How Boeing and Blockchain Technologies Could Reshape Aviation
Plus Boeing's Week in Review
As many countries look to the privatization of airport infrastructure, establishing a secure method of transactions is crucial
In October of 2018, the International Air Transportation Association (IATA) released its Blockchain in Aviation White Paper, in a series called Forecasting the Future of Aviation (2035). Three years later, in late January of 2021, IATA announced a blockchain-powered travel pass, designed to aid passengers in international travel given heightened COVID precautions. Steps toward incorporating blockchain technology are not entirely new to the aviation industry, but could have groundbreaking effects in reducing transaction costs.
Eric Leopold, IATA’s Director of Transformation, Financial, and Distribution Services, spearheaded the project, and noted that despite the main challenges of scalability, governance, and cost of usage, Blockchain technologies could lead to an industry-wide rebirth.
“This first Blockchain white paper is intended to raise awareness on the potential of this technology for the aviation industry and to guide the industry towards the most promising business opportunities, while being mindful of the potential risks and challenges.”
-Eric Leopold, Director of Transformation, Financial, and Distribution Services
The primary goal of incorporating blockchain technologies in aviation is to facilitate exchange of information in an industry dominated by high transaction costs. By transaction costs, I mean those in the conventional economic sense—such as the time it takes to transfer information and mistakes made from this information transfer if not done correctly—not just the actual cost of purchasing data or sending a message, or the “cost of usage.” Transaction costs can also refer to the difficulty associated with penetrating through layers of communication, especially prevalent in aviation.
When describing the aviation system, the best analogy I can think of is that of a symphony. There are many moving parts on both the side of the airport and the airline—the aircraft manufacturers, the airline carriers, the airports, concessionaires, etc.—just as there are violinists and cellists and flautists. Where one might see the conductor of the symphony as the perfect orchestrator of knowledge, who can adapt to changes in pitch and smoothly translate this information back to the musicians, blockchain-based technologies would provide a decentralized and automated database that allow for secure transactions of information across a wide array of aspects of the system, such as the streamlining of customer loyalty programs and baggage tracking, in a much more organized way.
In addition, given the heightened security concerns after 9/11, the management of information is crucial, but verification and authentication might be even more important.
“Frictionless” isn’t a word often heard in aviation, but blockchain technologies could facilitate an exchange system in which it is possible in terms of transactions.
All in all, IATA identified five areas of aviation in which blockchain technologies could have a significant impact, summarized below and taken directly from the white paper:
Frequent Flyer Points: Streamline the earning, spending, accounting, and use of frequent flyer points through tokenization. Main purpose is to help airlines deal with rising passenger load factors, as higher loads makes the facilitation of points redemption more difficult.
Baggage, Cargo, and Spare Parts: Facilitate the tracking of both status and location of passenger baggage, cargo, and spare parts in a way more reliable than current assets management systems, as they frequently change custody. Main purpose is to streamline current process and unlock new product developments, as well as deal with disruptions such as delays and cancellations.
Distribution and Payment: Allow the collaboration of airlines, travel agents, etc., across the aviation sphere to co-deliver products and services. Main purpose is to expand the distribution reach of all concessionaires and increase the efficiency of the aggregation of travel products and services.
Passenger and Crew Identity Management: Provide a method to streamline the identity management of passengers and crew while protecting privacy.
Smart Contracts Across the Travel Value Chain: Eliminate or heavily reduces the methods by which “airlines and other actors across the value chain trade products and services and spend significant efforts on contracts, execution of contracts, monitoring the fulfillment stage, reconciliation, invoicing and settlement” by leveraging the concept of Smart Contracts.
IATA also announced several blockchain industry initiatives: the IATA Coin, IATA Digital Certification Authority, Digital Finance, and the Travel Grid, which was slightly adapted and re-instituted as the aforementioned COVID “Travel Pass.”
Boeing’s use of Blockchain Technology
In early 2018, it was announced that Boeing had partnered with Honeywell, a multinational aerospace conglomerate, to trace and resell over $1 billion in spare airplane parts, via blockchain technology.
Using Honeywell’s GoDirectTrade, a blockchain platform that monitors and proves the origin of used parts and verifies their compliance with safety standards, Boeing was able to resell $1 billion worth of excess parts, after setting up a “digital storefront.”
The tracing of information and verification aspects of the blockchain system are extremely attractive, given that aviation parts typically float through the market roughly four times before being retired, and have high stakes in terms of durability and safety.
The aviation industry is quite slow to adopt new methods of exchange, and in an interview with Forbes, Honeywell’s general manager Lisa Butters noted that “…less than 3% of the $4 billion in second-hand aerospace parts sold per year is done online.” A statement that sounds absurd in the age of the internet.
Thinking Rationally
Given the aviation industry’s history of slow adaptation to any new technologies, I am not convinced that we will see drastic changes that incorporate blockchain technologies anytime within the next two years, but I am not completely hopeless. It appears that the exogenous shocks posed by the pandemic sped up IATA’s Travel Pass, and it is possible that we will observe similar effects elsewhere as travel demand picks up and airlines and airports alike fight to establish market power and ensure social distancing and enhanced safety measures are met.
Lastly - Boeing’s week in Review
Speaking of Boeing, I thought I’d toss a little aside in here, since they’ve had quite the year.
Earlier this week, United announced that it would be grounding some of its Boeing 777 fleet after an engine failure over Denver justifiably brought up safety concerns about the aircrafts’ engines, when the cowling surrounding the PW4000 engines caught flames and fell off into someone’s front yard.
Less than 48 hours later, another Boeing aircraft fitted with the a smaller version of the same engine, a 747 cargo plane, experienced an engine failure that resulted in dropping debris over Amsterdam.
And as I am currently writing this at 10:49pm on Thursday February 25th, another Boeing plane has just made an emergency landing in Moscow, although it is too early to tell what the causes are.
When I tweeted about this, I was met with a bit of criticism as Boeing is not the manufacturer of the engine. This is true; the engines are manufactured by Pratt & Whitney, however, Boeing does manufacture the cowling that sits around the engine, that fell off over Denver during its 777 Honolulu flight. A new report showed that Boeing was planning on replacing these cowlings months before the incidents, but had not completed the maintenance. My best guess is a combination of old engines and bad cowlings, plus a lack of effective FAA oversight.
United, the only U.S. airliner to fly aircraft fitted with the PW4000 engines, on the other hand, is being praised for handling the situation and safely getting the plane on the ground. My twitter DMs were flooded with a wave of “$UAL is up” messages, to which my response is something along the lines of “this is the one thing United has done right in who knows how long.”
These incidents follow the 18 month suspension of the Boeing 737-max after several fatal incidents grounded the aircraft globally. Bad time to be a Boeing exec I guess.
What about blockchain incorporation between the digitized communication between interfacility air traffic control. As well as the digitized communication between pilots and air traffic controllers? Now that would be the future!
How much do you know about the Hedera Hashgraph and the Boeing relationship? I don't know what plans Boeing has with Hedera but maybe they took a liking to your article here.