Blockchain: Novel Opportunities For Improving Efficiency In Aviation.
Legal News & Analysis - Asia Pacific - Shipping Maritime & Aviation
8 March 2021
Blockchain is seen by many as the most significant technological breakthrough since the advent of the internet. While digital currencies based on blockchain technology have monopolised many of the headlines, blockchain has far wider-reaching potential and new applications are capable of disrupting practices across many sectors, including aviation.
What is Blockchain?
In simple terms, blockchain is a way of recording data. It is a decentralised ledger of transactions that is maintained by its users, rather than by a trusted third party. Each blockchain ‘protocol’ operates on cryptographic technology and acts as a dynamic registry for the exchange of digital assets and verification of digital information.
Transactions on the blockchain are divided into encrypted, irreversible and time-stamped ‘blocks’ which are shared and corroborated by the users of the blockchain (or a selection of such users). Users of the blockchain can see the block (and, in some cases, approve it), but nobody can unilaterally modify any block that has been approved. Each ‘block’ is then chained to the next block, using ‘signatures’ to ensure validity and prevent tampering.
Below, we shine the spotlight on some key ways blockchain could be deployed by the aviation sector:
Blockchain in aviation
When combined with a smart contract, blockchain opens up the possibility of automating routine events under aviation financing documentation.
For example, a smart legal contract could be developed to use a specified blockchain to request insurance certificates on review dates. Once the certificate is obtained, the system could then independently verify whether the objective aspects of the insurance requirements under the contract have been satisfied, and confirm or flag for further review.
We will be publishing a separate article exploring the possibilities opened up by smart legal contracts.
Following from the above example, blockchain can also make maintenance – and utilisation – based arrangements intelligent. Because maintenance and utilisation data can be stored on blocks in the blockchain, accessible by anyone with authorised access to the peer-to-peer network, it would be updated real-time; and because the blockchain is immutable, the historical data can be used to generate predictive data.
Manufacturers, MROs and asset owners would be able to use this to track and predict the condition and usage of parts and systems at almost any time; they could intercept problems, identify more precisely their inventories and amass data on the usage and performance of their products.
As mentioned, each block in a blockchain is irreversible and time-stamped. Changes to a block in the chain will always be identifiable and recorded. These characteristics make blockchain an ideal platform for the recordation of aircraft and part ownership data.
Currently, confirming ownership (where even possible) requires an often cumbersome review of the back to birth ownership of an asset (usually, if at all, documented under misplaced historical bills of sale). The blockchain could avoid this issue by providing a single cohesive data source to confirm ownership.
Where maintenance records and ownership details are captured in a blockchain, in addition to the above benefits, it might also be expected that aircraft trading efficiency would be increased. Sellers would be able to simply give access to potential purchasers of a comprehensive suite of data in relation to the asset, avoiding the typically protracted process of running processes with multiple parties in parallel. Similar efficiencies may also be realised in aircraft lease return processes.
While there may be some reluctance to adapt present practices in the aviation industry to embrace emerging technologies like blockchain and smart legal contracts, the potential for these technologies to transform the industry is undeniable.
Though much headway still needs to be made in the development and implementation of this technology, with its varying applications, including those discussed above, blockchain’s potential to create significant efficiencies cannot be overstated.
For further information, please contact:
Samuel Kolehmainen, Partner, Herbert Smith Freehills