Cutting Cost Block by Block : A Brief Overview of How Blockchain Can Save Billions of Dollars in Aviation Industry

Blockchain can be thought of as the pinnacle of system efficiency. In cryptocurrencies, it can transfer value between parties through different parts of the world, verify their transactions without any issues in just a few seconds, and provide incentives for decentralized computer systems to keep the transaction safe from hacks or censorship. Compared to the conventional systems that require centralized parties and complete trust on individuals, blockchain is lightyears away in terms of efficiency.

This efficiency does not only apply on transfer of monetary values, it can be applied on transfer of ownership, transfer of responsibility and any other transfer of values beyond the monetary. In aviation, this efficiency can be applied as well as mentioned via 3IPK’s previous industry insights. It can be applied to improve MRO, Paperwork, Insurance and more.

In this issue, let us deep dive on how blockchain can be used to save costs in the aviation industry:

1. Maintenance, Repair and Overhaul (MRO)

Aviation MRO refers to the specific repair, servicing or overhaul of an aircraft. The practice encompasses that of all maintenance activities done to ensure the safety and airworthiness of an air transport vehicle. This is a vital process that all active fleets have to go through daily to make sure that there will be no issues once they take flight, since any small errors can mean the difference between a life and death situation. Therefore, there is no room for error, and airlines are expected to spend more on this particular area. No wonder that flight maintenance in itself is one of the largest costs for an airline. As per IATA, in 2017, airlines globally spent US$76 billion on MRO representing about 11% of total operational costs

PwC estimates that the use of blockchain could increase aerospace industry revenue by as much as 4%, or US$40 billion, while cutting MRO costs globally by around 5% or US$3.5 billion. Savings will be derived from secure document storage, ensuring confidentiality and data privacy, improved insights on repair time and inventory, automated workflows and more efficient record reconciliation.

2. Luggage Tracking

Cargo and passenger baggage management is one of the areas where airlines are continuously seeking to enhance customer service and cut costs. Before being returned to a passenger, a passenger's bag goes through a number of automated and manual procedures. Data about the cargo or luggage's journey is typically stored in a non-standardized format on an individual level by many parties that handle the cargo or luggage, including airline staff, transportation providers, airports, and local authorities.

Due to this procedure, passenger luggage is frequently lost or misplaced, which affects the airlines' reputation and financial standing. According to SITA's Baggage Report 2018, this resulted in increased expenses for airlines in 2017 of around US$2.3 billion.

Blockchain can improve this process by imbuing the system to be able to track a missing item to the last place it went missing. But it can not only track items but blockchain is immutable, making it impossible to misdirect the last location of the item or the last person that handled the items.

3. Aircraft Utilization

Being on the ground for too long costs a substantial amount of resources to the airline. According to Rencher, Robert, J Et Al, their study shows that : Unplanned disruption to an aircraft can cost up to 50,000 USD an hour. To compensate, airlines manage a spare parts inventory of more than 1 billion USD on average. Blockchain can help minimize the cost of disruption and the size of spare part inventories.

There are several ways that this can be done :

1. With a combination of efficient ERP integrated with Blockchain, spare part inventories can be efficiently managed and deployed to maintenance facilities correctly and in time
2. Preventing missing paperwork by implementing blockchain technologies. As found by Deloitte, greater than 60 percent of the issues with parts receiving was due to poor or missing paperwork, and on average it took 34 days to correct the problem. This type of issue can hamper maintenance processes and in turn reduce aircraft utilization.

These are only a few examples of cost savings that the aviation industry can have by integrating blockchain technology on various industry processes. More are to be discovered as the technology matured. But the best time to integrate blockchain technology to your aerospace enterprise is now. As the industry continues to grow and business processes are getting more complex, 3IPK has all the expertise needed to help you get started on this integration.

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