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fiightglobal.com 8-14 March 2016 | Flight International | 5

Virtually every manufacturer was keen to talk up their

aftermarket or maintenance, repair and overhaul busi-

ness, spare part provision or improvements to customer

relations. Which is all very commendable, but it begs the

question as to what the industry thought it was playing

at beforehand.

For too long, the OEMs were guilty of looking to shift

units, rather than delighting their clients. So while the

customer service improvements are welcome, they are

also long overdue.

Perhaps the present downturn is an opportunity. But

without fixing those structural issues, there will be no

foundations to build on once the market rebounds. ■

T

here doesn’t seem to be a strategy to expand the in-

dustry. We’ve been suckling too long on the oil and

gas teat.” However provocative, that stray comment

from one of the organising team at the HAI Heli-Expo

show neatly captures the state of the rotorcraft sector.

Hamstrung by a plunging oil price and allied to global

economic uncertainty and shrinking government budg-

ets, helicopter sales tumbled in 2015.

With orderbooks proving much less robust than orig-

inally thought, the big airframe and engine manufac-

turers shied away from product launches in Louisville.

Two phrases kept cropping up: that the downturn is

actually a golden opportunity; and that service and

support networks are being significantly expanded. See Show Report P

In need of overhaul

Too much power

Tier 1 suppliers are being driven towards efficiency improvements by larger manufacturers, but

• as shown by Honeywell’s move for UTC – that doesn’t mean they should get overly ambitious

But the manufacturers may be partly to blame for the

market environment that prompted Honeywell’s offer.

Although commercial backlogs and delivery rates are

at record highs and climbing, Airbus and Boeing have

struggled to consistently translate volume into pricing

power, and are putting more pressure than ever on

their supply chains to reduce costs and innovate.

While that is a positive development for airlines and

the travelling public, it means suppliers are increas-

ingly struggling to keep up with the volume and ad-

vanced technology requirements of the OEMs.

That creates pressure for further consolidation. The

trend has been developing quickly at lower levels, but

until now, the Tier 1 systems and engine suppliers have

stood immune from the trend. All the while, they face

only growing cost and innovation demands.

Manufacturers such as Airbus and Embraer can

breathe a sigh of relief that Honeywell has publicly

backed away from the merger proposal with UTC – for

now, at least. But the trend is not going away. ■

I

ndustry consolidation has many useful purposes.

Combining two organisations enlarges the economic

and intellectual pool of resources, allowing the merged

company to accept more risk to compete and innovate.

It reduces overlapping back-office functions, making

the entire industry more efficient and focused on the

most essential tasks: developing, making and support-

ing products and services.

That’s the textbook, happy-face side of the argument.

But there is sometimes a darker, real-world reason for

the combination of once independent businesses: to

mask structural weaknesses by assuming near-monop-

olistic power over a portion of the supply chain.

Where Honeywell’s aborted attempt to merge with

United Technologies (UTC) ranges on that spectrum is

difficult to gauge. Both are already large conglomerates

with significant and complimentary businesses outside

the aerospace industry. Within it, however, the picture

is more muddled, with overlapping interests in small

turbofan engines, plus electrical and air management

systems. The complimentary pieces of a joined product

portfolio also raised larger concerns.

For Embraer, a merged Honeywell-UTC would own

more than 70% of its E190-E2 regional jet by value,

counting the engines, nacelles, avionics, auxiliary

power unit, and electrical and air management sys-

tems. Little surprise then, that the chief executives of

Embraer and Airbus publicly criticised this attempt to

consolidate market power. See This Week P

A need to reduce costs and

innovate creates pressure

for further consolidation

How’s this for product innovation?

Jonathan Hordle/REX/Shutterstock

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