Podcast: Collins Aerospace’s Aftermarket Plans

Will the COVID-19 crisis lead to a different aftermarket for OEMs looking to grow their presence? Collins Aerospace’s Colin Mahoney talks about how the landscape may alter post-crisis.

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Rush Transcript:

James Pozzi:              In this latest MRO podcast, I'm speaking to Colin Mahoney, customer and account management president at Collins Aerospace, About the OEM's long-term aspirations in the aftermarket and whether or not it will be adjusting its long-term strategy.

                                   Colin, thank you for joining me today for the MRO podcast. We're going to look at OEMs in the aftermarket. Of course, you are associated with the Collins Aerospace. Now, the company was sort of formed in 2018, followed the large-scale merger between UTC and Rockwell Collins. If you just tell me about what's in 2021? What Collins is MRO organization is about, and what some of the main kind of services they provide?

Colin Mahoney:          Yeah. Well, thanks for having us James. Just looking forward to this discussion. And as you rightly point out, we have been through a lot of amalgamation, let's say it that way, with some of the franchise names in our industry. So Hamilton Sunstrand, Goodrich, B E Aerospace and Rockwell Collins, and now what we call Collins Aerospace under the RTX number now. So, the good news of that is, that gives us pretty extensive experience and footprint around the globe, from an MRO perspective. So, just to quantify it, we're about 75 service centers. We got about 30 distribution locations, and six customers response centers, so there's never a time that a customer can connect with us. And people's chances, about 10,000 people inside a customer support/customer service environment, and 325 of those are actually engineers. They're out in the field with our customers, supporting our customers.

                                   So, it's very important that you got to do this support thing well. Otherwise, the longevity of your company and the attractiveness of your products is impaired by the service experience. So, I spent a lot of time with the OEMs, making sure we get that right. So, as a strategic imperative, customer support is right up there.

James Pozzi:              Absolutely. Yeah. More than ever, I guess right now, considering the current climate. Now, obviously there's been a big downturn in MRO demands over the past year, owing to several factors, but mostly that all goes through COVID-19 to some extent. Possibly, we're looking at the recovery though, and what comes after. Do you think MRO capacity and readiness for a market recovery, maybe an obstacle for OEMs and their aftermarket networks? Do you see any kind of challenges there?

Colin Mahoney:          Well, you picked a good topic. We hear this a lot from our customers. They're obviously concerned with a significant of the ramp that they see, and particularly in domestic travel. It's not just here in the US, but if you look at other pockets of the world, China, the domestic travel is actually, in some cases, more than it was in 2019. So, there's a constant drum beat of conversation around, are you ready for this uptick? And it's right to be concerned.

                                   So, we spend a lot of time talking to our customers about the demand here. Obviously, we studied the markets. We have a view of how that demand is going to come back. So, we've seen leisure travel, but business travel, and then international business travel, international travel, we have a view of that curve. We stay close to our customers near that curve.

                                    And in moreover, how are they utilizing the fleet? So, you'll see in pockets of the world, customers start to use wide body air for domestic routes. We're seeing it in China. We're also seeing it here in the US. So, it's important, as we plan for demand, that we understand that. So, if you take a US carrier flying a 787 for example, between city pairs in the US, it's going to take off and land a lot more than it would in a normal 787 mode of operations.

                                   So, we know that. And so, we have to plan events such as, the wheels and brakes maintenance environment. We have to be ahead of the curve for capacity associated with that need. Similarly, the interiors, right? So if a 78 flying domestically, it's not going to be using the food and beverage service that it would if it was flying from the US [inaudible 00:04:33]. So, the galley demand is going to be different and lighter in nature. So for us, it's been very important that we planned the capacity, which is actually service facilities, the people, the parts to do that work.

                                    And for us, we had the good luxury of being part of the uptick organizations, so we have nice balance between defense and commercial. So, we've been able to keep the people, keep investing in inventory. So, as we look at that, from how we're conversing with our customers, we think, we feel good about our ability as one OEM to meet that demand.

                                    If you look at MRO facilities that have entirely commercial experience, and that's what they do, and then, they would definitely have to scale through this environment, people, parts. And so, it's right to, as an industry say, very good. Do we have the ecosystem of support we need to make sure we meet the demand of those airliners? Is that passenger demand on spec?

James Pozzi:              Absolutely. Yeah. I mean, we touched on the fleet there and perhaps some of the changes there. Very interesting by the way, about the wide bodies, maybe the use of those going forward on shorter routes. But I'm interested about the retirement side of things. There's been speculation there may be, if not a wave, maybe a spike at least, in post-crisis retirements, perhaps, with airframes, and obviously their engines as well. How do you see this potential retirement wave impacting demand in the industry?

Colin Mahoney:          Well, as every expert will tell you, that's a pretty easy to study mathematical model of demand from passengers on airplanes creates the need for a certain amount of platforms. And that actual need is satisfied by existing fleets, new airplanes coming to the market, net those retirements coming out of markets. So, in real terms, in '20, we haven't seen any incremental retirements versus '19. Some of the reasons is that it's anticipation of the demand coming back, the ability to store those airplanes pretty cost-effectively, and wanting to be ready for that, for that uptick. But, if you look beyond 20, 2021, when you start seeing the OEM production environment start to ramp in '22 and beyond, there'll be the natural cycle of additional retirements. But that's fairly necessarily predictable, and so, we expect to see some increase in that, but not that abnormally.

James Pozzi:              What about demand for USM? How is Collins Aerospace developing strategies to protect parts revenue due to increased USM demand and usage, emanating from COVID-19 I guess, because the belief is that, USM demand is picking up and will continue to do so, particularly from airlines. But what's Collins doing to protect themselves from that?

Colin Mahoney:          Yeah. So, we actually haven't seen that yet because obviously, in absence of the last three to six months through 2020, and into '21, the demands for used serviceable material hasn't been there in abundance. Hence you've seen the turn down environment of retiring airplanes not be that great yet.

                                    But to our earlier conversation, that day is coming and it's going to be over time, so we really, we don't look at it as a threat and something we need to protect against. I don't know if you're familiar, but we do have a used serviceable material company within Collins Aerospace. It's called Intertrade. We maintain that brand since we bought it as Rockwell Collins. And they give us the insight into the market. They give us the access to any used serviceable material that we might well even be able to put to use in our maintenance departments.

                                    And remember, there's been a very distinct transition from how customers looked to the supply base for support. They typically turn the materials in the historic sense, but there's more and more extensive maintenance agreements that are generally found by the outbreaks that would cover not just the MRO, but the asset management, the logistics support, technical support, reliability upgrades. And so, about a quarter, or a third of our volume is linked to those types of agreements. And so, we're able to use those materials on occasions, to augment the service we provide our customers. So, we haven't really, given our involvement in the market, the transition is the way airlines want to support themselves, we don't really see it as much of a threat to our MRO market.

James Pozzi:              So, you're pretty reassured about that then I guess. Moving across to the digital technologies and innovations, that's a very interesting area. While the crisis has obviously brought its obvious challenges, some MROs and other companies in aviation say it is a good time to, perhaps if you have the resources to do so, to innovate, and to maybe push forward some of the digital things we were seeing before the crisis. Do you think, from your side on the OEMs, the crisis will lead to more digital innovation from your perspective, and digitally focused products from the likes of Collins Aerospace?

Colin Mahoney:          Will the crisis lead to it? I don't know that that's an accelerant. I think this journey was well on its way. So, if you look at the infrastructure in airplanes, it's very fast moving. So if you look at, say the 767 relative to a 787, there's 10 X the amount of data availability on that new platform. Airbus will tell you, on a 350 for example, it was 50,000 sentences and 2.5 terabytes of data coming off of an airplane in any given day. So I think those next-gen airplanes are well-equipped to tell us how they're feeling... A simple way I like to think about it. The airplane's much more able to aggregate that data in a server environment, and tell us how it's feeling. And obviously we at Collins are heavily involved in the router networks, the server networks of those airplanes, to go take those pieces of data and aggregate that for communication to the ground.

                                    I think the communication to the ground environment is changing rapidly with low-cost, reliable, globally available parts to communicate that data from that airplane to the ground. And so, that's accelerating on us. And so, all of these systems become nodes on a network, which are there to be interpreted and interrogated. And so, how we do that effectively is going to have a big impact on how we operate in our MRO environment.

                                   So, the airplanes are good. The parts are good. The ground networks are much more autonomous now. So, if you're going to take ones and zeros off of an airplane and communicate that to the ground, you got to change that data into information, so advanced analytics and the ability to move now data converted to information around the ground networks, to the right stakeholders, so they can actually do something with it, is the essence of this digital ecosystem that we keep talking about.

                                    And then, when you get into the service centers, the places where once we've got that effective asset out of an airplane, we've got to think differently about what digitalization does for those service centers. So for example, in our example, we're connecting all our service centers through a brand name DT approach called MRO [License 00:12:49]. And so, what that allows us to do is have every service center be privy to all of the service centers' experiences.

                                   So, if I'm in service center A, and I'm only doing 20 of these things a year, I'll have a certain amount of knowledge, but the service center network at large are doing 200 of these a year, how do I get access to that knowledge of the 200 a year? So, we could think about that as tribal knowledge, and we got retirements, and the boomer generation is starting to retire, so that MRO access will allow us to harness that tribal knowledge.

                                    And then, the only final digital thing that is not affected by Covid is Artificial Intelligence and Machine Learning. So, if you study input to a service center and you've got these set of things happening, think about it. It's a, if this, then that. We're using Machine Learning and AI to try and predict sources of failure, given a set of criteria with which a unit comes into the service facility.

                                    So, I think that's primed for further acceleration. When we sit and have this conversation five years from now, we'll be in a different place than we are today. Think about that instinct as, we don't want a component to be a source of an aircraft delay. We know when the airplanes coming in to land. We know it's got a problem. We know what it's going to take to fix it. We can do that much, much more proactively now.

James Pozzi:              Sure. Sure. Absolutely. Okay. Just going on to, back to the story, that the sort of dynamics of the market, do you foresee greater opportunities for MRO acquisitions and partnerships in the next few years? Do you think there'll be a more, sort of consolidated industry, or certainly a more cooperative industry, with those partnerships and acquisitions?

Colin Mahoney:          Yeah. Well, clearly partnerships has been a key element of everything we've done to this point, from an outright acquisition standpoint, the discussion we had earlier, potentially there's distressed properties out there that are looking to merge with somebody. But, I think about it more in terms of how do we partner with our customers, and with industry experts, so that we're not reinventing the wheel. There's a lot of capacity out there. We have a lot of approved arrangements with airlines and others. And so, if there's a pocket of the world that needs something from somebody, I think a partnering approach to satisfy that demand, is going to continue. And it's been there. We've been able to operate in that model very well for years, and I don't think this environment has changed that dynamic.

James Pozzi:              No. No. So, that's something we can expect getting from all parties, like MROs, OEMs, other kind of associated players. Do you think the partnerships will revolve around all those companies or...

Colin Mahoney:          Yeah. I think all of those, and it's going to be, like I say, specific, demand driven, specific geography driven. We'll look at parts of the world and maybe it doesn't make sense for us to create the infrastructure to do it, because company X has it, has capacity. Is there some kind of partnering arrangement, a joint venture arrangement that you could enter into to use that capacity to the collective good?

James Pozzi:              Sure. Okay. Well, we touched on a range of topics today then. We talked about capacity, of course, in the markets. Retirements and everything, also ranging to new technologies, and then sort of digitalization. Kind of more broadly speaking though, what, in your opinion, what does the future hold for MRO in terms of what do you foresee happening, maybe in the short to near term over the next few years? And then, perhaps more in the long-term after that? What are you seeing from your perspective?

Colin Mahoney:          Well, I think that future stake largely rests at the door of the technology that exists in the airborne, on the ground and the communication infrastructure. We've got airplanes... The 78s been out there a while. Are we fully utilizing its capabilities around the digital? I would say not yet. So, that too, to state is much more adjusting time, much more on demand. And like I said, it's not a pipe dream that every defective component on an airplane is understood on route, and dealt with, in terms of the logistics required to replace something, before the aircraft lands. And so, if you picture a component on an airplane communicating with its ones and zeros into a service, saying, " I'm not feeling well", and then that signal gets communicated to ground networks and prepared for before it lands. I think that's a clear element of our future state.

                                    I think the predictive side of aircraft system health is another element. This has been very interesting thing, the rush to the ground, but the technology exists to insert assistance, predict through the prognostics, hears a pending failure. So again, we're able to address that pending failure before it happens, with demonstrated data to prove that point, because if you imagine, that's quite a hard decision to make. I'm actually pulling a serviceable thing off of an airline because the ones and zeros tell me it's about to fail. So, there's an environment of growth there.

                                    And so, you think about the MRO of the future, and I'm not talking long-term future. This is relatively near-term future, being an ecosystem of data that drives behavior that's designed to minimize disruption, if not eliminate completely, disruption from component failure. And because of the efficiencies that that digital environments drives in the ecosystem of break, fix, and support, we get to a point of maximizing the efficiency of sparing, so we're minimizing the investment in spares, minimizing the investment in MRO, to drive significant value to our airline customers, in that example. Accessible to other markets, by the way, and not just an airline, a commercial airline discussion. That's how our world it is going to change from the traditional, it breaks, it gets diagnosed, managed on an airplane, gets sent to a service center, we'd fix it, send it back. And so, I think we're going to be much more generic from an ecosystem standpoint, moving forward.

James Pozzi:              Sure. Okay. Well, Colin, thank you for joining the MRO Podcast today, and giving your insights.

Colin Mahoney:          It's definitely been a pleasure James, and I look forward to the next time.

James Pozzi:              Thank you.

                                   If you have any comments, feel free to contact [email protected]. You can subscribe and download Aviation Week's MRO Podcast on iTunes. Thanks for listening and joining us.


James Pozzi

As Aviation Week's MRO Editor EMEA, James Pozzi covers the latest industry news from the European region and beyond. He also writes in-depth features on the commercial aftermarket for Inside MRO.