Editor's Note: E-Commerce in Large Scale

In this issue, Joseph P. McCormack reports that, in the avionics industry, Website establishment has become universal, however, the adoption of E-commerce or, more broadly, E-business has so-far gained "mixed" reaction (see page 33). Whether or not the industry is a bit tortoise-like in embracing E-commerce, one recent development would appear to represent a major thrust into this new means of marketing goods and services.

The folks at AAR Corp., Wood Dale, Ill., currently are busy setting up perhaps the most ambitious online marketplace in aviation. On Dec. 6, 1999, the aviation parts and services giant announced a new business unit called AAR e-Business. It is responsible for implementing a company-wide E-commerce strategy. John C. Mache was named the unit’s president.

Then, little more than a month later, AAR announced a 50-50 joint venture with the telecommunications behemoth, SITA. The two companies signed a letter of intent; they anticipate a full agreement, followed by the announcement of the new company’s name and the launch of their new E-enterprise by this summer.

The joint venture allies a compelling duo. AAR annually markets to commercial and government aircraft operators some $1 billion in aftermarket parts and services, ranging from inventory management and logistic support to parts sales, repair and manufacturing. What SITA brings to the table is 50 years of experience in telecommunications and information services to the air transport industry. More important, SITA, which took in $1.2 billion in revenue in 1998, already is a communications and IT provider throughout the aviation industry, including to all the major airlines.

The intent of AAR’s and SITA’s joint electronic enterprise, to be based in the Chicago area, is to "create a vastly more efficient market for the flow of parts and services," says AAR president and CEO David P. Storch. No question, AAR and SITA have planned an innovative and potentially comprehensive service. It is being designed to initially enable airlines and aviation/aerospace companies to buy and sell products and services instantly. It will, according AAR officials, facilitate seller auctions, reverse auctions, inventory listing services, and parts clearinghouses. In other words, more than simply making parts available for order, the AAR Website will allow companies to place, say, an inventory of excess parts up for auction, with the sale going to the highest bidder, according to Dawn Kaiser, of AAR.

During the online service’s first phase, Kaiser says, the focus will be on spare parts distribution, but long range, the site could provide everything an airline—or the aviation industry in total—needs: fuel, serving carts, catering services, whatever. Indeed, entire airplanes may be bought and sold through this E-commerce enterprise. Why not? Gulfstream Aerospace already has realized that a $40-million transaction can be made by the click of a mouse.

Rene Azoulai, SITA’s vice president-marketing and development, says the E-commerce arrangement with AAR is "a logical extension of our mission to make the air transport business more efficient."

SITA, incidentally, also is developing an online service for airlines that would electronically manage technical manuals and documentation. Azoulai could not say, as yet, whether this would be provided in the future through the joint venture with AAR. "Right now, we’re just focusing on spare parts," he states.

Azoulai says SITA and AAR plan to use available software for the E-commerce business and then add functions as needs dictate. As for the joint venture’s compensation, the SITA official says money will come from two sources—subscription fees and transaction fees—with secondary funding coming perhaps from advertising.

Whether it be an ambitious online service like that established by AAR and SITA or a more modest-size one by a smaller avionics/parts supplier, one premise is clear: E-commerce can progress in steps, but it definitely requires commitment from the start. In AAR’s case, it began with the establishment of a new and separate company.

The potential for the AAR/SITA joint venture is virtually limitless, not unlike the consumer counterpart, amazon.com. "We are talking to airlines, OEMs, manufacturers to help determine the future of this service," says Azoulai. "We want everyone to participate."