Advances in computer technology are cited very often as a major disruptor in almost every major industry. Banking and finance, especially, is being challenged by the onslaught of digital firms offering user-friendly mobile and virtual banking and other products and services, presenting legacy brick-and-mortar firms with two options – change internally or acquire those same disruptors to leap-frog the development of digital technology. The aviation industry, however, while certainly not excluded from this global drive to digital, is – as many have stated – more of a follower than a leader in this regard.
“Although aviation has traditionally been among the most innovative industries, it might not necessarily appear as the most natural market to benefit from newest technology trends such as artificial intelligence,” says Bank of China’s Fiscel. “Aviation remains a bespoke, tailored market. One could however expect tremendous opportunities from recent hi-tech developments, including the use of blockchain technology in aircraft maintenance or parts history reducing documentation and facilitating aircraft transitions between operators.”
Aviation banks, which remain for the most part heavily relationship-based, are leading the charge by virtue of their enterprise efforts toward digitalisation.
DVB is contemplating using data analytics more and more for risk management purposes mainly. Access to accurate market data such as true market sale values and losses is a function of transparency. Access to most transactional data is limited by confidentiality agreements but Alava-Pons argues that the market should work together to provide anonymised data to help build beter risk models.
Natixis agrees that aviation finance is moving towards more predictive models based on statistics and automated calculations. “This may be pushed forward in the near future,” says Bedaine-Renault, who expects blockchain and/or Distributed Ledger Technologies (DLT) to keep on transforming broader future. business operations in the future.
“We expect this deep transformation to happen over the course of several years,” she says. “DLT will allow for more streamlined operations around our activities, from structuring to settlement, from cash flow computing and handling to collateral monitoring and valuation. By allowing the various actors of our market to share a single version of the truth in real-time or quasi real-time, DLT should considerably improve the operational efficiency of our activities which are traditionally labour intensive especially on the servicing side. This should also allow for a better service to our clients.”
Blockchain or DLT has the potential for major disruption in every industry but is being utilised more and more by airlines, MROs and parts suppliers. Honeywell for example has recently launched a blockchain parts repository.
One airline executive says: “Blockchain has very high impact possibilities for the sector but will take time for the market to adapt. Additionally, blockchain will also carry with it compliance and/or setup costs and these costs are yet to be determined.”
For the leasing companies, big data is an issue from the corporate level to aircraft management needs and something that all companies are grappling with.
“We have huge amounts of data, huge amounts of cash flows and huge amounts of information about our aircraft, which are necessary and have a real value impact on our aircraft, so we have to maximise our use of technology,” says Goshawk’s Ruth Kelly. “Having said that, lessors are not leaders or pioneers in technologically advanced thinking. We tend to be followers and users of other people’s innovations rather than necessarily pushing the agenda ourselves beyond the basics.”
The leasing market remains heavily paper based although certainly the larger companies are moving towards more digital technologies that will enable them to automate more of the standardised functions to become more efficient internally.
That said, one of the most forward thinking technological systems in the aviation industry is being pushed forward by the leasing community to solve a major issue for lessors – novations.
One the main challenge airlines and lessors wanted to solve was to reduce the time of novations – an ownership change of leased aircraft – which was a burden for airlines and held up trading for lessors.
The aim of the Aviation Working Group’s Global Aircraft Trading System (GATS) is to simplify the trade of leased aircraft in particular. Currently, the process involves reissuing a lot of paper documents to the lessee, including the lease agreement, warranties and shareholder certificates, among others. This incurs many costs and can take anywhere between six to nine months on average, and requires the active involvement of the lessee.
“Very few other industries have this situation where you have the lessee so fully involved,” says David Swan, chief operating officer of SMBC Aviation Capital.
The basic concept of GATS is for aircraft to be put into a bare trust structure to facilitate electronic trading by simply selling the beneficial ownership of the trust assets. Documents can then be shared and signed electronically using distributed ledger or other established technology. All of the leasing companies that are members of the AWG have signed up to use this system, which is poised to launch in the first quarter of 2019 and will be fully active by the end of the year. KPMG says that it is delighted to be involved in the development of GATS.
The lessors that participated in this report are all favourable about the potential of GATS but recognise that it is still early days.
“The concept is really positive in terms of efficiencies around trading of aircraft,” says Goshawk’s Kelly. “Aircraft are traded more and more extensively every year, and generally, there aren’t really huge problems trading aircraft, but the GATS initiative which make it more efficient and easier to do, so I’m not sure it’s going to materially increase the level of aircraft trading but hopefully it will make it easier and more efficient.”
The potential for further development of this technology is already being planned.
“The exciting thing is where you can go to next,” adds Swan. “You could use the system potentially to store all of the aircraft documents, the records, all the other lease documents, the warranties, all in one place. When you do your deal at day one, you save it all into this system. It’s all secure so that it’s ready to trade.”
Going one step further, having a global system of data set up by OEMs for all new airframes and engines would enable back to birth tracing of maintenance records, as well as fast scanning of bar codes for example for parts suppliers. For airlines, having integral, back-to-birth digital records would be invaluable for maintaining aircraft, since data will be more easily available and traced, as well as feeding into predictive maintenance tools.
For ORIX Aviation’s Meyler, there is major potential for emerging technologies on the technical record side. “There is a huge opportunity for a worldwide system for aircraft records to be digitalised that are transferable very easily. Using technology, it’s not expensive either, if all aviation parties to agree to all the various protections that are needed to make sure that the safety of the passengers and the aircraft are maintained. That absolutely will happen in the next couple of years.”
Issues relating to data ownership and access are constantly debated in the marketplace, which is hampering development, but it is clear that this is the way technology is flowing.