The IATA-CFM agreement will do more than make for a healthier maintenance, repair, and overhaul sector writes Jeffrey N. Shane, IATA’s General Counsel.
In July 2018, IATA and CFM, the engine manufacturing partnership of GE Aviation and Safran Aircraft Engines, announced a breakthrough agreement that will ensure beneficial competition in the aftermarket for the maintenance, repair, and overhaul of CFM’s engines.
The agreement was the product of 18 months of negotiations, after IATA filed a formal complaint on behalf of its member airlines with the European Commission in March 2016.
Airlines had complained that CFM was preventing the use of less expensive, non-CFM parts for repair and maintenance, even when those parts were explicitly approved by regulatory authorities as equivalent to CFM’s own products.
The agreement demonstrates that the airline industry, using the legal tools at IATA’s disposal, can finally rebalance a value chain that has been in favor of the larger suppliers of equipment and services for too long
Airlines also maintained that CFM was unjustifiably limiting the repairs that third-party repair shops could undertake. CFM strenuously denied these allegations but agreed to negotiate a resolution.
The agreement and important new Conduct Policies that it contains came into effect on 28 February 2019. The agreement will be in force for seven years and addresses most of the practices that IATA’s members had complained about. It includes a multi-layered enforcement mechanism with the possibility of penalties and damages where the Conduct Policies are found to have been violated (through arbitration proceedings).
In addition, it:
ensures that the Conduct Policies will be applicable not only to CFM-56 engines but also to all other engines produced by CFM and GE Aviation
includes beneficiaries other than airlines. Engine repair shops, third-party parts manufacturers, lessors, and IATA itself are all entitled to enforce the agreement
does not include anything that diminishes in any way the rights and remedies otherwise available to airlines. Airlines retain the ability to pursue complaints through other available tribunals if they choose to—unless, of course, they opt for enforcement mechanism provided in the agreement.
The real significance of the agreement transcends its details, however, and even the engine maintenance aftermarket. It demonstrates that the airline industry, working through IATA and using the legal tools at our disposal, can finally begin to rebalance a value chain that has been tipped for much too long in favor of the larger suppliers of equipment and services.
This theme—rebalancing the value chain—is now one of the airline industry’s, and IATA’s, highest priorities. The episode with CFM has shown what can be achieved. Moreover, it was not a tale of heroes and villains. It was ultimately a collaboration, and it achieved a classic win-win outcome.
CFM has confirmed this view, saying: “CFM expects that the resulting publication of the Conduct Policies and Implementing Measures will facilitate the awareness of CFM’s principles with its customers and support IATA’s intent to expand the application of such policies to other stakeholders in the aerospace industry.”
IATA will indeed do all it can to encourage other participants in the aftermarket for aviation equipment and services to adopt policies similar to those embraced by CFM. We will always prefer collaboration. Where our member airlines are disadvantaged, IATA has an obligation to assist them.