The European Commission's probe into aircraft parts industry
It has been reported that the European Commission sent out detailed questionnaires to more than 40 airlines, aircraft component manufacturers and others to gather information regarding their maintenance and service contracts. The initial focus of the probe related to certain aircraft engines. Britain's Roll-Royce and France's Safran are among those who have been approached by the Commission.
Earlier this year the International Air Transport Association, which represents more than 200 airlines, voiced its concern that there is a lack of competition in servicing work in the aviation industry. It is known, for example, that engine maintenance is the biggest repair bill for airlines, and that contracts to 'repair' rather than to 'sell' engines are the most lucrative part of engine makers' business. These contracts contain multiyear maintenance and service provisions. As a result, airlines' options to use third-party venders are often limited. Willie Wash, CEO of British Airways, said in July: "If we don’t challenge the restrictive practices that exist, we will be held captive, and costs as we've seen before will rise well in excess anything that is justified."
In the current questionnaire, the Commission is particularly interested in two products: CFM56 engines and auxiliary power units. It has previously found that suppliers of these two products have dominant market presence. A dominant position is not in itself anti-competitive. It becomes anti-competitive where there is an abuse of that dominant position.
It now appears that the EU Commission's probe has broadened to include flight services, landing gear and in-flight entertainment.
In Japan, aircraft component production is a rapidly growing industry and manufacturers are expanding production facilities all over Japan. Mitsubishi Heavy Industries, for example, has invested 30 billion yen in Hiroshima Machinery Works. Kawasaki Heavy Industries has also invested 44 billion yen in Gifu Works and other plants. IHI, a producer of heavy machinery, and JAMCO, a supplier of aviation interiors, are both launching new factories in Nagano, Niigata and Miyazaki Prefectures. It is reported that the new facilities will start operations next year and supply both Boeing and Airbus.
If the Commission decides that it is concerned about an abuse of dominance, it may launch a formal investigation. It could also further expand the scope of that investigation into other products and areas.
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