As mentioned in our recent blog post, Morgan Lewis, led by technology, outsourcing and commercial transactions partner Mike Pierides, hosted a roundtable on aviation technology contracts and issues on November 14 at the PSS2019: Retail Excellence conference. The roundtable included representatives from airlines, airline industry professionals, and technology suppliers.
The roundtable discussion focused on how industry stakeholders manage their passenger service systems (PSS). During the feedback session, Mike noted that his roundtable group’s discussion inevitably centered on the challenges that airlines and suppliers face with this process, and talked about some upfront problems that can occur when entering into a PSS relationship. Namely, the RFP process typically places significant weight on obtaining the lowest price at the expense of both the quality and the scope of that particular PSS relationship, which causes tension among an airline’s procurement, legal, and other departments.
Mike went on to discuss how his group analyzed the issues that typically arise during the lifetime of a contractual relationship between an airline and a supplier, and outlined three keys themes.
1. The Importance of Openness and Trust
The group emphasized the importance of openness and trust in the parties’ relationship to ensure that there is a balance between what each party puts into the relationship and what benefit is received. This included issues such as which party owns and commercializes new developments, and how information is shared and whether the scope of its authorized use is clearly understood.
2. The Lack of a Formal Relationship
Second, Mike explained that the group discussed issues that typically arise when the contractual arrangement is conducted “informally” and without due reference to the “formalities” of the contract. This appeared to be a factor that arises in very long-term (10 years or more) PSS relationships. Interestingly, airline representatives in particular talked about how a greater adherence to contractual formality would be preferable to a completely “intermingled” relationship between customer and supplier teams.
3. The Renegotiation Process
Lastly, in the context of the renegotiation process, the group discussed the advantages and disadvantages of single-source renegotiations as opposed to competitively sourced RFPs, and the best approach to mitigate against risks involved in the renegotiation process.