Engine industry clamoring for road back

By Bjorn Fehrm Subscription required. Introduction October 13, 2016, ©. Leeham Co: The airline engine industry is like a ticking bomb. Over the years, a business practice of selling the engines under manufacturing cost and planning to recover costs and make a profit on the aftermarket developed. This goes back decades. The practice was fostered by fierce competition over the engine contracts for aircraft which offered alternative engines. The losses of the engine sales could be made up later by selling spare parts and services at high margins.
trent-7000

Figure 1. Trent 7000 from Rolls-Royce. Source: Rolls-Royce.

These "jam tomorrow" practices have several implications. The engine industry is now confronted with these and wonder how it could put itself in such a bind. How to handle these and what is the way back? Summary:
  • High competition in engine sales forced ultra high discounts for the up-front engine sale.
  • Aftermarket schemes was created that should recover profits over spare parts and services.
  • But these maintenance practices create all sorts of problems in the used engine market.
  • The engine industry now wants to return to more normal business practices. But how do they find the way back?

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