Airlines and Aircraft Oems - Strategic Partnerships

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and even with their customers as the pace of global business accelerates. While groups of companies compete among themselves, the distribution of economic power in society changes and as seen in today’s business environments, single companies are increasingly nudged into forming alliances.

Engine Alliance (EA), a joint venture between General Electric and United Technology’s Pratt and Whitney, is an example of a successful alliance which drives synergy and provides sustainable value in commercial aviation. Their product, the GP7200, is a main competitor of the Rolls Royce Trent 900 which both provide the only options of powering the Airbus A380 superjumbo. The GP7200 has brought unprecedented savings in terms of fuel efficiency and carbon emissions, backed by the most extensive support network in the world, with support in more than 100 cities around the globe providing quick-turn around capabilities, component repair and engineering support.

Shared Knowledge and Expertise

In a strategic alliance, two or more parties pursue a set of common objectives while remaining as independent organizations. The synergistic effects from a strategic alliance result in a pool of resources which is far more valuable than the separated single resources available in a particular firm/organization.

Aside from the benefits obtained from pooling resources, each partner is able to concentrate on their competitive advantage, reducing administrative costs, R&D costs and cycle time.

In 2015, the European Space Agency (ESA) partnered with 28 firms and educational institutions, including Airbus Group, to refine its 3D printing techniques to further improve feasibility of 3D printed aerospace components. 3D printing technology has allowed an aluminum component on the Eurostar 3000 satellite to weigh 35% less yet 40% stiffer than a traditional component built out of individual parts and rivets. The collaborative partnership also explores the use of exotic and inexpensive materials – such as Invar.

“Normal metals expand when they heat and contract when they cool, but Invar has zero thermal expansion which is incredibly useful for satellite applications” - Airbus Group.

The largest international scientific joint venture ever undertaken in history currently orbits 250 miles over our heads at a blazing 17,150 mph – the International Space Station (ISS). Led by the National Aeronautics and Space Administration (NASA), the international JV of 5 space agencies involving 15 countries aim to bring together international flight crews, launch operations, training, engineering, communication networks, and the international scientific research community (source: NASA).

Reaching New Markets

Air transport is a major industry on its own, with airlines raking in revenues amounting to 5.4% percent of the national US GDP (FAA Economic Report, 2012). Global airline passenger traffic has been constantly outgrowing global GDP growth by a factor of multiples. Data compiled by IHS Economics shows in 2015, world GDP has grown by 2.7%, while the air traffic reached a 6% growth in the same year.

Commercial airlines in the US and the rest of the world are constantly challenged in an industry where low profits and high volatility conditions prevail. In the airline industry, carriers often enter into cooperative arrangements to generate greater revenue while reducing unit costs from economics of scale, and to strengthen their position by extending their foothold in the domestic and international market.

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ost of the largest carriers in the world are enrolled in one of the three existing strategic alliances - Oneworld, Star Alliance, or SkyTeam - which are often referred to as the global airline alliances (GALs). These networks of airlines connect passengers to their destinations at a marginal cost that would be impossible to be reached through organic growth. Airline cooperation can be either tactical or strategic, which will be further discussed below.

Tactical alliances usually consist of bilateral agreements between airlines, whereby individual airlines gain a limited number of routes from the other airline’s network. Tactical cooperation can be defined at three different levels, each involving various degree of collaboration - Interline, code sharing, and joint venture.

Interline involves the transfer of passengers and cargo from one airline to another on the passenger’s route, while each airline maintains its own identity.

Code Sharing is a partnership where one carrier markets service and places its code on another carrier’s flights. This offers carriers an opportunity to provide service to destinations not in their route structure.

Joint Ventures are revenue-sharing or profit-sharing partnerships between carriers on international routes, so that a partner’s revenue or profit generated from a passenger does not depend on which airline provided the service.

Strategic alliances are multilateral agreements in which member airlines share similar business objectives and coordinate their services to achieve common goals. Members of the alliance focus on the use of a common brand, a uniform service standard, share assets such as aircraft, staff, terminal facilities or capital resources. Ticket sales and inventory management, frequent flyer programs, and an emphasis on providing flight connections all over the world are key elements of strategic alliances.

Star Alliance is currently the world’s largest global airline alliance. Founded in 1997 and headquartered in Frankfurt, the alliance now operates over 4600 aircraft, connecting 641 million passengers to 98% of the countries worldwide.

(Source: Star Alliance, 2015). 

Increased Brand Awareness

The opportunity to grow market size in a partnership presents the additional opportunity to increase brand awareness. Constant, growing brand awareness is crucial to the development of any firms, regardless of a size and industry. Strategic alliances allows extended reach into a broader audience without putting in extra time and capital, while business risks are gradually reduced via risk sharing. With a strong and reputable brand in place, an alliance is able to influence not just the microeconomics of each partner, but also the macroeconomics of the industry.

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