Major OEM agrees to Policy re access to Information
Manufacturers may claim Intellectual Property Rights
Repair Stations applaud Policy
In 2015 the EU Directorate-General for Competition (DG-COMP) initiated an investigation into claims of abuses of dominant positions by original equipment makers (OEMs) with respect to their control of aftermarket repairs, including parts and services. To develop evidence the DGC issued questionnaires to several industry stakeholders, including airlines, requesting information to determine the level of control of aftermarket repairs, including parts and services by the OEMs.
In March 2016 IATA sought to become a complainant in the DG-COMP investigation.
On July 31, IATA announced that based on an agreement with CFM Jets International, the association of 290+ airlines will withdraw the complaint against CFM, joint venture between GE Aviation and Safran Aircraft Engines. The announced terms of the settlement are:
- License its Engine Shop Manual to an MRO facility even if it uses non-CFM parts
- Permit the use of non-CFM parts or repairs by any licensee of the CFM Engine Shop Manual
- Honor warranty coverage of the CFM components and repairs on a CFM engine even when the engine contains non-CFM parts or repairs
- Grant airlines and third-party overhaul facilities the right to use the CFM Engine Shop Manual for without a fee
- Sell CFM parts and perform all parts repairs even when non-CFM parts or repairs are present in the engine
[this agreement applies to both the CFM56 and LEAP engines.]
[GE, moreover, has agreed to apply the Conduct Policies to other commercial aircraft engines that it produces in its own right.]
Alexandre de Juniac, IATA’s Director General and CEO explained, “…the agreement is to “lead to increased competition among the providers of parts and services related to the servicing of CFM engines… We expect increased competition will reduce airline operating costs and help to keep flying affordable. And we hope that this agreement will be an example for other manufacturers to follow“.
The last sentence is more than a closing; for in fact the DG-COMP has its investigation pending against the other OEMs. Will the other OEMs adopt the same Code? Or with DG COMP convince/compel the other OEMs to adopt this standard?
ARSA, the US trade group representing repair stations, agrees with the IATA settlement but urges more:
“’This agreement shows how powerful the global airline community can be when it is determined,’ said Sarah MacLeod, ARSA executive director. ‘the airlines applied pressure and contractual obligations to address problems that go beyond minimum safety regulations. IATA ensured the contract ‘beneficiaries’ included airlines, lessors, parts manufacturers and independent repair stations. Aviation safety agencies grappling with maintenance data availability issues should not take this agreement as an answer to their obligations to establish and ensure compliance with basic safety requirements.’
ARSA assisted the EC in its initial investigation of IATA’s 2016 complaint by responding to a questionnaire seeking in-depth information on certain practices of specific design approval holders. The association’s responses focused on aviation safety rules and how the national aviation authorities’ failure to enforce regulations even-handedly directly affected competition.
‘This agreement is an important lesson,’ said Marshall S. Filler, ARSA managing director and general counsel. ‘IATA and CFMI deserve a lot of credit for its comprehensive nature – it establishes a model for future contract negotiations between aircraft purchasers and the entire manufacturing community.’”
Whether a competition authority can order OEMs to release manuals and other information may involve safety and intellectual property rights;
The economics/finances of both airframe and powerplant manufacturing are well known (See John Newhouse, The Sporty Game). The massive capital (for example, “P&W has invested 20 years of research and $10,000,000,00 to engineer the geared turbine”) of the plane and its engines requires years to recover (i.e. Boeing’s B-787 made its first dollar over its investment at year ten). If the fully allocated cost of Airplane #1 in a model line was charged, the cost would be immense. To make the initial deal more commercially viable, the manufacturers price their products based on the expected total value of initial charge plus the expected earnings stream FROM the aftermarket sales.
A comprehensive antitrust decision must determine whether the sale of the replacement parts is priced above their costs. Erudite cost accountants and micro economists will have to study whether this “bundled” price (original plus spares) exceeds the appropriate costs or whether the OEMs have used the limited availability of certificated parts as well as the restrictions on repair manuals and data) to raise their charges above some lawful number.
The restrictions pose an even more complex examination. When an OEM sells one of these large capital assets, certain manuals and data are part of the transaction. It has been alleged that the information so transmitted may not be adequate for the plane/engine owner to develop repairs and parts internally. The counter argument is that full disclosure would allow competitors to replicate the OEM products. If the OEMs cannot protect their intellectual capital, then their incentive to research will be diminished. If the consequence of the DG-COMP and/or US DoJ is to prohibit this practice, the result may be a diminution of safety.
Clearly this is a big win for IATA and ARSA, but will its impact reach all OEMs.
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