Air China plans to merge its maintenance arm, Air China Technics, with its MRO joint venture with Lufthansa, Ameco Beijing, to become a major global maintenance, repair and overhaul provider.
The Chinese flag carrier has identified the MRO business as a central area of its future growth strategy and decided to establish a new maintenance company under its leadership to support its own fleet as well as attract more international third-party customers, a Chinese source close to the negotiations said.
Ameco Beijing, in which Air China holds 60% and Lufthansa 40%, has confirmed that the two shareholders "have been paying attention to Ameco Beijing's development" and that they were pursuing "discussions on the future strategy to promote it [the company's development] right now".
The target to finalise an agreement or find a temporary solution is the end of 2011, although it is not clear how far the negotiations have yet progressed, according to the source.
The obvious question is what Lufthansa's role will be in the new company. One option is to remain a partner and take a share in the future venture, although the benefits would depend on the conditions of the new agreement. Given that Air China wants to become a leading global MRO provider, the German airline could find itself as shareholder of a main competitor to its own maintenance arm, Lufthansa Technik.
Air China believes that Lufthansa is still interested in remaining a partner, according to the source. "[However] the base line is that, no matter whether Lufthansa continues to be part of the joint venture or decides to quit from it, Air China will anyhow merge these two parties [Ameco and Air China Technics] together," the source added.
The fusion would create China's largest maintenance company and one of the largest MRO providers in Asia. There is some overlap with regard to airframe overhaul but the two businesses would otherwise mainly complement each other.
Ameco Beijing provides base maintenance for wide- and narrowbody aircraft and has overhaul shops for certain components as well as Pratt & Whitney PW4000 and Rolls-Royce RB211- 535E4/4B engines.
Air China Technics has airframe heavy maintenance capabilities for narrowbody aircraft and has supported Boeing 737s and Airbus A320s from third-party customers, but it focuses mainly on line maintenance services throughout China except for Beijing, where this is provided by Ameco.
A central reason why Air China wants to consolidate the two divisions is to avoid competition between them while bidding for third-party custom. Another motive is to co-ordinate the build-up of new capabilities.
Air China and Lufthansa established Ameco Beijing in 1989 with a 40-year joint venture contract.
Both airlines declined to comment on the merger plans.