The aviation industry is vast, complex, interconnected, and growing rapidly. There is a demand for new commercial aircraft, which may reach approximately 40,000 planes over the next 20 years.
As the companies that manufacture, operate, and service aircraft expand, they are seeking out AI, 3D printing, and other capabilities, technologies, and tools that will allow them to optimize performance. And on top of that, they consider another cutting-edge technology, which is known as Blockchain Technology!
“Blockchain, even in its infancy, has captured the attention of numerous industries with its abilities of decentralization, scalability and security. The aviation industry is no exception.”
With rising demand, strong cost controls, increasing fee revenues, and solid earnings, the case for transformation may not seem as urgent as it might be in other industries. Still, gathering storm clouds indicate a need for change. These include legacy processes inherited from the 1970s, highly fragmented distribution channels, minimal business model innovation beyond cost management, and the uneven use of data and analytics to improve key operating areas.
However, we can see that most leading airlines are already experimenting with new digital technologies, such as advanced analytics, robotics, and artificial intelligence—and now, blockchain is poised to provide fertile ground for innovation in the industry. With its ability to manage and share data and facilitate digital transactions, blockchain promises to resolve current issues of trust, security, control, and transparency in a complex ecosystem of industry players.
Though the technology is still fairly young, airlines are already exploring applications that improve overall performance.
Use Cases in the Aviation Industry
As blockchain technology showcases great opportunities for securing and managing data, the aviation industry may shortly consider implementing blockchain to its advantage. Below are a number of ways in which blockchain may be made useful within the aviation world:
Identity Management: Identities of individuals can be forged and used to accomplish fraudulent and terrorist activities. Blockchain solves this problem by validating identities with the help of biometrics. Once an identity is validated and stored on a blockchain, it is almost impossible to make changes to it as the network is highly protected and decentralized. This would also result in eliminating the use of paper passports and human-errors in the process of checking.
Ticketing through tokenization: Currently, airplane tickets are either paper-based or electronic passes. With the implementation of blockchain, the need for using paper tickets can be fully eliminated and the e-tickets can be tokenized through smart contracts. Tokenized tickets can have their own set of business logic and terms associated with them such as the process of selling tickets and their usage in the value chain in real-time efficiently and securely. This will also allow people to purchase tickets from different partners globally.
Security: Privacy of information is crucial for industries as many people place their trust by sharing their personal details for better functioning of the systems. Passenger records, as well as crew information of airlines, need to be kept secure as any mishap can lead to dangerous outcomes and misuse of identities. Blockchain technology along with a security wrapper creates a safe medium to share this data reliably through authorities. Aeron.com is one of the most successful companies working in this sector.
Loyalty Points: Loyalty points and schemes when tokenized through blockchain can provide immediate value to the users as it would be possible to use them instantly in real-time. Moreover, these loyalty points can be used more broadly through a partner community. Points replacing the role of currency will allow travelers to save time and make payments with better ease.
Maintenance: Maintenance logs keep regulating between manufacturers, traders, service providers, and airlines. These take up a lot of time and are prone to errors if entries go wrong at any point. Blockchain technology can remove the need for complex databases and paper binders and enable airlines to manage a single record of provenance that would be instantly available to all the authorized people. With this, maintenance events could be set priory and this information would be available on the aircraft maintenance record, which will save time, improve maintenance, and ensure safety. Today, much maintenance is reactive, conducted only after a problem surfaces or after an issue with a single component has already created knock-on effects. If technicians could review the configuration and history of every aircraft in a fleet on a blockchain ledger, they would be able to engage in more predictive maintenance, and potentially head problems off before they affect operations.
Improving routine efficiency: A continually updated ledger of each part’s condition and usage could help reduce time spent on routine inspection and maintenance by aircraft operators. And that would boost utilization. A blockchain ledger could also streamline heavy maintenance visits, shaving days off a process that often requires significant labor. And combined with predictive analytics, it could allow aircraft operators to shrink spare parts inventories.
Defeating mercenary parts resellers: When an airline or MRO provider needs to procure an uncommon part, it often turns to vendors in the marketplace. Because there is no central clearinghouse of aircraft components, it can be difficult to know which vendor has the part they are searching for. And it’s not unusual to find that many vendors are offering to sell something they don’t yet own. Dealing with resellers in this way adds unnecessary expenses in the form of marked-up prices and delays. Participants in a blockchain-powered aerospace ecosystem would be able to compare the serial number of a part being offered against an indelible, real-time record of ownership, location, and utilization. That would allow them to cut out the middle man by reducing the cost of obtaining scarce parts.
Replacing warranties with guarantees: Parts warranties may help aircraft operators control maintenance costs to a degree, but they still require careful inventory management. In the future, blockchain technology could enable the spread of intelligent “power-by-the-hour” service arrangements — in which a supplier guarantees the supply, repair, and overhaul of the components and systems it provides — to every corner of the aircraft. Real-time configuration and maintenance data could allow original equipment manufacturers to predict the condition, usage, and, ultimately, life span of parts or systems and tailor their production processes to make sure spares are available on a just-in-time basis. That would improve service for their customers while cutting their own inventory costs.
Tracking of Baggage and Cargo: Blockchain allows for reliable and immutable tracking of the location and status of passenger bags and cargo as these assets change custody from the moment of deposit. As such, blockchain can aid in enhancing transparency and visibility, which will allow authorities and passengers to locate their luggage easily at all times across the value chain.
Ticket Overbooking: In the past, ticket overbooking has been a problem for airlines, which could be mitigated through the use of blockchain. The use of smart contracts would allow the automatized application of a smart ticketing system that can be used by passengers to purchase tickets. This method would make manual ticket issuance superfluous, which will increase levels of efficiency and accuracy.
Automated Payments: Blockchain allows for the ability to create smart contracts which are electronic agreements that execute by themselves upon a set of pre-defined rules. The use of smart contracts can be adopted in airline transactions such as the billing among airlines, the billing between travel agencies and airlines, the sale of travel insurance, the determination of loyalty settlements, and the payment of airport and authority fees and taxes.
So, we can say that aerospace businesses could benefit from sharing data about aircraft history, maintenance, and operations.
Having a more accurate view of a plane’s configuration and maintenance history could help reduce costs and losses, boost asset availability and increase the value of planes in the secondary market and at the end of leases, and improve worker productivity. And blockchain has some unique attributes that will enable it to serve as a powerful tool for the industry. It has been found that efficiency gains enabled by blockchain could increase industry revenue by as much as 4 percent annually, or $40 billion while cutting maintenance, repair, and overhaul (MRO) costs by about 5 percent annually, or $3.5 billion.
Creating a “Digital Twin”
Depending on its size, a plane can include anywhere from a few hundred thousand parts to several million. But there is no readily available single snapshot that can show an aircraft’s condition or history. Maintenance companies frequently log records by hand. Those records are often shared in stacks of printed PDFs. Even when data is digitized, it is spread across (and isolated within) multiple parties and systems. Suppliers, vendors, and customers of the same manufacturer, who may also compete against one another, are reluctant to share information. And when there is no provenance or an invoice is missing, a part’s airworthiness must be established through investigation, testing, and recertification — all of which take time and money.
Blockchain’s decentralized, immutable, and consensus-based nature makes it a perfect fit to help overcome these challenges. At the most basic level, every blockchain is a digital ledger of transactions that take place on a peer-to-peer network with the ability to control visibility, who has permission to see which data. Blockchain offers the capacity to create a “digital birth certificate” for every part and update it each time the part moves through the supply chain or is installed on a plane. The part’s status also gets updated every time the plane is serviced or inspected by a technician. That part’s digital record could include the aircraft’s tail number and configuration, the part’s location in the plane, its manufacturer, the identity of each technician who has touched the part, and the location where the service was performed.
These digital records can be aggregated into a “digital twin” of the aircraft to provide a real-time snapshot of its condition from the moment it exits the assembly line to the day decades later when it is returned to its lessor or retired from service. And by ensuring that participants have access only to the information they are entitled to, blockchain could simultaneously improve participants’ visibility into their own businesses while safeguarding their data from competitors.
“Digital records can be aggregated into a ‘digital twin’ of the aircraft to provide a real-time snapshot of its condition from the moment it exits the assembly line to the day 20 years later when it is returned to its lessor or retired from service.”
The wealth of information about a plane’s makeup, usage, and maintenance that could be stored and updated in real-time using blockchain technology stands to have a large impact on how aircraft are valued. Finance use cases include:
Building value in the secondary market: Jet engines that are maintained to high standards and that include only verified authentic parts fetch premium prices on the secondary market. With its ability to provide verifiable maintenance records that are updated in real-time, blockchain could extend that value to the entire aircraft. If buyers in the secondary market had greater confidence in their purchases and the ability to select from the best-maintained planes, the end-of-service value of aircraft could rise.
Transforming leasing: Today, roughly half of the global commercial aircraft fleet of about 23,000 planes is leased. Leasing facilitates growth for airlines and creates balance-sheet flexibility across the industry. But the end-of-lease handoff is often cumbersome, typically requiring the full teardown of the aircraft in order to inventory its parts and assess their condition. However, if the provenance and usage of parts were tracked through a blockchain-enabled solution, only those parts showing high or unusual wear and those required by regulations to be visually inspected might need to be examined more closely. Thus, a higher level of transparency into the condition of leased aircraft could increase residual values.
Digitizing credentials: Many of those directly involved in operating or maintaining planes must gain numerous credentials and qualifications. Blockchain technology could make it practical to ensure that the identity of every person who interacts with a plane — and the status of his or her credentials — is recorded and becomes part of the real-time snapshot of its condition. By using a mobile app, workers could verify their identity biometrically (through facial recognition, for example), validate their personal details, and upload proof of credentials. Once validated by the employer and issuing entity, a training certificate or other credential could become part of the worker’s profile on the blockchain. Parties with the appropriate permissions would see in an instant the verified identity and qualifications of the person who installed a part or serviced a plane by providing even greater confidence in the overall snapshot of the aircraft’s health.
Make the business case: Explaining the business value is not the same as demonstrating it. Indeed, the risk of overpromising is real. That’s why a successful blockchain data record for the life of an aircraft will necessarily start small — not with an entire airplane, but perhaps with a single system or process. Demonstrated positive results in a workforce credentials use case could help build buy-in for bigger, more ambitious projects. And taking prudent first steps through intelligently sized pilot programs can prevent digital culture shock.
Build an ecosystem: Bringing together stakeholders to agree on standards that will define the business model is perhaps the biggest challenge in the blockchain. In some instances, a single, dominant company has enough sway to set standards and rules of its choosing and require others who want to participate to abide by them. This “sponsor-led” model is unlikely to be appropriate for the multipolar aviation industry. Instead, a consortium-based model could prove a better fit. When working together, consortium members establish governance, oversight, and audit mechanisms and to set rules for participation.
Design deliberately: Permissionless blockchains, in which anyone can initiate and view transactions, have many valuable uses. But an aviation industry-specific blockchain project with the goal of providing data for the life of the aircraft will likely need to have a rigorous array of permissions to ensure that sensitive information is available only to the parties that need it. The governing body, likely an industry consortium, would have the power and responsibility to set those ground rules. It’s important to include cybersecurity, compliance, audit, and legal specialists in design decisions from the beginning. Assembling the right team will help avoid costly missteps and build trust among all members of the ecosystem.
Navigate regulatory uncertainty: Although blockchain is a global technology, any solution will have to meet specific jurisdiction requirements. For example, the European Union’s General Data Protection Regulation (GDPR) requires that personally identifiable data be erasable. The regulation is regional, but a global blockchain design has to account for it in workforce-related use cases. We expect similar regulations to influence the design and execution of the proposed use cases outlined above. National aviation and transportation safety regulators will likely also need to be satisfied that blockchain meets their requirements for record-keeping and at least as reliable and auditable as existing systems. As Global Blockchain Survey has been found, the idea here is to develop solutions alongside simultaneous efforts to reassure regulators — instead of waiting for approval. The goal is to “show, not tell” how transparency works to gain support.
Blockchain has the potential to improve the customer experience while also cutting costs and boosting operational efficiency.
Benefits for the Aviation Industry
The current systems landscape in the aviation industry is archaic and siloed, which hinders the fast and seamless exchange of data within the intertwined and complicated ecosystem of industry players. Blockchain can address these problems. Its shared nature built on a decentralized approach to data management, security, and information exchange can sharply improve speed, transparency, and responsiveness. This saves substantial time and money and paves the way for new business models. With blockchain, airlines can:
Automate repetitive processes and payments: The ability to create smart contracts, electronic agreements that self-execute according to predefined rules is generating strong interest in the airline industry. A wide range of transactions can be set up this way by including billing among airlines, billing between travel agents and airlines, determining loyalty settlements, purchasing travel insurance, and paying airport and authority taxes, fees, and charges.
Improve the customer experience: Most airlines are focusing their blockchain efforts here. When members of an airline’s loyalty program travel on a partner airline, reconciling the miles or points flown and getting those credits correctly applied to the customer’s account can be difficult, error-prone, and time-consuming. Smart contracts can simplify and automate the process among airlines, minimize the risk of error, and increase customer satisfaction. Many applications designed to strengthen customer loyalty are emerging. Singapore Airlines has developed a digital wallet that allows customers to use frequent-flyer miles at participating retail merchants, and Cathay Pacific Airways’ loyalty app lets partners and members use their rewards almost immediately, nearly in real-time. SITA Lab is testing a blockchain application that would allow passengers to create tokens on their devices that would be accepted across airports and borders.
Simplify revenue accounting and payment reconciliation: When a ticket is sold, airlines often have to deal with multiple players such as GDSs, travel agents, or other airlines, and sensitive booking data must be shared. This also gives rise to a complex web of revenues and payments that must be reconciled. Today, airlines rely on IATA, which sets industry standards and acts as a payment clearing-house. The association’s billing settlement plan handles payments between travel agents and airlines, and its clearing-house solution handles interline billing among the airlines themselves. Blockchain could automate and streamline these settlement processes, keep booking data secure, eliminate disputes, and do away with heavy reconciliation work.
Reduce dependence on intermediaries and re-allocate industry value: Airlines have become highly dependent on a handful of third parties that consolidate much of the industry’s decision power—and charge substantial fees and commissions for their services. GDSs distribute available tickets to travel agents, who sell the tickets to individuals and businesses. The top three GDSs control 99% of the market for indirect ticket sales. Online travel agents account for most airline bookings. By reducing these third-party costs, blockchain can increase revenues among network members. Air France–KLM, Air Canada, Lufthansa, and Air New Zealand have partnered with Winding Tree to develop a blockchain app that will allow consumers to access tickets directly from the airlines. In an initiative backed by Russia’s largest commercial bank, S7 Airlines is using blockchain to sell and issue tickets, as well as to ensure faster payments between airlines and travel agents.
Track components, luggage, and shipments: Given the industry’s focus on safety, knowing the source and ensuring the quality of all the components, parts, and other materials that make up an aircraft are critical. In MRO, the complex value chain, which involves manufacturers, component resellers, airlines, service providers, and regulatory authorities, can make getting information on the origin and journey of components a challenge. Blockchain provides transparency throughout the value chain and an auditable record of the sources and histories of all parts and components. This traceability can also extend to baggage and high-value cargo shipments, which are handled by multiple players, including customers, airlines, transportation companies, airports, and local authorities.
Improve ground operations and on-time departures: By capturing real-time data and tracking completed milestones on the detailed flight checklist, blockchain can help airlines coordinate the activities of all the crew members and service providers such as cleaners, baggage handlers, catering providers, and airport ground crews that the companies depend on for on-time departures and identify the source of any delay.
In the meantime, airlines must explore a wide variety of applications and prioritize those that deliver the most business value from a shared data platform. Two models show promise:
Apply the technology to a closed, private network of players to create a competitive advantage: The payoff of this approach comes from greater efficiencies and the added profits gained by taking business away from other members of the industry ecosystem. Larger industry players are in a particularly good position to lead the development and adoption of these blockchain platforms.
Apply the technology more broadly across the industry ecosystem through public or public-permissioned blockchain: In this model, industry players agree to share data (often guided by business rules and specific governance) and reap the benefits of applications that leverage this shared data to create value. Consortia, alliances, and regulation could enable this type of blockchain platform.
Blockchain technology can create new efficiencies and services models for airlines. In this day and age, the aviation industry is certainly one of the fastest-growing industries of the 21st Century. The emergence of blockchain technology has given rise to a new hype of technological innovation, which certainly could add value to numerous aspects within the aviation industry itself.
Thus, the use of blockchain in aviation could open up new opportunities in the sphere of transparency namely with regards to maintenance, flight data security and passenger information which will ultimately help in increasing efficiency and accuracy levels.
Cover Image: TechHQ