InformationWeek

March 27, 2000

Online Marketplaces:
AviationX Charts Flight Plan
Startup joins growing number of E-marketplaces trying to cash in on the aviation industry

By Mark Roberti

Illustration by Dennis Harms ompanies building electronic marketplaces to serve the commercial aviation industry are queuing up like planes waiting to take off at New York's Kennedy Airport during a preholiday crush. The reasons are clear: Airlines spend about $32 billion a year on spare parts and billions more on related services. They have to deal with myriad suppliers, mainly by phone, fax, or electronic data interchange. That's why new and established companies are betting that the industry will flock to any electronic marketplace that can bring order and efficiency to the procurement process.

AviationX Inc. in Arlington, Va., is among the newest aviation E-marketplace companies. It plans to launch AviationX.com in the second quarter to connect airlines and parts suppliers. The startup is positioning its exchange as a neutral site that will serve the interests of buyers and is developing value-added applications to attract users to the site. But it may quickly find itself in a dogfight with a host of competitors.

AviationX was founded in December. Chairman and CEO Henrik Schr�der left his position as president of Saab Aircraft AB, a leading manufacturer of regional, or midrange, aircraft, last year to pursue E-commerce opportunities in the aviation industry. "We realized there were inefficiencies that the industry hasn't been good at addressing," Schr�der says. "We believe the existing technology and solution sets we've found can be brought to the industry and unwind those points of pain."

Express Airlines I Inc., a regional airline that serves the Memphis, Tenn., hub for parent Northwest Airlines, has been providing advice and feedback. Curt Sawyer, CFO for the carrier, which has 31 Saab commuter aircraft, says he expects to cut procurement costs by shopping among more suppliers on the site. "We'll know all the key suppliers and should be able to quickly canvass the market," he says. "There will also be internal efficiencies. We expect to get more productivity out of our inventory and control staff because AviationX.com will have better tools and better access to information."

In addition to an E-marketplace for sourcing, procuring, and exchanging information, goods, and services, AviationX.com will also offer airlines workflow and decision-support applications, as well as a technical resource center with industry news, user group forums, service bulletins, and electronic maintenance manuals and illustrated parts catalogs.

The company raised $1.6 million in initial funding from Nick and Tim Stojka, co-founders of PlasticsNet.Com, and from a private E-commerce venture-capital fund called Wired@tlantic. AviationX won't say how much additional funding it needs to ramp up the site, but Schr�der says marketplaces with similar features have spent $30 million to $50 million.

Henrik Schroder Photo by Scott Robinson The company aims to capture about 4% of all aviation parts purchases within its first three or four years. It will make money by charging buyers and sellers a nominal subscription fee; the amount hasn't been determined. Sellers will also pay a small percentage of each transaction to AviationX, and buyers will pay a monthly fee for the use of the value-added applications they choose.

The site will be rolled out in two phases. The first will include the basic E-marketplace infrastructure, including an electronic catalog and the ability to procure items online. It will also include reverse auctions, user group forums, industry news, and other content. The second phase, expected to go live in the third quarter, will include the decision-support and workflow tools.

Airlines are required by the Federal Aviation Administration to track individual parts by serial number. AviationX is building proprietary applications that will let companies track individual purchase orders for each part they buy. They'll be able to look up the part, click on a warranty button, and see if the part is still under warranty. They'll also be able to analyze their purchases by such criteria as geographic region, time of year, and type of aircraft.

Shipping for parts purchased on the site will be the responsibility of suppliers, but AviationX.com will provide facilities for buyers and sellers to make those arrangements; many airlines have preferred shippers and locations. Buyers will be able to designate when, where, and how a part should be shipped. The information will be sent with a purchase order to the supplier's system through the network.

Airlines already have some or all of these systems. "The question is, will it supplant some of the internal systems that we use because it's easier to use or offers additional functionality?" Express Airlines' Sawyer says. "It may well, but we don't know yet."

AviationX spent several months analyzing system integrators. It chose Breakaway Solutions Inc. to build, operate, and host AviationX.com. "They've built robust sites, and the architecture behind them showed scalability," says Jeffrey Saunders, AviationX's VP of strategic development and marketing. "They were also the only company that could handle the marketplace's design and construction, and do the application management, hosting, and maintenance in-house."

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