New aircraft or aftermarket?

I was recently talking with someone who works for a manufacturer of aerospace waste water recycling systems. Out of curiosity, I researched the company and found that they offer a product that is lighter and more reliable than existing alternatives. The product is also modular and therefore easier to replace. My research on this company also indicated that they have just won contracts for supplier furnished equipment on various new business jet programs. To me this suggested a traditional mindset behind the company’s product strategy. It has long been a tradition in the aerospace industry for companies to invest heavily in development for new aircraft to monopolize the aftermarket. But the times, they are a changing, and companies can no longer count on holding on to monopolies for as long as they traditionally have.

There are trends underlying this shortened duration of aerospace monopolies. Perhaps the most important is the proliferation of PMA parts in the after-market. Besides making for an extremely competitive after-market, this signals a willingness on the part of companies to challenge monopolies. It also underlines customer's willingness to try cheaper alternatives. Airlines themselves face tremendous pressures to manage costs and are therefore more amenable to cheaper ways to operate. Another trend is the casting off of airline MRO’s as independent entities allowing them to aggressively pursue business beyond their captive airline customer. These MRO's already possess the technical capabilities required to perform repairs. When this capability is coupled with an investment in supply chain management and improved logistics, these MROs are able to offer better reliability along with technical competence matching the OEMs. Ironically, building volumes allows these MRO companies to negotiate better terms with the very OEM companies they supplant.  Together these trends make for an extremely competitive marketplace that challenges the traditional mindset.  

In the new market there are compelling reasons for companies with technically superior components to pursue the aftermarket.  For one companies whose products contribute to much bigger systems such as in an aircraft, tend to be treated as just another part of the bigger system. Typically the focus is on managing the overall cost of the system and each component manufacturer is competing with manufacturers of other components in the system for a better price. This limits opportunities to command a premium for what may be genuine improvements over existing alternatives. The aftermarket is an altogether different game in that each sub-system is evaluated in terms of its lifetime costs. This throws up opportunities to differentiate and to command better prices for features that will make a real difference to the customer. 

Coming back to the manufacturer of aerospace waste water recycling systems, I would question a strategy that exclusively focuses on new aircraft programs. I think this company, ought to pursue aftermarket work in parallel with new aircraft programs. Moreover, I think they should offer products with their best features in the after-market rather than on new aircraft programs.