Aviation services: Airbus & Boeing sniff a USD7 trillion market
Airbus forecasts that the worldwide market for commercial aircraft services will be worth USD4.6 trillion in revenue over the next 20 years. This compares with Boeing's much higher forecast of USD8.8 trillion for the services market in the next two decades. Perhaps USD7 trillion might be a good target.
However, the two forecasts are not based on the same definition of the services market. Boeing identifies a broader range of services, perhaps indicating greater ambition in this area. Nevertheless, both forecasts illustrate the growing significance of the market for aviation services relative to the market for aircraft.
Airbus expects the value of commercial aircraft deliveries to add up to USD5.8 trillion over the next 20 years, while Boeing's forecast is USD6.3 trillion. Using Boeing's wider definition of aviation services, revenues from aircraft delivery will be worth less than revenues generated from services.
Moreover, both manufacturers envisage greater growth in the aviation services market than in the total value of aircraft sales. In addition, each expects to grow its own share of the aviation services market.
- Airbus and Boeing both forecast significant growth in the commercial aviation services market over the next 20 years.
- Airbus aims to triple its services revenue in the next decade, while Boeing plans to grow its services division to USD50 billion in 5-10 years.
- MRO (maintenance, repair, and overhaul) services are expected to be the largest segment of growth in the aviation services market.
- Flight operations services, including pilot training and flight-planning solutions, are also projected to contribute significantly to the market.
- The passenger experience segment, covering cabin upgrades, inflight entertainment, and connectivity, is expected to see exponential growth.
- Asia Pacific is forecasted to account for the largest share of aviation services revenue, followed by North America and Europe.
Summary
- Commercial aviation services is a growth market.
- Airbus and Boeing both aim to triple their services revenue, faster than the market, thereby growing market share.
- Asia Pacific to account for biggest share of aviation services revenue.
- Airbus and Boeing cannot take growth in market share for granted.
Commercial aviation services is a growth market
Boeing issued a long term forecast for the commercial aviation services market for the first time in Jul-2018, coinciding with the Farnborough air show. This follows the lead of Airbus, which issued its first global services forecast at Farnborough in 2016.
Airbus is targeting a tripling of its own services revenue in the next decade. Boeing forecasts services market growth at an average of 4.2% pa over the next 20 years, compared with average fleet growth of 3.5% pa.
A 2Q2018 survey by Canaccord Genuity found that sales of MRO services and parts were up by 9%, suggesting that current growth rates are particularly strong. Activity was reported to be particularly strong in heavy airframe and components.
Boeing estimates that aviation services - the support services necessary to operate commercial fleets effectively - account for around one third of airlines' total operating expenditure. On top of the underlying market growth resulting from forecast traffic and fleet growth, aviation services is growing as a result of factors such as new business models, increased productivity, innovation and technology.
Greater outsourcing of aircraft maintenance activities, particularly by new airlines and LCCs, and the pooling of ground support equipment at airports, are examples of how business models are adapting to seek greater cost efficiency, thereby creating opportunity for service providers.
Improvements in aircraft performance monitoring technology have increased the amount of data that can be used for real time analysis on matters such as fuel consumption, the condition of aircraft parts and components and engine performance. This is also contributing to the growth of aviation services.
These developments are both facilitated and stimulated by technological innovation, including digitalisation, increasing the ability to share data, and areas such as predictive analytics and the emergence of additive manufacturing.
Additive manufacturing is a term that embraces 3D printing and other manufacturing process that involve material being added together, as opposed to machining process that involve material removal and are sometimes now known as subtractive manufacturing.
Airbus and Boeing both aim to triple their services revenue, growing market share
In 2017, Airbus Commercial Aircraft generated EUR50.0 billion in revenue, out of a group total of EUR66.8 billion. The bulk of this same from the sale of airframes, but Airbus has said that services accounted for USD3.2 billion, or around EUR2.8 billion, equivalent to 6% of its commercial aircraft division revenue.
Airbus has experienced 18% annual growth in its services revenues for the past two years and plans to increase this more than threefold, to USD10 billion, over the next decade.
This means that it expects the share of its commercial aircraft division's revenue coming from services to grow (since revenue from the sale of aircraft is not expected to triple). Moreover, Airbus is aiming for its services revenue to grow faster than the aviation services market as a whole, thereby increasing its share.
Boeing created its Global Services division in 2017 to group together both its commercial and defence support services, with the aim of growing it to USD50 billion in revenue in 5-10 years, from USD14.6 billion in 2017.
This is not broken down between commercial and defence services, but the planned growth is also more than threefold. As with Airbus, this implies growth in market share, since the market is expected to grow by 18% over five years and 45% over 10 years (assuming 4.2% pa average growth, as forecast by Boeing).
Airbus and Boeing both forecast MRO revenue at more than USD2 trillion in 2018-2037
Airbus identifies what it calls 'aircraft-focused lifecycle services' as the largest segment of growth in commercial aviation services.
This area is what is typically called MRO and includes maintenance, spares pool access, tooling, technical training and system upgrades, and is valued by Airbus at USD2.2 trillion over the next 20 years (growing from USD76 billion in 2018 to more than USD160 billion pa by 2037).
A large number of these services are provided by aircraft manufacturers as a core offer when aircraft are sold. Maintenance is increasingly characterised by outsourcing and "paid-by-the-hour" (PBH) contracts.
Moreover, as technology and new materials develop, Airbus anticipates further outsourcing. Airbus also expects airlines to increase the outsourcing of inventory management, including the pooling of stocks.
Over 20 years Boeing's forecast places a value of USD2.3 trillion on the market for maintenance and engineering. Boeing also predicts that airlines will outsource more and more, and that demand growth will also be driven by data analytics and new technologies.
Airbus and Boeing both forecast 'flight operation' services revenue at more than USD1 trillion in 2018-2037
Airbus identifies flight operations services as the second largest area of the aviation services market that it addresses, with USD1.5 trillion cumulative spend over 20 years.
This includes pilot training and flight-planning solutions. Anticipated growth in pilot numbers (Airbus estimates a need for 540,000 new pilots in the next 20 years) will demand what the OEM calls 'smarter' ways of training using new digital technologies.
Boeing also identifies an area that it calls Flight Operations, valuing it at USD1.1 trillion over the next 20 years. In Boeing's definition, this comprises services associated with the flight deck, cabin services, crew training and management, and aircraft operations.
Airbus forecasts passenger experience revenue at USD0.9 trillion, 2018-2037
The third component of the global services market identified by Airbus focuses on the passenger experience and is valued at USD0.9 trillion over the 20-year period (more than doubling from USD27 billion pa to almost USD70 billion pa).
This encompasses the services needed to optimise the flight experience, including cabin upgrades, cabin crew training, inflight entertainment, connectivity and booking.
Within this area, Airbus expects "exponential growth" in seamless connectivity, as passengers increasingly use a smart device to access information in real time about the airport, connecting flights, bag collection details and other key details of their trip.
Airbus commercial aviation services forecast 2018-2037
|
Service category |
Market value USD trillion |
|---|---|
|
Aircraft-focused lifecycle services (MRO) |
2.2 |
|
Flight Operations |
1.5 |
|
Passenger experience |
0.9 |
|
Total |
4.6 |
Boeing forecasts airport operations revenue at USD4.7 billion, 2018-2037
The biggest reason that Boeing's estimate of the total value of aviation services revenues over the next 20 years is bigger than that of Airbus is that Boeing includes a forecast for ground, station and cargo operations.
This refers to the elements of airport operations, including ground operations, ground handling, station operations, cargo operations, passenger station, and cargo station.
Boeing values this segment at USD4.7 billion, whereas Airbus does not explicitly target this area.
In addition Boeing values a further segment - Marketing, Planning, and Customer Service - valuing it at USD0.5 trillion over the next 20 years. This includes airline customer relationships, travel reservations and payments, and the use of related information to plan airline operations. Airlines may obtain these services in-house, through outsourcing, or both.
Boeing commercial aviation services forecast 2018-2037
|
Service category |
Market value USD trillion |
|---|---|
|
Corporate & External |
0.1 |
|
Marketing & Planning |
0.5 |
|
Flight Operations |
1.1 |
|
Maintenance & Engineering |
2.4 |
|
Ground & Cargo Operations |
4.7 |
|
Total |
8.8 |
Asia Pacific to account for biggest share of aviation services revenue
In terms of the geographic split of Boeing's forecast, Asia Pacific is expected to account for 38% of total aviation services revenue over the next 20 years. North America and Europe are each forecast to generate 21% of revenue, attributing 80% to the top three regions.
Boeing commercial aviation services forecast by region 2018-2037
|
Region |
Market value USD trillion |
Share of total |
|---|---|---|
|
3.4 |
38% |
|
|
1.9 |
21% |
|
|
1.9 |
21% |
|
|
0.7 |
8% |
|
|
0.5 |
6% |
|
|
Russia/C.I.S. |
0.3 |
3% |
|
0.2 |
2% |
|
|
Total |
8.8 |
100% |
Airbus plans to widen its customer base for services
In order to achieve its planned tripling of services revenue over the next decade, Airbus will continue to develop maintenance services for operators of its aircraft.
However, it also aims to expand its services to non-Airbus equipment, noting that 62% of its fleet is operated by airlines also deploying other manufacturer's aircraft. In addition, Airbus will extend services to a wider customer base, including airports and air traffic control operations.
Airbus and Boeing cannot take growth in market share for granted
In a Jul-2018 survey by AeroDynamic Advisory and Aviation Week, airlines rated OEMs poorly on customer satisfaction for some areas of their aftermarket services. Led by Boeing, they generally scored well on technical support, but fell down on the cost of parts and repair costs.
Although a significant part of the aviation aftermarket is almost a captive market for the likes of Airbus and Boeing, this signals that the leading OEMs cannot afford to rest on their laurels. Their planned growth in market share in aviation services can by no means be taken for granted.