Raging battle to power airliners

Updated: Mar 25 2006, 05:30am hrs
GE Aviation had orders for aircraft engines worth over $3 billion in 2005 from airline companies in India. Its joint venture company with Snecma (the latter has been acquired by French technology group Safran, for the record) titled CFM had orders worth over $1 billion in its kitty. Rival International Aerospace Engines (IAE) mopped up deals worth $3 billion in 2005, while Rolls Royce and Pratt & Whitney, both of which have a 33% stake in IAE, pocketed a cool $1 billion each as a result of IAEs deals. The deals mark an unprecedented demand for aircraft engines from India.

But a host of factors go into deciding the engine family that must go with an airliner. With orders for over 400 planes already placed in the last one year, up from the current 235, global engine manufacturers are making the best of the opportunity at hand. Most planes require two engines (in the case of wide bodied aircraft the figure could go up to four), so the overall need for engines is considerable given the orders placed.

No wonder engine manufacturers are engaged in an intense battle with each other to sell their products in the country.

The hottest-selling plane in India at the moment is the Airbus A320. Those competing for installation of their engines on the aircraft include IAE (V2500 engine) and CFM (CFM-56 series). Typically, an aircraft manufacturer certifies a particular engine or engines for its planes, and more the number of engines certified, greater is the competition among engine manufacturers.

Says Bill Blair, country director, GE Aviation & Rail: On narrow bodies, the market share between CFM-56 and V2500 is equal at 50 % each in the country. On wide bodies, Pratt & Whitney has a 60 per cent market share to GE-CFMs 40%. However, Rolls Royce, which represents IAE in India, has a different point to present.

Says a spokesperson of the Delhi-headquartered company: The V2500 is a market leader taking more than 50% of the Airbus A320 family market in the world in 2005. In India, too, the trend is similar with the engine being extremely popular with operators. If competition between players is tight for the A320 family, for rival Boeing 737 - another popular aircraft - the options are limited.

The plane is powered by the CFM-56 jet engine on account of a sole-sourcing arrangement with Boeing. Similarly, the GE-90 engine is the only one certified for the Boeing 777-300 ER and 777-200 LR (not 777-200 ER, which has a choice of GE, Rolls Royce and Pratt & Whitney engines), giving the company an edge over its rivals in this area. Pratt & Whitney, meanwhile, has a distinct advantage with ATR aircraft with both the ATR 42-500 and ATR 72-500 powered by the turbo-prop PW100 and 127 engines respectively. Some other sole-sourcing arrangements include Rolls Royces Trent 900 engine programme for the giant A380 and the CFM-56 programme for the A340 (the A330 and A350 have a choice of engines much like Boeings 787 Dreamliner, which has GEs GenX and Rolls Royces Trent 1000 engines). Says a source with the Seattle, Washington-based Boeing: A sole-sourcing arrangement is a sure-fire way of ensuring sales since the customer would have to necessarily purchase the engine if he wants a certain type of aircraft. This way discounting comes down. But the fight for engine certification is intense with players actively bidding for the same. Of course, the ones with the most competitive bid and the right technical parameters are finally selected by the aircraft manufacturer.

Says R D Thakur, chief engineer, SpiceJet, From an operators point of view, what is critical for us when selecting an engine is fuel efficiency, reliability, low foreign object ingestion and good life of critical parts including high-cost items such as shafts, compressors etc.

What binds all the elements together is price and support - two very crucial aspects of an engine deal. Like aircraft manufacturers, engine makers too permit negotiations on price, but the level of discounting is high - almost 70 per cent of the list price to the 30-40 per cent conceded by aircraft manufacturers to operators. Says Vishwa Mohan Sahai, a veteran with 37 years in the aviation business, who is currently head of engineering at Chennai-based cargo carrier Crescent Air: Selling engines is not profitable for players. Where they make money is in the sale of spare parts, providing support, maintenance, repair and overhaul services.

By some estimates, the revenue skew of sales to after sales in an engine deal is about 30:70 bringing to the fore the importance of the latter, popularly called after market. Says Bharat Malkani, chairman of Mumbai-based component repair company Max Aerospace: Support is at the heart of the deal struck by engine manufacturers. And it can take various forms.

Says an Air India official, Some manufacturers provide a total care package, where the operator is billed per hour of flying. With China and India moving into the league of the largest buyers of aircraft in the world, Asias share is sure to see a spike.