Vertical integration will be a ‘bumpy road’

By Laura Mueller

June 26, 2018, © Airfinance Journal: OEMs are targeting a larger piece of aftermarket revenues, but ultimately their airline customers will determine whether a push to vertical integration is the right one, Brian Prentice, a partner at Oliver Wyman told delegates at the Leeham Co/Airfinance Journal Inaugural Southeast Aerospace & Defence Conference in Mobile today.

Not a nimble experience

“Airlines want a safe and reliable aircraft and if vertical integration helps them get to those things, they will be fine with the move,” Prentice explains, adding: “This may be a shock, but working with a large OEM isn’t the most nimble experience and to the extent that situation continues, that will cause the airlines issues. That is the reason why a third-party market came up.”

The third-party market emerged because “they could fill a need in terms of responsiveness and help airlines, not because these parties had better technical experience,” he adds.

He stresses the market will continue to react this way “with a need for reduced costs and efficient solutions”.

As such, the “integrators, the tier ones, the tier twos will continue to drive aftermarket revenues, and this is a new normal, this tug of war with will continue.”

Prentice is unsure what impact a push towards vertical integration will have on the market.

“I am not sure how this will play out. I would love to see this turn into a great vertical integration system where reliability is going up and costs are going down… if not, the market will self-correct in the next five to ten years, however, it will be a bumpy ride between now and then.”


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