AviationX Flies With Aerospace BTB Market
Deck Tk

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The commercial aviation industry doesn't have an easy ride. Industry observers say it is regulation-driven, fragmented by geography and aircraft types, riddled with middlemen and secretive. In essence, it is a retailing nightmare.

That doesn't frazzle a trio of players intending to migrate purchases of aerospace products and services online with other elements such as content and community.

"We're entering an industry which, by nature, is rather prone to not making a change," said Henrik Schroder, chairman/CEO of aviationX Inc. and former president of Saab Aircraft.

But aviationX, Arlington, VA, has its sights set on streamlining retailing in the aerospace industry, one of the last virgin markets relatively untouched by business-to-business e-commerce. By third-quarter 2000, it will build an online marketplace, applications and technical resources.

Visitors will find listings, auctions, message boards, industry news, tracking, parts catalogs and postings of service directives and airworthiness bulletins, among other items.

Independent aviationX will go head-to-head against two industry-backed competitors. MyAircraft.com is a joint venture of United Technologies Corp., Honeywell International Inc., and i2 Technologies Inc. Another BTB marketplace is due soon from airline industry cooperative SITA and aircraft parts distributor AAR Corp.

The global aviation market currently conducts only 3 percent of its total procurement on the Internet, according to Goldman Sachs & Co. By 2004, online purchasing is projected to reach 35 percent of an overall $35 billion spent on spare parts, maintenance, information services, software and other supply-chain processes.

AviationX estimates that BTB e-commerce will save 11 percent on each transaction in the aerospace industry. The company feels its own service saves even more - about 15 percent.

More critically, it has to engender greater cohesion within a disparate, 25,000-strong group made up of engine makers, parts manufacturers and distributors, aircraft builders, maintenance and service companies, jet-owning corporations and airlines.

"The ambition is to create a more direct link between the user and the supply chain," Schroder said, adding that his firm's first-year revenue target was a modest $500,000 through a combination of fees, advertising revenue and commissions on online sales.

But it is this ambition to pull together all players that is most difficult to achieve. Smaller vendors with a limited reach will benefit by online marketplaces. Entrenched interests like distributors, on the other hand, may not be equally enthusiastic. Online retailing, by virtue of aggregated content and players, reduces information opacity as well as profit margins.

Plus, the cooperation of behemoth airlines and aircraft manufacturers like the Boeing Co. and Airbus Industrie is essential to gaining industry acceptance. These marketers almost always establish long-term relationships with partners, suppliers or customers.

AviationX's research found senior management at these suppliers most resistant to change. "Once we go down to the operations [level], you're going to find a different mind-set," Schroder said. "But the corporate attitude is 'Don't change.' "

Hence, the marketer will tread cautiously in the initial phase of its operations, starting with 500 independent vendors that are amenable to an expanded customer base in lieu of more competitive pricing.

"We don't think we're going to remove anybody from the supply chain," Schroder said. "What we're going to do is turn the leverage toward a buyer-centric procurement process."

"My sense on aviationX is that their biggest challenge is probably addressing the issues of regulation, making sure they comply," said Dan Garretson, senior analyst at Forrester Research, Cambridge, MA.

"But their other challenge seems to be that their model is based hugely on having the most players in the supply chain connected so they can track parts, the history of different items and the cost to that company," he said.

Direct marketing will play a key role here. AviationX is eyeing early movers in the aerospace arena, a cross-section of which has been invited to participate in building the site and yielding feedback.

The company - which has seed funding of $1.6 million and expects another $15 million to $20 million within two months - will rely on an inhouse sales team comprising former aviation industry executives, advertising in trade publications, white papers and panel speeches, and participation in industry shows to build legitimacy.

E-mail marketing will also contribute toward a database. Visitors to the aviationX site have to give name, e-mail address and telephone number in return for e-mail updates of the service's progress.

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