Title

An examination of changing firm structure in the aircraft engine industry

Date of Completion

January 2006

Keywords

Economics, General

Degree

Ph.D.

Abstract

This dissertation is a study of changing firm structure in the large commercial aircraft engine industry in the past twenty years. I identify and examine three major trends that have occurred in the aircraft engine industry in recent years---vertical disintegration in aircraft engine design and production, use of cooperative arrangements to design and produce new engines, and a significant shift by aircraft engine manufacturers into the provision of after-sales engine maintenance, repair and overhaul services. ^ I argue that heterogeneous capabilities in the aircraft engine industry have encouraged firms to take steps toward vertical disintegration in engine development, design and production. I further argue that these changes have been made possible by modularity in aircraft engine design and reductions in transaction costs achieved through advances in communication and information technologies relevant to the industry, noting that the extent of vertical disintegration is ultimately limited by product characteristics. ^ I next argue that a combination of deregulation of the airline industry and the introduction of engine choice on large commercial aircraft led to increased development costs and reductions in expected revenues for individual engine programs, prompting firms to enter into cooperative agreements to reduce both the cost and risk of new engine programs. I also argue that the establishment of joint ventures has provided additional benefits to engine manufacturers. ^ Finally, I argue that the large commercial aircraft engine manufacturers' shift into after-sales services has been driven by a combination of deregulation of the airline industry, and technological advances in engine monitoring and controls. I argue that advanced engine monitoring and control technologies have shifted the balance of transaction costs in maintenance, repair and overhaul operations, and that the provision of after-sales services by engine makers under fixed-price contracts is a more efficient system. ^ This dissertation also contains a history of the aircraft engine industry and detailed information regarding the large commercial aircraft and aircraft engine manufacturers and their product lines. ^