Managing Director, EMEA
Over the last years, Business Aviation has seen a lot of consolidation on both the operator and the supply side. Whereas the operator consolidation has slowed down significantly, in 2019 we seem to be seeing a sharp increase in consolidation on the supply side of the industry. Let’s look at Maintenance, Repair and Overhaul (MRO) services and Crew Simulator Training as an example.
Within the first half of 2019, several major acquisitions have been taking place within the MRO landscape. In Europe, Dassault Aviation went and acquired three large maintenance businesses: Execujet’s and TAG Aviation’s Maintenance businesses, and lately Ruags Geneva and Lugano maintenance sites. In Asia-Pacific, Jet Aviation made huge strides to extends its reach by acquiring Hawker Pacific, a significant maintenance, FBO, and aircraft sales company.
The picture is even starker in the supply of crew simulator training. CAE recently acquired Bombardier’s training facility, effectively rendering the crew simulator training market place to a worldwide duopoly shared between Flight Safety International (FSI) and CAE dominating the space.
Are suppliers becoming even more powerful in business aviation through consolidation?
Let’s take a quick look at what renders a supplier powerful in a market. A supplier can exert power over a buyer if there are few suppliers and many buyers, the buyer incurs high switching costs when switching from one supplier’s service to another and the buyer does not represent a large portion of the supplier’s sales.
I would argue that all of the above points are applicable to the business aviation market. The operator landscape remains heavily fragmented, a lack of purchasing intelligence creates a high risk of changing suppliers and therefore creates a perceived high switching cost and a single operator will only be a small cog in the wheels of a large supplier.
Why this consolidation may become a real concern for me as an operator?
Simply put, with increased power over the you, your supplier can raise prices, lower quality, or reduce availability of their products. None of this can be the preferred outcome for individual operators, nor the entirety of our industry, which relies on financially healthy operators to keep aircraft flying.
As an operator, what can I do to counterbalance this trend?
Use independent outlets. Independent outlets can often provide you with a great value proposition and a highly personalised service to your operation.
Do your homework. You may perceive high switching costs but increasing your purchasing intelligence will allow you to reduce risks attached with switching your supplier.
Calculate your costs in the long-term. Yes, you may incur some immediate costs when switching your supplier, but make sure you calculate the return on investment in the long-run. Even including those costs, changing to a supplier with lower unit prices will cost you less in the long-run than remaining with a supplier charging you higher unit prices.
[Consolidate or] join an independent group purchasing organisation (GPO). Buying in conjunction with a larger group will of course make you stronger and allow you to counteract the imbalance between your suppliers and your operation.
Above all, what becomes apparent is that our industry keeps changing quickly and all market participants need to be well aware of and react to ongoing changes to stay competitive. Working together to create a balanced, healthy market place that allows us all to run businesses is not just a dreamy vision but something that will become crucial to everyone in the industry.