“Faced with dramatic shifts in technology innovation, consumer preferences, global turbulence and competitive threats, airline and travel providers will need to undergo radical change to still be operating in 2025” —Cognizant
Aerospace and defense companies are beset with numerous challenges today, in an industry naturally characterized by complex products, deep supply chains, and a decades-long aftermarket with multiple, often shifting, participants. Significant investment, effort, and technology have yielded great progress in these areas, but the need for continued industry growth and efficiency demands more. As aerospace and defense companies invest in digital technologies to support these goals, one emerging technology is gaining attention: blockchain.
The technology is already being deployed to address real-world problems. Major companies including Accenture, IBM and other IT services firms are busy working to ensure blockchain is ready for real-world adoption. For example, the Bank of England has conducted trials with Ripple blockchain technology for inter-bank payments and settlements. NASDAQ has enabled trading using blockchain, and Innogy, the innovation division of power company RWE, has trialled payments between its fleet of electric cars and charging stations in Germany. The potential applications for the travel industry are numerous. Blockchain could significantly improve the way we handle traveller identity today, making it simpler to navigate the airport.
The technology is on the verge of transforming how loyalty schemes operate, making it much easier for travellers to redeem loyalty points across various providers. And of course, the ability to settle payments between different players in the travel value chain more efficiently is a big opportunity. So far in 2017, approximately $1.8 billion has been invested in blockchain startups, according to Smith & Crown, a specialist blockchain analyst firm.
Aerospace and defence executives surveyed by Accenture cite blockchain as one of the top emerging technologies they are focused on to support greater industry growth and efficiency. At its core, Blockchain is an immutable transactional record that maintains and records data in a way that allows multiple stakeholders to share access to the same data and information confidently and securely.
Air France KLM’s engineering and maintenance division is evaluating the potential for blockchain to become its new digital ledger for managing replacement parts on in-service airplanes. During a recent webinar, the airline’s Maintenance, Repair and Overhaul (MRO) division joined Microsoft and Ramco Aviation to discuss their research into future uses of blockchain in aircraft maintenance.
Smart automation and Blockchain: Aircraft manufacturing is a highly specialised and complex process. An example underlining the importance of this precise manufacturing process is that of the “factory of the future,” where Airbus technicians can scan an airplane’s metal surface using a tablet or a smart glass and determine the right size of a bolt and the torque required to fix it. Based on the information, a robotic arm completes the task. In addition to automation in the physical realm, A&D companies are also considering technologies in the digital realm; technologies such as blockchain, originally used in the financial services industry, could help companies improve transparency and automate transactions among supply chain partners spread across the globe. As A&D companies increasingly deploy one or more of these technologies at various stages in their value chains, they will likely achieve improved operational efficiencies and drive incremental and new revenues for themselves as well as their supply chain partners and customers.
According to Accenture in its report “Beyond the Buzz: The potential of Blockchain Technology for Airlines”, there is a very strong similarity between the airline industry operations and what blockchain technology has to offer. Therefore
Capco, the global business and technology consultancy for the financial services industry, has conducted a report for the International Air Transport Association (IATA). The research focused on determining how blockchain may be used by the airline industry. They have concluded that blockchain can make the industry faster and more cost efficient, enhance customer experience and the value of the industry.
“The value of having a single ’source of truth’ that all business partners trust can dramatically simplify reconciliation, invoicing and settlement in our industry,” commented Juan Iván Martín, IATA head of Innovation, Financial and Distribution Services. The German Lufthansa has introduced the BC4a initiative to bring together software developers, aircraft builders, MRO (Maintenance, Repair and Overhaul) service providers, logistics, leasing companies and regulators and develop the use cases for blockchain in such areas as identity management, security, ticketing, loyalty, luggage custody-change tracking, maintenance, air cargo, other use cases, such as: in-flight entertainment, traveller compensation, flight planning, etc.
Facts on the Aircraft Industry:
- Every 787 flight generates 500GB of data. At any one time there are as many as 170 787s in the air
- Modern aircraft consist of 2-3 million parts
- Provenance of tracked items is critical
- Administration of maintenance history throughout entire chain
- Highly regulatory
What is Blockchain?
Blockchain is a distributed ledger system that maintains a continuously growing record of transactions, or blocks, where each block is linked to a previous block and cannot be altered or reversed once it is added to the chain, and which does not require a central administrator to guarantee the veracity of any transaction. It is essentially a technological solution to the issue of trust in a record or transaction. Blockchain is the underlying technology behind bitcoin, which is a digital token that allows one party to pay another anywhere in the world for goods and services, in some ways like cash. Just like a dollar bill, a bitcoin, once used, permanently passes to another person and cannot be reused or unilaterally withdrawn. With a dollar bill, this is because the bill physically passes to another party; with a bitcoin, this is because the transaction is etched in the public ledger and cannot be undone. Blockchain technology eliminates situations akin to receiving a blank check where there is no value in the underlying account or paying a seller for land that he does not own. Furthermore, because the transaction itself is secure, the cost of the transaction can be significantly lower when compared to traditional payment methods such as credit card payments, international remittances, or any situation where there is a third-party guarantor.
Ethereum and the rise of smart contracts: The Ethereum public blockchain emerged in 2014 as an open source project and alternative to the Bitcoin blockchain — specifically designed to be ‘the world’s super computer’. Through the introduction of ‘smart contract’ capability, applications built on Ethereum can automate a range of business dealings between parties. In theory, this can happen without the need for human intervention from a legal perspective.
What are Smart Contracts?
A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible. Smart contracts were first proposed by Nick Szabo, who coined the term, in 1994. Proponents of smart contracts claim that many kinds of contractual clauses may be made partially or fully self-executing, self-enforcing, or both. The aim of smart contracts is to provide security that is superior to traditional contract law and to reduce other transaction costs associated with contracting. Various cryptocurrencies have implemented types of smart contracts.
Blockchain Applicational Use in Aeronautics
- Ticketing. An e-ticket is, in essence, a database entry—information that would have been printed on a paper ticket dematerialised, stored in and called up from a massive database. The blockchain can tokenise this asset and further dematerialise it. Through the use of smart contracts associated with the asset, airlines can add business logic and terms and conditions around how the ticket is sold and used. This opens the door for tickets to be sold by different partners, and in real-time, from anywhere in the world.
The travel industry operates in a value-chain based on collaboration and therefore many areas of the industry rely on settlements between parties. Consider a hotel booking where an aggregator, OTA and the hotel need to settle cash and commissions based on pre-defined agreements. Today, this is an extremely complex process and the introduction of blockchain-based smart contracts could automate settlements in many areas of the industry. Being able to instigate a trusted execution facility between a travel provider and travel intermediaries promises reduced cost, enhanced efficiency and faster reconciliation at scale. (See ResourceTokenisation of Airline Seats) or Russian Airline Starts Using Ethereum’s Blockchain in Live Production. S7, Russia’s biggest domestic airline, has begun selling flight tickets through ethereum’s blockchain
- Loyalty. Loyalty is big business in air travel. In traditional loyalty points schemes, travellers often have to wait until points settle and accrue to use them, and they are limited on where they can spend them. By tokenising loyalty points on the blockchain, travellers can get instant value by redeeming them on the spot. They can also use them more broadly through a specific user community of partners. Think of it as a marketplace or exchange model. With points accepted as “currency” among more providers, travellers get an easier and faster-to-use program that is more relevant to their personal preferences.
Today’s loyalty schemes have evolved over time, mostly based on proprietary technology and the basic concept of rewarding travellers for their continued purchasing of a travel product. Loyalty schemes have become a key marketing tool for hotels, airlines, credit card companies and retailers. The challenge for the traveller is often the complexity of redeeming loyalty points. Although some schemes have forged partnerships allowing points to be widely redeemed it is still true that in general an airline loyalty point can’t be used beyond booking flights. This can be frustrating for travellers and is also a problem for the industry. Any unspent loyalty points must reside on an airline’s balance sheet as a liability, which can hamper capital raising and investment.
Loyyal is a San Francisco based startup focused on applying blockchain and distributed ledger technology to improve today’s loyalty systems. The company has developed its platform on IBM Fabric, offering a permissioned environment for program operators to manage program currency and logic amongst partners. (See Resource Making blockchain real for customer loyalty rewards programs :: Deloitte)
- Security and identity. Protecting data privacy is a clear issue when it comes to passenger records, flight manifests and crew information — not to mention the security implications that are in play in today’s world if this data is not properly protected. Blockchain technology with a security wrapper creates a very different and less risky way of managing and sharing this information through the use of authorised access requirements.
The highly trustworthy and immutable nature of blockchain also makes it ideal for improving the way travellers are identified during their journey. Traveller IDs are required at booking, when changing a booking, at security, the boarding gate, duty free shopping and at a hotel. Imagine how much easier travel would be if you didn’t need to use a passport at all these points in the journey. It is possible that blockchain technology can deliver a much more frictionless experience for proving a traveller’s identity
Civic is an innovative startup harnessing the immutable trust aspects of blockchain to help people prove their identity. Today, proving your identity is necessary when opening a bank account, moving residence, taking out a new utility agreement and, of course, throughout the travel experience. Identity when travelling has long been a pain-point with paper documentation, passports and boarding passes needed at regular intervals.
- Traveller profiles — While blockchain is very much about moving values, it’s also about handling and securing data in better ways. In travel, user profile security and privacy have always been hot topics. When a company enters into an agreement with a travel management company (TMC), airline or other supplier, the company usually needs to give that supplier access to employee data so they are able to provide the expected service. Whether that process is manual or automated, building a well-functioning profiling process takes time and effort and creates friction on both sides. If employees had their information on the blockchain, this could remove much of the pain on both sides. The companies wouldn’t have to build new API connections between the supplier’s profile database and the buyer’s HR system for every new implementation. And manual profile workflows would become history. There would be no need for employees to create user accounts with multiple suppliers, duplicating their information along with thousands of other users on systems that stand the risk of being breached. Nor would they have to adopt every new supplier’s user interface. Instead, there would be just one unified profile available to those explicitly given access.
- Maintenance. Blockchain technology can transform maintenance logs, which at best are in cumbersome databases and, at worst, are in paper binders. The blockchain can help the industry ensure that parts procured are legitimate and can offer a “virtual copy” immutable record of the provenance of every part on the plane, every time it has been handled and by whom, from the beginning of the aircraft’s existence. This visibility is profound, and can take the practice of maintenance, safety and aircraft security to new levels.
- Aircraft Leasing industry is one of the fastest growing industries globally. A number of factors have resulted in this growth, including but not limited to, a year-on-year increase in passenger traffic, the rise of low-cost carriers (LCC) and the growth of the APAC market. Given the nature of this capital-intensive industry, it is interesting to note some of the antiquated systems and practices, which are still commonplace. (Next Month RadarZero will publish a feature on Aircraft Leasing)
- Bagging Tracking — Mishandled baggage costs the aviation industry many billions each year and is the source of significant traveller frustration. The challenge isn’t a simple one to address given a bag is handled by several actors, including the airline, airport and ground handling firms on its journey from A to B, and sometimes even C. Today’s systems have improved by reconciling baggage handling data directly from departure control applications. However, blockchain may offer advantages. A shared distributed ledger used by all actors within an airport and between different airports, would allow for a bag and its ownership details to be automatically logged on a blockchain. This would deliver baggage data records shared between different actors and make it much more straightforward to track bags as they move with a traveller throughout their journey.
- Fraud — Merchants that sell travel are typically seen as high risk because of the amount of refunds and chargebacks that occur in the industry. But with blockchain, once a payment has been made, typically you can’t reverse it. And this mechanism will make fraudulent cases easier to spot and less likely to occur. Blockchain could also ease PCI DSS compliance (a credit card security standard), at least for travel management companies and other incumbents in the space. In a blockchain-enabled world where cardholder data is no longer stored in corporate databases and instead stored on a distributed network, along with the booking transactions – to whom does PCI apply? Probably the companies that develop the solutions that will let travel companies store our sensitive data on the network.
- Policy and compliance — TMCs today have a role as the gatekeeper, there to help corporates stay compliant. But what if blockchain could take over this responsibility? Imagine the company travel manager receiving real-time alerts for policy breaches that are about to happen. Whenever an employee is trying to book a trip outside the correct channel, a direct two-way communication channel is set up between the travel manager and the, knowingly or not, disloyal employee. Or perhaps we’ll see a paradigm shift in managed travel and booking behaviour. Remember open booking? Perhaps the blockchain with its potential for unmatched transparency, security and privacy will be the enabler of this promised model for the future of managed travel. Book where you want as long as it’s within policy. Your travel data still gets collected, consolidated and made available to you, instantly.
- Evolving Methods of Payment — Airlines have been slow to adapt to new payment methods, due to incompatible payment and revenue accounting systems. Adopting the great diversity of new services offered by payment providers (including loyalty points, loyalty cards and eWallets) will be a competitive imperative. UATP has agreed to a partnership with Bitnet that allows more than 260 international airlines to accept Bitcoin payments. (See Resource — Potential effect of the blockchain technology implementation on clearing and settlement procedure of IATA Clearing House)
- Drones & VTOL — On-demand aviation, has the potential to radically improve urban mobility, giving people back time lost in their daily commutes. Just as skyscrapers allowed cities to use limited land more efficiently, urban air transportation will use three-dimensional airspace to alleviate transportation congestion on the ground. A network of small, electric aircraft that take off and land vertically (called VTOL aircraft for Vertical Take-off and Landing, and pronounced vee-tol), will enable rapid, reliable transportation between suburbs and cities and, ultimately, within cities. (Next Month RadarZero will publish a feature on Drones & VTOL)
(See Resource Fast-Forwarding to a Future of On-Demand Urban Air Transportation :: Uber)
Why Blockchain is Good
Permissionless – a permissionless system is one where anyone can join the network and participate fully in the network – eg, read and write any transaction. It is also known as a public network. The best example of a permissionless blockchain is the Bitcoin blockchain, which underlies the world’s most famous cryptocurrency, Bitcoin.
Permissioned – a permissioned network is one in which permission needs to be given to perform certain tasks. For example, permission may be needed to read certain transactions, it may limit who you can deal with and it may also state who can add and validate blocks to the chain. An example of a permissioned blockchain network is Ripple, where Ripple determines the scope and role of the users on the system.
Data integrity – the immutable nature of a blockchain allows for a greater certainty of data quality than normal database technologies. The underlying cryptography, coupled with the decentralised nature of the technology, makes it practically impossible to modify the data on the chain, or even hack the system. This could prove crucial in the tracking of aircraft parts or even in the fulfilling of obligations of a lease.
Trust – a blockchain is an immutable source of truth, providing a single source of the information recorded and validated in the network. Given the disparate and often antiquated database systems used in the aircraft leasing industry, a blockchain could provide the single source of truth for an aircraft or fleet that could be a game changer for a number of tasks which we will discuss later.
Smart contracts – a core feature of blockchain is that of smart contracts. Put simply, a smart contract is a computer programme which can be used to facilitate, verify or enforce rules between two parties. For example, after x number hours of use, an aircraft engine needs to undergo maintenance. When this figure is about to be reached, a smart contract could notify the maintenance provider and schedule such an appointment.
Additional capabilities – while the above three points are a flavour of what the blockchain can do, there are a number of other technologies in the ecosystem which can complement the blockchain. For example, the Inter Planetary File System (IPFS) is a layer that sits on top of the Blockchain, allowing for increased storage capabilities – e.g. lease or financing contracts could be stored here. IoT and blockchain can also work well together to create an immutable record of all the data with regards to a particular asset.
Blockchain Drawbacks
- Nascent technology— Resolving challenges such as transaction speed, the verification process, and data limits will be crucial in making Blockchain widely applicable.
- Large energy consumption —The Bitcoin Blockchain network’s miners are attempting 450 thousand trillion solutions per second in efforts to validate transactions, using substantial amounts of computer power.
- Control, security, and privacy —While solutions exist, including private or permissioned Blockchains and strong encryption, there are still cyber security concerns that need to be addressed before the general public will entrust their personal data to a Blockchain solution.
- Integration concerns —Blockchain applications offer solutions that require significant changes to, or complete replacement of, existing systems. In order to make the switch, companies must strategies the transition.
- Cultural adoption —Blockchain represents a complete shift to a decentralized network which requires the buy-in of its users and operators.
- Cost —Blockchain offers tremendous savings in transaction costs and time but the high initial capital costs could be a deterrent.
Why is Airbus considering blockchain? Airbus is a big and complex business. Its revenue in 2016 was $67 billion (£52 billion). It makes jumbo jets, helicopters, and spacecraft. It has about 134,000 employees and 12,000 “direct” suppliers. It has aircraft and helicopter final assembly lines in Asia, Europe, and the Americas. Airbus began to research blockchain technology about 18 months ago and had an internal workshop to identify possible ways finance, manufacturing, IT, procurement, and other parts of the business could use it.
Airbus isn’t using blockchain yet. The project is still at the research and development phase. There are no deadlines for when Airbus wants to start using blockchain, but the team already has ideas for how its finance staff and other departments could use the technology.
Blockchain for aircraft maintenance
The lifetime of a commercial aircraft can be up to 30 years, which means it may pass through five or six owners before it is decommissioned. Given this level of activity and transfer of ownership, the tracking and tracing of information relating to this aircraft can prove to be an arduous process. This is particularly clear when it comes to the maintenance documents associated with the aircraft.
John Maggiore of Boeing contends 90% of all of these maintenance records are paper-based, with “literally millions of boxes of paper-based documents”. It is easy to understand that this system can have a number of drawbacks. First, having paper-based documents leads to the risk of loss or potentially fraud. The American Airlines case in 2015 was proof that fraud in maintenance can still be an issue. “For now, the MRO industry is just in the early stages of transitioning toward electronic formats.” Records for legacy aircraft are highly susceptible to missing paper maintenance documents, according to Andreas Stenger, project manager for digital business innovation at Lufthansa Technik in Germany. “Looking at our experiences with numerous lease-return projects, we always identify missing, incomplete or inaccurate documentation,” he reports. The evolving employment of “Blockchain” records may be the route that commercial aviation undertakes for managing the records of their maintenance activities.
Furthermore, Rudy Byrce of GE Aviation notes that there are frequently paperwork issues when the time comes to evaluate the assets. For example, engines can generate thousands of pages of documents. This is a concern as older aircraft have no chance of having a digital copy. Second, when it comes to due diligence, all of these records, whether paper-based or scanned copies, will need to be fully evaluated because of the lack of smart characteristics. Even in the current digital systems used for newer aircraft, this can prove a time-consuming task. When looking at the role blockchain has played in helping to digitise the trade finance process, we can see projects underway; with the likes of the Hong Kong Monetary Authority and state bodies in Dubai to name two, we can see the potential benefit blockchain could play here.
An immutable record of the maintenance history of an aircraft is clearly of benefit to the stakeholders in the leasing community. Any issues arising can be clearly traced to a timestamped record of who performed an inspection and when, meaning a full audit trail in the event of an investigation. Furthermore, there is the potential, by having this single system, to speed up the due diligence process in releasing an aircraft. It could be as simple as scanning a QR code on an engine to see the full history of the asset.
Why stop here? We see companies such as Boeing testing blockchain technology to track not only the maintenance of an asset, but also its whole lifecycle. Similarly, Airbus has discussed how blockchain could be used in supply chain tracking. By using blockchain to underpin the Internet of Things, we can see the potential of two disruptive technologies working in unison to digitise and future proof a difficult process for original equipment manufacturers (OEMs), lessors and airlines.
Potential barriers to adoption
While the above use cases work well in theory, based on our experience there may be a number of barriers to blockchain being adopted which we outline below:
- network effect – as discussed previously, blockchain is a network-based technology. To operate industry-wide platforms, there is a need for a majority of market participants to join to realise the value and potential that such a system could provide. A concern for a system such as AirChain would be that a critical mass is not reached and that the system fails. However, on the flip side of this, by starting with a small number of companies and realising the value between only a small number of parties, it could be assumed others would join to reap the benefits of the platform;
- legal uncertainty – as blockchain is in the early stages of its development, it is still unclear how the technology will be treated by regulators. In the aviation space, there would need to be a concerted by-in from the likes of the European Aviation Safety Agency and the Federal Aviation Administration in the US early on in the process. Furthermore, the validity and legal enforceability of smart contracts is still unclear, and any move to use them in a global system would need to be carefully considered;
- reluctance of ecosystem players to adopt blockchain – it is important to assess the benefits for all parties involved in any future state use cases or platforms. For example, would aircraft leasing companies want to share all of their information? Concessions could be made in the system to allow only lessors permission to access the information they want potential customers to see. This is where the governance and operating model of any potential platform becomes a crucial task; and
- technology concerns – the core concept of blockchain is still in its early stages. Although it is already possible to leverage the capabilities of this distributed network, advancements in functionality and usability are still to come. Furthermore, there are also concerns regarding the immutability of data in such a system. New regulations, such as the General Data Protection Regulation, will impact how blockchain-like systems are implemented and treated. As such, it is important to take this into consideration when thinking about building blockchain platforms. Last, but not least, governance models related to IT practices will change. The current lifecycle of software needs to be tweaked when considering blockchain: who owns the data, who is in charge of modifying the underlying code, which teams control package deployment and bug fixing in such a system?
Conclusion
Finally, Blockchain will offer transparency and agility in data exchange at the local and global level. It creates a network in which every department adds value to the data, from finance or human resources to production, and on to engineering, logistics, quality or procurement. This system unlocks new services and layers to customer, supplier and employee needs, offering customised information about product status every time. Moreover, this facilitates relationships with other enterprises and the creation of strategic alliances with the aim of gaining knowledge and creating new technological synergies that could lead to new business models and a more profitable approach to these new businesses.
Case Study: In collaboration with ItalDesign, Airbus is developing a hybrid car concept called Pop.Up. It would operate on the ground as a drivable smart vehicle, while its core passenger pod could be detached and picked up by a large quadcopter to carry you over traffic. The project is being developed in response to rising urban density and traffic congestion by providing a new multimodal transport solution.
Airline MRO Case Study: Air France Industries KLM Engineering & Maintenance (AFI KLM E&M) : Blockchain is believed to the be next big technological advance that could impact multiple industries including Aviation. In this presentation AFI KLM E&M will outline its innovation focus through the work happening at The MRO Lab in Singapore, and cover the reasons and benefits of the current Blockchain focus. You will see that Blockchain is a decentralized digital database of transactions that can be programmed to record virtually everything of value including parts and components.
Cited:
- Beyond the buzz: the potential of blockchain technology for airlines :: Accenture
- Blockchain – a game changer in aircraft leasing? :: Deloitte
- Manufacturing Disruptive Innovation
- Capturing Growth and efficiency through a rapidly emerging technology
- How Blockchain Could End Travel Industry Pain Points :: CoinDesk
- Why Airlines, Aftermarket Struggle With Digital Record-Keeping
Resources:
- The sky’s the limit
- MES on the edge in Aeronautics | Altran
- 2017 Global aerospace and defence sector outlook Growth prospects remain upbeat :: Deloitte
- Blockchain – a game changer in aircraft leasing?
- The Future of Air Travel: Eight Disruptive Waves of Change :: Cognizant
- Roadmap for the mass urban aviation industry blockchain solution
- Digital Transformation Initiative Aviation, Travel and Tourism Industry :: World Economic Forum
- Capturing Growth and efficiency through a rapidly emerging technology ::Accenture Consulting
- Generating more transparency in aviation with blockchain technology :: Lufthansa
- Blockchain And Supply Chain Management: Aircrafts’ Parts’ Business Case
- Alignment Of The Supply Chain To Meet The Aviation MRO Challenges :: DHL
- Making blockchain real for customer loyalty rewards programs :: Deloitte
- The Blockchain Revolution For Loyalty Programs :: Oliver Wyman
- Travel Identity of the Future :: SITA
- Tokenisation of Airline Seats (tickets)
- Why Airlines, Aftermarket Struggle With Digital Record-Keeping
- Fast-Forwarding to a Future of On-Demand Urban Air Transportation :: Uber
- See Article Links
