Chuck Weirauch looks at the challenge of procuring high value training equipment such as full flight simulators.
With more full flight simulator suppliers now in the marketplace, customers have more choice than they have had in the recent past. While that's good news for buyers, suppliers are seeing more competition than ever before in a market that has shown a fairly consistent number of such devices being procured over the past few years.
While some have questioned whether there really is a market for the newer players as well as the older ones, some answers to that query can be found in the expanding demand in Southeast Asia and other regions, the predicted growth in air travel, the increase in new aircraft sales and the need to train more aircrew to meet these trends.
According to Grand View Research's May 2015 Simulator Market To 2022 - Market Analysis, Growth Prospects report, rising demand for air transportation is expected to boost the flight simulator market growth over the forecast period. The document also cited that the performance evaluation of pilots and R&D efforts in aerospace technology are expected to stimulate flight simulator market growth, along with the growing importance of aircraft safety and the consequent need for substantial flight training and simulation.
Visiongain's Civil Aviation Flight Simulation & Simulation Training Market Forecast 2015-2025: Prospects for Leading Companies report expects that the market will become increasingly competitive as providers are motivated by the need to adopt advanced motion and visual technologies which replicate updated flight models, and comply with regulatory requirements, while still maintaining reasonable unit costs for their customers.
Choosing the Right Solution But with more simulator suppliers in the market, choosing the right flight training solution also becomes more difficult for the buyer. Each supplier offers a wealth of solutions that range from outright purchase of a new simulator to the power-by the-hour concept.
To provide some insight as to what to consider when procuring an FFS, or for that matter, higher level fixed-base FTDs, CAT enlisted the advice of top managers at FlightSafety International (FSI), TRU Simulation + Training, Lockheed Martin Commercial Flight Training and CAE. Other suppliers were approached for comment, but that input was not available at press time.
Life Cycle Costs Although cost is the primary factor in just about all business cases for the procurement of a simulator, all of the simulator supplier managers contacted recommended that potential customers consider procurement from the life-cycle cost perspective. Since an FFS can have an effective operational life-span on average of 20 to 25 years or more, those involved in the procurement process for an airline or training provider should take the long view.
“Buyers and users focus on the immediate capital expenditure requirement, and tend not necessarily to be looking at the full life cycle of the asset they are purchasing," said George Karam, VP and general manager of TRU Simulation + Training's Air Transport Simulation Division. Considerations such as operating costs and future updates need to be a part of the overall equation to evaluate this procurement as a business case. “Price is always an important consideration, so all things being equal, price plays an important deciding factor. However, what is important is the value offered within the solution provided by the supplier, a combination of the equipment itself, the underlying operating cost, the fidelity, the maintainability, and upgradability.”
Neal Tomblyn, Business Development director for Lockheed Martin Commercial Flight Training, agrees with Karam. “The guidance that I would lend for those looking to procure a simulator, is to not to get themselves wrapped around the axle within the low-price technically acceptable environment. The risk you find when you do that is you inherently miss some key critical elements that you are going to need to be ultimately successful in the pilot training world. What they need to focus on is developing a really good picture in a scenario on what I would call the life-cycle cost of the system and the environment. So what you really want to look at - you really want to understand - is mean time between failure (MTBF) rates with some of the key components of the system itself.”
Considering that trainers may be using the simulator a lot, perhaps 20 to 22 hours day and also providing maintenance to try and run it six-seven days a week for 10 years or so, it's better to look at the whole operational picture, Tomblyn emphasized.
“So you really need to focus on the total life-cycle cost over the period of the 19 years or so, not just the price to buy a simulator product,” said Tomblyn. “You really want look at the maintainability, the serviceability, you want to look at the spareing - the spare parts - and the reliability of the system. It's the old adage, you get what you pay for.”
Dean Fisher, VP and general manager for CAE's Global Simulation Products, noted that when purchasing training equipment with a long life cycle, the procurer's focus should be on what the company refers to as Total Cost of Ownership (TCO), as opposed to acquisition cost, to determine how much the asset will cost over time. He noted that TCO includes reliability, ease of maintainability, upgrades and simulator availability. Moreover, customer support capabilities are key to minimize downtime and ensure proper support over the entire lifecycle.
Keeping Up One trend related to cost that John Van Maren, VP of Simulation for FlightSafety International (FSI) has been seeing lately, is a lowest-price, technically acceptable training solution that meets the minimum training requirements. That may not be the best solution for the future, but when one is only looking at today's dollars in the business case, it is still a viable approach, he said. However, he recommends a longer-term approach with an eye to technological advances in the future.
“The first advice that I would give to someone who is writing an RFP to procure a simulator is don't think about what they did with their last simulator - what the capabilities and requirement were for their last simulator,” Van Maren said. “Instead, think about the capabilities for today and in the future. The electronic technology that is available today - the computing resources that are available - is really surpassing anything that we could do even two years ago. So it's important that people don't bind themselves to a simulator that was manufactured two to five years ago, and that they really look to the future. And the way to go do that is to meet with simulator manufacturers and see what the latest and greatest technology is, and see how it would fit into their training environment."
Data Packages Van Maren also suggested that potential procurers should also take simulator data packages into consideration when writing an RFP, in order to not only help reduce upfront costs, but as a means to ensure the value of the simulator in the future.
“Try to negotiate a data package for the simulator upfront in your aircraft negotiations when purchasing those aircraft,” Van Maren suggested. “If potential buyers can get the aircraft OEM data package negotiated in with the aircraft deal, which would include the simulator package or packages, depending on how many sims they need to meet their requirements, they will save a significant amount of money. Some of the big aircraft OEMs will provide a simulator data package to an airline that is going to provide its own training.”
But buyers also need to understand what the data package includes, such as what rights come with that, Van Maren pointed out. One example is to make sure that the purchasers have the right to conduct third-party training. They should also make sure that the license is transferable if they intend to sell the simulator in the future, he added.
“In the past, many operators kept their sims 20 to 30 plus years,” Van Maren summed up. “Today that may not be the case. They may be revitalizing their fleet more quickly, and if they wanted to sell that sim in the next five to ten years, they need to make sure that they have the right to do so.”
Trends All the simulator companies represented in the CAT survey also provide the full range of purchase agreement options beside straight simulator sales. Various leasing and power-by-the-hour agreements, as well as two that provide reconditioned used simulators. However, their spokesmen said that they are seeing buyers choosing the mix of options, with no firm trends across the global marketplace towards one or the other option, but rather whichever solution best fits the purchaser's business case.
Tomblyn did report that he has seen some trends towards leasing, but not as much as in the past. That's because one of the challenges of power-by-the hour is whether it is guaranteed or not guaranteed in the contract. So he is seeing less and less non-guaranteed power-by-the-hour agreements. Van Maren reported that his company is seeing a lot more interest in the power- by-the-hour and leases as a way to not have to put the large cash outlay up front for a full flight simulator. Karam is still seeing the same mix of the purchasing of assets and the leasing of assets as in the past.
Challenges While the increase in demand for simulator equipment and services seems a steady factor, whether it is enough to sustain the market for current and budding simulator suppliers remains to be seen. It's an interesting question, since according to Van Maren, although the market had taken off recently, there is a "glut" of suppliers right now.
Tomblyn sees one of the challenges of staying competitive in the market in the next five to twenty years, is customers wishing to buy an FFS and wanting that sim delivered to them in a shorter timeframe than in the past, within six months versus the previous 12-month timeframe. He also predicts that as technology evolves, such as virtual reality, dome-orientated visual systems with higher-end graphics, and new motion technologies which lower the cost of devices, that this progress will start driving some of the current competition out of the market. “That's because such technology development and implementation initiatives require significant R&D investments,” he explained.
“We have seen a lot of acquisitions and some consolidations within the industry, and whether this trend continues remains to be seen,” Karam said. “The best way we can address this issue is to continue innovating, and continue to listen to the training needs of our customers. We need to work to determine how we can offer the features and capabilities within the simulator to address the training requirements, especially as the training paradigms are evolving.”