Engine option in aircraft purchase: Company strategies and policy implications

Abstract

Airlines select an aircraft’s engine simultaneously while purchasing the aircraft. Usually, an aircraft model has multiple engine options, but recently the number of engine options has been decreasing. We develop a three-echelon supply chain model including engine manufacturers, aircraft manufacturers, and airlines to analyze the engine options in airlines’ new aircraft purchases. We show that given an airline’s existing fleet composition, larger fleet size and higher aircraft production efficiency would make it more likely to choose multiple engine options. In contrast, higher production costs and engine substitutability would lead to a shift to a single engine or hinder the airline’s fleet expansion. In the model, we highlight the impact of MRO (Maintenance, Repair, Overhaul) costs with economies of scale on airline engine option decisions as well. In particular, our theoretical findings suggest that the airline would buy more aircraft that are the majority types in their existing fleets, thus crowding out the minority ones. Our findings provide a reasonable explanation for the homogeneity of engine options and provide policy implications regarding airline expansion and aviation supply chain development.