Using blockchain to streamline airline finance

Maintaining parts records is about more than bookkeeping. Good tracking preserves value—in fact, a perfectly good part of missing records may have to be scrapped. Unimpeachable records can also help save time and effort in paperwork inspections, such as verifying whether a part has complied with FAA airworthiness directives. As fleets grow and parts become more complex, how can an airline CFO ensure quality and efficiency in this critical function? Today, an airline may dedicate many resources to different business units to the task. That approach means multiple people tasked with documenting asset lifecycles and the complicated—and mandatory—maintenance that goes with it. Missed information can cost airlines in the form of failed compliance or impaired assets. With the full adoption of blockchain across the parts ecosystem, an application such as Parts Pedigree helps resolve inefficiencies in the documentation of the asset lifecycle. Additionally, airlines would be able to sell and purchase assets with confidence that the documentation is uncorrupted and the seller has adhered to all maintenance regulations. As trust in blockchain grows, it may be possible to conduct fewer inspections and reduce the workforce needed to audit maintenance. It also offers peace of mind by removing trust entirely from some parts of the equation: For example, if you rely on a third-party platform provider to reflect supplier documentation accurately, your faith in that platform provider is critical. But with blockchain, the documents authenticate themselves, and trust isn't an issue.

Passengers love loyalty programs. But for airline CFOs, they can be a place where expenses sit in limbo, accrued but unable to be recognized until someone redeems a point or mile. The fluctuating gap between forecasts and actuals makes the revenue recognition process frustratingly complicated. And as airlines partner across the value chain and give loyalty customers more redemption and earning options via credit card issuers, rental car companies, hotels, and retailers, they have to contend with external data that makes the revenue puzzle even tougher. Companies like Loyyal are using blockchain to build digital loyalty wallets that track reward tokens redeemable across multiple partners and purchase types. Digital wallets satisfy the customer and keep the process of accounting for revenue decentralized from an individual carrier and transparent.

Airline CFOs like parts leasing—it's a cost-effective alternative to purchasing in an industry that is notably capital-intensive. But it can be clunky to manage lease agreements with multiple external partners, and the process invites error. While it's already common for airlines to lease engines based on hours of use, spreading that model to other parts has been difficult because of complexity. With smart contracts that use blockchain to self-execute transfers of value, the leasing model could apply to more equipment on each aircraft, on a micropayment basis that is standardized and trustworthy. The automation of these supply chain transactions could also eliminate the need to process invoices and payments. The result would be more liquidity and flexibility with fewer resources dedicated to documenting and executing transactions.

Interlining lets airlines offer their customers expanded route options and easier re-accommodations when cancelations occur. But settling accounts is complex and tedious, and compliance with the IATA Simplified Interline Settlement standard can be difficult. As total revenue sources become more complex, including not only seat fares but also fees for selection, baggage, and in-flight enhancements, so does revenue recognition. And with each partner-driven to collect as much as possible, trust can wear thin in the process of sharing revenue. If multiple airlines and IATA were to define code-sharing rules with smart contracts and execute and track payments on a blockchain, airlines could introduce more innovate total revenue drivers with confidence they could recognize their share of the revenue more quickly.

Airports have finite slot and runway capacities. An unused slot is a vanished asset. Airline CFOs must forecast and bid on slot needs with an imperfect view of the future. Blockchain has the potential to reach across the silos where the different data sets related to scheduling reside, speed the process of identifying unused gates while there's still a chance to use them and automate the speedy resale of those assets to other airlines. That approach means a revenue premium for the seller and an operational assist for the buyer, fewer friction costs within a process, and best of all, fewer delays and cancellations for passengers. To make this work, airlines, airports, and traffic control will need enhanced real-time data capabilities, and airlines will need faster processes to execute changes to planes, crews, and ticketing.