from RR and in addition the airline may suffer from reduced engine warranties if they employ a 3rd party to service the engines.

Do you think engine manufacturers business will get competed away by independent MRO businesses like Air France KLM's?

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    $\begingroup$ there's still a difference between factory service and third party service see aviation.stackexchange.com/questions/7684/… $\endgroup$ – ratchet freak Aug 21 '14 at 12:21
  • $\begingroup$ Here's a question with a set of fantastic answers & closing it seems a shame. $\endgroup$ – curious_cat Feb 8 '16 at 17:28
  • $\begingroup$ I agree with @curious_cat). Could the question be rephrased to be more objective? $\endgroup$ – J Walters Feb 8 '16 at 18:12
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Background: These days, Rolls-Royce is not any more in the business of selling engines, but selling thrust. The engines send telemetry data to four centers, the biggest one in Derby, in Great Britain, where every engine is under surveillance. An inspection can be scheduled at or spare parts can be directed to the right destination even before the pilots or the airline know that one of their engines has a problem.

By now, 80% of Rolls-Royce engines are sold at a loss which is recouped by a hourly fee paid under the TotalCare (.pdf!) program, and that center in Derby is monitoring maybe 4000 of them at the same time. Rolls-Royce has accumulated a treasure of engine operations data, which enables it to consult airlines on best practices. This makes it very hard for a third party to steal maintenance business from Rolls-Royce. All maintenance cost is covered by the TotalCare fee which now accounts for more than half of Rolls-Royce's revenue.

Other engine manufacturers have begun to copy this approach, and both Airbus and Boeing now offer similar programs for airframe surveillance and maintenance to their customers.

I wonder how Air France KLM can get at the data from the engines. My impression is that Rolls-Royce is in a different position, and third parties cannot compete on an equal basis. Airlines can rent out their shop capacity to others, but the specific business model of Rolls-Royce is directly coupled to them being the manufacturer of those engines and owner of the data it creates.

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  • $\begingroup$ Awesome, I didn't realise that thank you! $\endgroup$ – Ben Aug 22 '14 at 11:35
  • $\begingroup$ Kampf are you aware of the relative capabilities of GE vs RR in respect to this service MRO offering? I am sure GE do something similar but do they have the data that RR have for example? $\endgroup$ – Ben Aug 22 '14 at 20:39
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    $\begingroup$ No, my information is from The Economist, and I have not heard of the GE program directly. But I bet GE is all over it and can offer the same kind of "pay for thrust by the hour" approach by now. This is much more aligned with the interest of the airlines and leverages the position of the manufacturer. Engine manufacturers who do NOT offer this will be doomed. $\endgroup$ – Peter Kämpf Aug 22 '14 at 21:08
  • $\begingroup$ @Ben: The GE offer is called OnPoint. See here for more. $\endgroup$ – Peter Kämpf Aug 22 '14 at 21:19
  • $\begingroup$ Some time ago I was at Microsoft presentation and they mentioned Rolls-Royce as example customer for some Azure-based data-mining services, clearly in relation to the TotalCare program. So the data seem to be hosted by Microsoft somewhere these days. $\endgroup$ – Jan Hudec Oct 2 '17 at 17:24
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As Peter Kämpf mentioned, Rolls Royce is unique in that they don't just sell the engines to customers anymore. Rolls Royce will charge by engine time, and take responsibility for maintenace costs. This provides incentive for RR to make their engines as reliable as possible, but it also allows them to choose to keep the maintenance work in-house.

Air France KLM also prefers to keep their maintenance in-house. They have been negotiating with RR to be able to perform maintenance themselves on the Trent XWB engines on their on-order A350 aircraft.

Other manufacturers like CFM, GE, and PW do not operate in the same way. These companies will sell the engines, and the customer gets to choose where to have maintenance performed. All three companies offer their own programs, but they compete against third party services.

Despite not sharing the same strategy for promoting those programs, all of these companies receive substantial revenue from their OEM maintenance programs.

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The MRO can do "simple" operations on a engine, like engine wash or borescope inspection; but if the operation is more complicated like complete revision, you have to send the engine to "shop visit" that's mean to the manufacturer. Sometimes the manufacturer send employee to the MRO place to do the work when this work don't need special tools.

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Indepent engine MROs still have chances to work on sunset and mature engines only. However for the new generation engines the demonation will be by the OEMs only.Though, these shops will not be able to handle the shop visits by themselves but need to off load some of the work to indepenedent MROs like Jordan Airmotive,AF/KLM and others.

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    $\begingroup$ "Demonation" isn't a word and I can't work out what you meant to write. $\endgroup$ – David Richerby Feb 8 '15 at 15:56
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Peter Kämpf is wrong, He correctly edited his answer.

I just finished my masters degree, writing about Servitization, and used Rolls-Royce PLC as a "textbook" example. In my thesis, I included an interview with Rolls-Royce Service Researcher Alistair Forbes. He explained the basis model as such:

Some people misunderstand our business, they think we rent engines out to customers. We don’t. When an airline buys an aircraft they buy the whole aeroplane. That includes the engine. But they pay a fee to us for every hour they fly the aircraft, for every hour the engine is flying, they pay a set fee. We well translate all the expected costs that we would have, that might be on a contract [...] that might be we expect, okay, an engine doesn’t need an overhaul – unlike like you service a car. You don’t actually drive it that much. Airplanes fly around 14 hours a day, and needs an overhaul every 5 to 7 years. Its expensive when it happens but they all stay reliable.

It’s partly this change in business model, before it was 3-4 years, now we try make a more reliable product, time between overhauls increased 5 to 7. Now if I’ve got a 10 year contract with a customer, and I say, that you pay me 200 dollar for every hour you use the engine. And nothing ever happens, I’ve got 200 dollars per pair and done nothing. But supplied a fantastically reliable engine. The customer is happy and we’re happy. if I make an unreliable engine, the customer is unhappy and they say the engine needs an overhaul every year, and I don’t incline to overhaul it once or twice. That’s bad for both of us.

For reference, the economist wrote an article regarding how RR managed to stay afloat, here they also mention speculations regarding selling engines at a lose, to capture marketshare. http://www.economist.com/node/12887368 (Approx. half way through the article)

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    $\begingroup$ I tried to guess which parts are a citation and which are from you, but please re-check. $\endgroup$ – Federico Oct 2 '17 at 9:51
  • $\begingroup$ Seems that Alistair says the same as Peter. If you say Peter is wrong, where specifically would that be? $\endgroup$ – MSalters Oct 3 '17 at 11:21
  • $\begingroup$ Check out the edit history. He changed it, now it is correct. $\endgroup$ – Andreas HD Oct 4 '17 at 18:22

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