Commercial market takeaways from the Farnborough air show go beyond which aircraft programs are hot or cold, and what airlines—and lessors—have their eyes (and bank accounts) focused on the most near-term prizes. 

A clutch of announcements from this month’s gathering points to how the new aftermarket world order is solidifying. Among its tenets: OEMs are hungry for bigger slices of the aftermarket pie; and integrated offerings from aircraft manufacturers, lower-tier suppliers and independent MRO providers are in.

GE Aviation—the largest commercial MRO provider by revenue—sold a few engines, but also added $1.5 billion to its services backlog, continuing the well-established trend of engine makers grabbing aftermarket business. In a tinier but more telling deal, GE unit Middle River Aircraft Systems tapped Lufthansa Technik (LHT) to offer repairs and exchanges on Boeing 747-8 GEnx-2B thrust reversers. 

The deal makes sense for LHT parent Lufthansa Group, the largest 747-8 customer, with 19 commitments. GE gets work with minimal investment and without the complication of competing with a customer. Airlines get yet another service from LHT, already arguably the most diverse MRO provider.

“We believe that Lufthansa Technik is at the forefront of many of the structural changes that are accelerating in the industry,” Ken Herbert of Canaccord Genuity noted in a recent aftermarket observation. “[T]he company’s continued push into the component support and pooling sectors is establishing a model that others will follow.”

As Herbert suggests, the Middle River/LHT deal is no footnote. The component market is ripe for both integrated offerings and manufacturer invasion. Programs like the Boeing 787 and Airbus A350 are causing airlines to rethink traditional aftermarket procurement approaches, especially in the inventory-intensive component arena. As components become both more reliable and technologically advanced, fewer are needed. This phenomenon drives up production costs, which boost airline provisioning expenses. 

But for a single carrier, fewer failures do not necessarily mean a smaller spares pool, because far-flung airline networks mean the infrequent failure could occur anywhere. More expensive parts combined with the long-standing need to have them in the right place at the right time are driving pooling agreements, where multiple airlines share the same set of spares without adding them to their balance sheets.

Component pooling dovetails with another trend: seeking more services from familiar providers. OEMs, which have the advantage of establishing contact with operators well before aftermarket services are needed, are becoming more aggressive. 

UTC Aerospace Systems used Farnborough to push its A350 nacelle MRO offerings, which are similar to what the aerostructures supplier has been providing on other platforms for 15 years.

Boeing is setting up its first joint venture outside of China, teaming up with established MRO provider and Singapore Airlines subsidiary SIA Engineering Co. (SIAEC). The announcement included news of an all-encompassing Gold Care agreement to support SIAEC sister company Scoot’s 20 787s and 27 Singapore Airlines 777s (shown), with much of the work being subcontracted by the joint venture to SIAEC. Some suggest the arrangement is as much about Boeing’s willingness to horse-trade to land a large aftermarket deal as it is a push into the Southeast Asian MRO market.

Customer demand and OEM aggressiveness mean traditional MRO providers must either adapt or embrace shrinking bottom lines. AAR, North America’s largest independent heavy- maintenance provider, saw a 10% dip in MRO revenues in the last quarter, partially due to a natural trough in heavy- maintenance demand as spring turns to summer and operators need their lift. Among the company’s bright spots: a blossoming supply chain business, bolstered by its purchase of Sabena Technics’s Brussels-based component support business. That move helped AAR win $1.9 billion in new contracts in fiscal 2014, including longer deals that boost revenue and—crucially—the company’s place in customers’ aftermarket strategies.

“This is a newer trend for the company,” says David Storch, AAR’s CEO. “Historically, our supply chain businesses had a shorter window. Today we’re signing . . . more [long-term] deals in our effort to become more integral to our customers’ operations.”