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Servitization in Aerospace 

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When you mention the aerospace industry, grand images of roaring engines, cutting-edge fighter jets, and vast passenger airplanes crisscrossing the globe might flood your mind. For decades, this sector has pioneered technological advancements. But did you know that many believe the very essence of servitization in modern industries has its roots deeply embedded in aerospace?

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Servitization in the aerospace industry means transitioning from selling aircraft and components to offering a bundle of services like maintenance, training, and performance monitoring to support the entire lifecycle of aerospace products.

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Way back in 1962, Rolls-Royce planted the seed of servitization with their groundbreaking 'Power by the Hour' (PBH) program. This wasn't just a maintenance plan; it was a revolutionary way of thinking. Instead of just selling Viper engines for its business jets, Rolls-Royce sold comprehensive solutions. The PBH program ensured that engines were not only provided but also maintained, ensuring peak performance throughout their lifecycle. This was a game-changer not only in the ways to provide value to customers (i.e. deliver power, not the engine, as the value), but also in the way the pricing was set for the delivered value (i.e. per-by-hour). With that, Rolls-Royce set the stage for the future of many industries, but especially aerospace.

 

Fast forward to today, and servitization is more than just a historical footnote. It's the driving force behind the next era of aerospace innovation. By seamlessly intertwining services with products, aerospace companies are set to redefine value, champion operational efficiency, and take customer satisfaction to atmospheric new heights.

Advanced Service Types in Aerospace: The Sky is the Limit

 

The future of the aerospace industry is not just about flying higher, faster, or further. It's about harnessing a plethora of advanced services to ensure safety, efficiency, and utmost customer satisfaction. As the industry gravitates towards servitization, several service types are emerging as game changers.

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  1. Flight-as-a-Service: This isn't just about flying from point A to B. Airlines are now offering holistic solutions, ranging from meticulous route planning and efficient ground services to the finest in-flight amenities. 

  2. Maintenance, Repair, and Overhaul (MRO) as a Service: In an ever-evolving world of aviation, standing still is not an option. Companies are not only rejuvenating older aircraft through retrofit solutions and tech-driven upgrades but also ensuring they remain at their peak performance through comprehensive Maintenance, Repair, and Overhaul (MRO) services. This approach goes beyond mere machinery; it's an intricate dance of art and science. While upgrades infuse aircraft with the latest in aviation technology, MRO ensures they operate in pristine condition, merging the best of past and present for a skyward future.

  3. Data Analytics and Insights: Modern aircraft are more than just feats of engineering; they're repositories of invaluable data. Aerospace companies are adeptly harnessing this information, transforming raw data into actionable insights. This mastery not only elevates operations and amplifies safety measures but also reshapes the passenger experience into something truly unparalleled. But it doesn't stop there. Data, in its essence, is more than just numerical values. When meticulously analyzed, it provides profound insights, enabling companies to fine-tune flight routes and achieve peak operational optimization. In this era of aerospace, data is the compass guiding excellence.

  4. Predictive Maintenance and Performance Monitoring: By harnessing the power of sensors and data analytics, aerospace companies are taking a monumental leap forward. This technological tandem not only anticipates potential equipment malfunctions by the use of remote monitoring, ensuring proactive maintenance and significantly reducing downtime but also dives deep into aircraft and component data. The result? Optimized fuel efficiency, reduced emissions, and refined operational effectiveness that set new industry standards.

  5. Fleet Management: Consider this an all-encompassing umbrella solution for aircraft fleets. From strategic logistics to hands-on maintenance planning and resource allocation, it's all about efficiency and readiness.

  6. Digital Twin Solutions: Step into the future with virtual replicas of actual aircraft. These twins facilitate real-world scenario simulations, aiding in testing and providing predictive insights.

  7. Training and Simulation: Beyond machinery, it's the human touch that counts. Tailored training programs and advanced simulation tools ensure that pilots, crew, and maintenance personnel are at the top of their game.

 

With such a diverse array of services, the aerospace industry isn't just focused on reaching new heights; it's determined to ensure the journey is as smooth, efficient, and innovative as possible.

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Digitalization is the Catalyst of Servitization for Aerospace Industry

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The winds of change are blowing through the aerospace sector, and digitalization is the force behind it. This transformative wave isn't just about integrating digital tech sporadically. It's about a comprehensive merger of digital technologies, data analytics, and cutting-edge software solutions, reshaping the very core of aircraft design, manufacturing, operations, and maintenance.

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  1. Digital Twin Technology: Think of these as virtual doppelgangers of actual aircraft. They allow for real-time monitoring, intricate simulation, and rigorous testing, mirroring every nuance of their real-world counterparts.

  2. Data Analytics: Beyond number crunching, this is the tool for informed decision-making, bringing about predictive maintenance and fine-tuning performance down to the smallest detail.

  3. IoT Connectivity: The pulse of the modern aircraft, IoT connectivity, ensures that every aspect of equipment health and operational conditions is monitored in real-time, keeping potential issues in check.

  4. Additive Manufacturing (3D Printing): Say goodbye to prolonged production timelines. With 3D printing, even the most intricate components can be produced faster and with greater flexibility.

  5. Augmented & Virtual Realities (AR & VR): These are no longer just buzzwords. Augmented and Virtual Reality are making training more effective, maintenance procedures more efficient, and design reviews more immersive, contributing to elevated safety standards and operational efficiency.

  6. Artificial Intelligence (AI): The possibilities are endless with Artificial Intelligence. Whether it's predictive maintenance, optimizing flight routes, scheduling crew efficiently, pilot assistance, or assessing risks, AI is the unseen brain behind it all.

  7. Remote Operations: The days when aircraft systems needed hands-on monitoring are vanishing by the days! With digitalization, systems can be monitored and even controlled remotely, paving the way for potential autonomous operations.

 

In essence, digitalization is not just an addition to the aerospace industry; it's becoming its very backbone, accelerating the servitization wave and ensuring that the skies of tomorrow are efficient, safe, and sustainable.
 

Success Stories for Servitization in the Aerospace Industry

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Every revolution needs its trailblazers, its pioneers who stand as a testament to the potential of the new path. As the aerospace industry gravitates towards servitization, we've seen some remarkable success stories. These companies aren't just adapting; they're thriving, showcasing the multifaceted advantages of integrating product and service.

 

  1. Rolls-Royce's Power by the Hour & TotalCare - A Servitization Mastery: Pioneering servitization, Rolls-Royce introduced "Power by the Hour (PBH)," a transformative approach allowing airlines to pay for engine power, not just the engine. This model elevated operational efficiency and boosted customer satisfaction. Taking it a step further, Rolls-Royce's TotalCare embodies a holistic vision for aircraft engines. From regular maintenance and repairs to the innovation of predictive maintenance through data analytics, it offers a seamless experience. With a predictable hourly rate, airlines can fly with peace of mind while Rolls-Royce drives the optimization.

  2. Boeing Global Services: Beyond crafting aircraft, Boeing's service portfolio spans parts, training, maintenance, and engineering support. It's about empowering airlines to soar with Boeing ensuring meticulous fleet maintenance and optimization.

  3. Airbus Skywise & Services: Airbus’s Skywise isn't just a platform; it's a pulse of the aircraft universe. Through its data-driven prowess, it offers preemptive insights, spotlighting potential disruptions ahead of time. Complementing this, Airbus Services adopts a holistic approach, delivering a rich suite of solutions from training to fleet management and upgrades. Their Flight Hour Services exemplify this commitment, ensuring thorough support pegged to actual flight hours.

  4. General Electric OnPoint: At the heart of GE Aviation's OnPoint solution is the promise of life-cycle support. This comprehensive offering encompasses maintenance, repair, overhaul services, and an unwavering focus on minimizing downtime.

  5. Lufthansa Technik: Lufthansa Technik's prowess extends to multifaceted aircraft maintenance and engineering services. Their standout offering, the Total Component Support (TCS), is a flight-hour-based program, that ensures optimized component maintenance.

  6. Embraer TechCare: Embraer’s TechCare is a symphony of services, ranging from maintenance to technical support and training. The program is sculpted with a singular focus — enhancing operational prowess and ensuring customer delight.

  7. Honeywell Forge: Honeywell's Forge is a nexus of data analytics and predictive foresight. Its chief aim? Optimal aircraft operations, underlined by insights into health metrics, fuel frugality, and strategic maintenance planning.

  8. Thales Avionics: Thales’ Avionics as a Service (AaaS) reshapes accessibility. This subscription-based offering allows airlines to tap into avant-garde avionics solutions without the weight of upfront costs.

  9. Textron Aviation ProAdvantage: Tailored excellence is the mantra of Textron Aviation's ProAdvantage program. From maintenance to parts and support, customers are handed the reins, ensuring services align with their unique needs and financial contours.

 

Each of these stories stands as a beacon, illuminating the potential and promise of servitization in aerospace. They’re not just adapting to the times; they’re defining them.

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Servitization Challenges for Aerospace Industry

 

As the aerospace industry pivots towards a service-oriented paradigm, a slew of challenges await. From cultural shifts to intricate ecosystems, let's delve into the intricacies of this transformative journey.

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  1. Cultural Shift: Transitioning from a traditional product-centric model to a service-oriented one isn't a mere business strategy adjustment; it's a profound cultural transformation. Resistance from stakeholders, lack of buy-in from employees, and inherent organizational inertia can pose significant hurdles.

  2. Complex Ecosystem and Contract Management: The aerospace domain is intricate, weaving together manufacturers, suppliers, maintenance providers, and regulatory bodies. As services become intertwined, not only does the coordination of these stakeholders become a daunting task, but the management of multifaceted contracts also turns increasingly complex.

  3. Regulatory Compliance: This industry stands tall on regulations. The infusion of services brings with it potential compliance challenges, particularly concerning safety, maintenance standards, and crucial certifications.

  4. Data Security Concerns: As digital tools take center stage, guaranteeing the security and integrity of data rises in significance. A breach isn't just about lost data; it's about eroded trust.

  5. Skills and Training: It's not just about having people; it's about having the right people. Providing these advanced services requires a workforce that's both skilled and regularly updated. From on-ground technicians to decision-making executives, the emphasis on continuous training becomes non-negotiable.

  6. Technology Integration: The digital age demands the melding of various technologies. The integration of IoT, data analytics, AI, and more into the pre-existing fabric of operations can be daunting. And it's not just about the integration; it's about the investments that back them.

  7. Customer Expectations: Lastly, there's the end-user, the customer. Those who've grown comfortable with traditional purchasing might find this shift challenging. It becomes the industry's task to not just meet but exceed these evolving expectations, showcasing the undeniable value of integrated services.

Conclusion

 

The aerospace industry is on the cusp of a revolution, and servitization is its beating heart. By integrating services and products, companies can ensure they not only stay ahead of the curve but also deliver unparalleled value to their customers.

 

For those ready to embark on this journey, Avrogan is here to guide the way. As a leading servitization strategy provider, Avrogan offers the Avrogan Service Excellence™ - its advanced SaaS solution developed for configuring, pricing, monitoring, and managing advanced service contracts seamlessly. If you are ready to take your aerospace business to new heights, let us at Avrogan be your co-pilot.

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  • Does Avrogan support pricing excellence initiatives?
    Yes, any manufacturing company requires to establish processes and methodologies to achieve pricing excellence in Product pricing, Spare Parts pricing, Service pricing (both legacy and digital services), and data monetization. Avrogan’s team can support the operational deployment of such initiatives.
  • What is high-quality pricing?
    High-quality pricing is pricing that is easy to explain and defend to the customer. Such pricing is in proper alignment with the brand positioning within the market and in comparison, with other competitors. Customers can easily relate to the prices and there is a willingness to pay for the prices.
  • What is the main pricing methodology that Avrogan can support our organization with?
    We support the operational transformation to Value-based and market-driven pricing as the main methodology that can properly reflect customers’ perception of value to make sure no business is lost due to over-and underpricing. Over-and underpricing is the common result of cost-based pricing or blind following of competitors.
  • Why should we focus on price improvement rather than cost reduction?
    Pricing is the strongest lever in business to improve profitability. Within the manufacturing industry, 1% price improvement can result in 3 to 7 times margin improvement in compare with improvement in other levers such as Cost, Volume, etc.
  • What is pricing power?
    In simple terms, it is your ability to increase prices without losing a considerable number of customers. If you are scared that many customers will leave you due to your price increase, your pricing power is probably low.
  • Why pricing power is important?
    “Pricing power is the most important factor in evaluating businesses…” Waren Buffet
  • How can we improve our pricing power?
    By improving your pricing quality. High-quality pricing is easy to defend and explain. You don’t need to give away in discounts to persuade the customer to pay the price. In other words, your price should be in harmonization with customers’ value perception in the market.
  • Why cost-based pricing is not the best option?
    Direct reliance on cost for pricing will increases the chance of low-quality pricing. Cost levels are usually defined based on factors that are not in your control and customers cannot relate to them if you pass the cost by adding a constant margin on top to the customers. It is also hard for the sales teams to defend such prices towards the customers and usually being crushed by customers’ urge for discounting.
  • How Avrogan’s way of working can support the transformation toward high-quality pricing?
    While we have a look at market conditions, competitors, and cost as guidance metrics, we try to measure and grasp customers’ value perception and willingness to pay with the help of various quantitative and qualitative studies and analyses. The aim is to put the pricing into the context of different products and offerings of the business and draw a harmonized pricing logic across each category of offerings to create a consensus across the organization about the value that is offered and the value to be captured.
  • Is value-based pricing about increasing the prices?
    No, the goal is to make sure all prices are in harmonization with customer perception of value. In this process, some prices will be increased, and some will be decreased. Therefore, businesses can expect improvement both in margin and volume for the whole business
  • What is the typical gain out of pricing excellence initiatives?
    We have seen companies can easily achieve 5% to 15% gross margin improvement as a result of pricing excellence initiatives for products and spare parts. The ultimate gain depends on the readiness and the effort deployed by the business in realizing the profitability impact.
  • What is a typical project length?
    Depending on the scope, operational pricing projects take between 3 to 9 months. For a more detailed estimation please contact us.
  • We have deployed a pricing excellence initiative couple of years ago, but we lost the knowledge during the years. How Avrogan can support us?
    It is a challenge that some companies lose track of their achievements over couple of years, as the knowledge is not passed on properly within the organization. We always suggest and provide easy-to-maintain documentation, plus we suggest the usage of pricing management solutions. ERP or excel are not proper tools to maintain and manage sophisticated pricing frameworks and logic.
  • Can Avrogan support our pricing solution acquisition process?
    Yes, Avrogan’s team has high knowledge of existing pricing solutions in the market for the manufacturing industry. We can support your required documentation and selection process.
  • What are the steps in value-based pricing for spare parts?
    We start with creating a pricing-focused product structure where we can put together similar spare parts into groups. Then we defined value drivers together with your product specialists and marketing teams. In the next step, the data values of these value drivers are gathered. In the final, step a pricing logic is defined based on the value drivers and with the look at market conditions, any available competitor data, and of course margins. This logic creates a central reference price. This reference price is then transformed into suggested market prices by applying the market price level adjustment factor. When prices are ready, feedback will be gathered from marketing, product management, and sales teams to assure the acceptance of the new prices before market implementation.
  • We have bad data quality; can we still apply value-based pricing for our aftermarket business?
    You are not alone. We have seen such challenges over and over and we have different solutions to still navigate through such challenges. Contact us to discuss a detailed proposal for your business.
  • Why cross-border business happens?
    Cross-border business happens when there is enough price gap (list or net) between two market regions where a trader can sell the product at a lower price in the landing market while they realize an acceptable profit. As a rule of thumb, a trader should have a minimum of 15% of margin after all costs for the trade to start doing the trade.
  • What is the actual damage of cross border business for our company?
    It depends on who performs the trade. If the cross-border trading happens by the company’s sales network, the damage is proportional to lost market value for the landing market’s sales company. If it happens by a third party, the damage is the total loss of market value for the landing market. It will anyway affect the price positioning of the company within a specific market and will put higher pressure on margins.
  • We have a cross-border business issue. How can we improve that?
    Avrogan’s team has experience and tools in assessing the risk and mitigating it by improving pricing harmonization across markets where your business is active. To have an assessment of the potential risk in your business contact our team.
  • How can we increase the success rate of our pricing excellence initiative?
    It is important to share the information about the initiative from the beginning and involve all relevant stakeholders within the project to assure the high-quality results and acceptance of the new prices. In this process receiving proper feedback and involving the sales teams are crucial.
  • Can Avrogan support the change management process and go to market activities?
    Yes, we have the training and a structured sales enablement methodology to support the release of new prices to the market and how sales teams should respond to tough questions from customers.
  • We need support on where to start with pricing. Can Avrogan support that?
    Yes, we have maturity and readiness assessment tools that we can apply to your business. To get more details please contact us.
  • What kind of market research methodology should we use for improving our pricing quality?
    There are different methodologies for different purposes. Some of such market research methods are more qualitative like the VEL study which defines the perceived brand and price positioning of the business in the market, while some others are more quantitative like Conjoint analysis which can support defining price threshold and market share potential through statistical analysis. Please contact us to design the proper market research model for your business.
  • We need to improve and align pricing knowledge across our organization, can Avrogan support that?
    Yes, we have detailed and operational pricing training for products, spare parts, and service pricing. Please contact us to review the syllabus and design the most appropriate educational program for your team.
  • What differentiates a product-centric model from a service-centric model in manufacturing?
    A product-centric model focuses on selling products as a one-time transaction, while a service-centric model, often seen in servitization, focuses on selling the product bundled with value-added services to foster long-term customer relationships and recurring revenue.
  • How does servitization benefit customers?
    Servitization can offer customers greater value by providing a comprehensive solution with lower risk and higher performance that goes beyond the product itself. This can include tailored services, improved customer support, increased reliability, and reduced total cost of ownership.
  • How can servitization impact revenue streams?
    Servitization can diversify and stabilize revenue streams by generating recurring income from service contracts. This is in addition to the traditional one-time income from product sales. Additionally, increasing the service revenue, which normally has higher margins, will increase the profitability and thus improve the bottom line.
  • What role does data analytics play in servitization?
    Data analytics is crucial in servitization as it helps businesses understand customer behavior, predict service requirements, personalize offerings, and make informed decisions. This data-driven approach enables companies to optimize their service delivery and enhance customer satisfaction.
  • What impact does servitization have on sustainability and the circular economy?
    Servitization can contribute to sustainability by encouraging the efficient use of resources and reducing waste. This is because a service-centric approach often includes maintaining and upgrading products over time, rather than replacing them. This can help foster a circular economy, where resources are used as long as possible, extracting their maximum value.
  • How does servitization fit into the Internet of Things (IoT)?
    Servitization and IoT go hand-in-hand. IoT devices can collect and analyze data to provide insights that help companies deliver tailored services, predict maintenance needs, and create new revenue opportunities.
  • How does servitization fit into Industry 4.0?
    Servitization fits perfectly into the concept of Industry 4.0, a term that refers to the fourth industrial revolution characterized by the digitalization and interconnection of industrial processes. In Industry 4.0, technologies such as the Internet of Things (IoT), Big Data, Artificial Intelligence (AI), and cloud computing have a transformative impact on the way businesses operate. These technologies enable businesses to collect and analyze vast amounts of data in real-time, leading to a better understanding of customers' needs, improved operational efficiency, and the creation of new business opportunities.
  • How does servitization impact competitive differentiation?
    With servitization, companies can differentiate themselves by offering unique value-added services that competitors may not or cannot offer, because normally service offerings are connected to expertise and know-how knowledge than a physical product that in many cases can be replicated or have alternatives. This enhances customer loyalty and provides a competitive edge in the market.
  • What is the relationship between servitization and customer loyalty?
    Through servitization, businesses aim to nurture long-term relationships with customers. By delivering a combination of products and high-quality services tailored to customers' needs, they can enhance customer satisfaction and loyalty, and transform them to “clients”!
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Dr. Arsham Mazaheri

Chief Operating Officer

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Arsham is a data scientist by background, with 17+ years of industrial and managerial experience in various disciplines. Throughout his career, Arsham has helped many of Fortune 500 companies with their data and requirement challenges and has been involved in many IT solution implementation projects. Arsham has both mechanical and industrial engineering backgrounds and has a D.Sc. in Risk Management from Aalto University in Helsinki, Finland. He is a certified change and problem manager (CCM & CPCM) and holds an MBA in shipping and logistics.

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