ANALYSIS: Boeing's vision for overhauling Port San Antonio

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Boeing has a new plan for Port San Antonio, one of the largest military maintenance, repair and overhaul (MRO) facilities in the world. And, the arrival of the first commercial aircraft – a Boeing 787-8 requiring substantial re-work prior to delivery to a customer – at the Port San Antonio facility three years ago was just the beginning.

More 787-8s and several 747-8s followed for three more years, requiring intensive worker retraining and more than 5 million man hours of labour to deliver them as airworthy airliners. Port San Antonio also played a key role in the 787 battery crisis as the site that implemented the battery system modifications across the commercial fleet.

Now Boeing wants Port San Antonio to seek to expand into the commercial MRO market as a permanent player.

“Based on the customer input that we received after the return to service work that we did, we believe that with the Boeing name and being competitive, that there’s definitely a market out there that they are receptive to,” says Kevin Devine, Boeing Port San Antonio site executive.

Despite the recent moves in the commercial aerospace market, Boeing’s interest in commercial MRO for San Antonio marks a major shift. The company arrived in San Antonio in 1998 after Congress ordered the US Air Force to close Kelly AFB. The city absorbed the abandoned property, rebranded it as Port San Antonio and recruited aerospace companies. The offer enticed major industry players, including Pratt & Whitney, Lockheed Martin and Boeing.

Boeing launched MRO operations in Port San Antonio in 1998 with the C-17 fleet, which continues to be a steady anchor for the site with 60 aircraft inducted last year.

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Attracted by a non-union workforce, Boeing moved more work into Port San Antonio over the next decade, including MRO for the KC-135, KC-10 and avionics modernisation for the C-130 avionics modernisation programme (AMP).

The military MRO sector, however, has been roiled by instability over the last five years, which has deeply affected San Antonio. Boeing lost a re-competition to continue MRO work on the KC-10 fleet, which the US Air Force is now proposing to retire anyway. The air force has also in-sourced most work on the KC-135 fleet. Finally, the air force also suspended work on C-130 AMP, leaving Boeing’s Port San Antonio facility with only the C-17 as a military MRO tenant.

“We see a flat market for a couple years on the defence side,” Devine says.

Similar cutbacks have affected other tenants at Port San Antonio. Pratt & Whitney, in fact, shut down an MRO facility for the F100 fighter engine last year. But Boeing has remained committed to Port San Antonio for the long term, despite the recent fluctuations in military MRO work.

In addition to bringing in commercial aircraft such as the 787 and 747-8, since 2011, Boeing has transferred the US executive fleet to Port San Antonio, closing its MRO facility in Wichita, Kansas. The executive fleet consists of the VC-25s known as Air Force One when the US president is onboard. It also includes another military version of the 747 family – the E-4B airborne command post.

Adding the high-profile Air Force One fleet to Port San Antonio’s portfolio helps, but Boeing still has much bigger plans for the site. The company’s ambitious goal is to make Port San Antonio a competitive player in the commercial MRO market, so it commissioned a third party to analyse how the facility’s rate structure for a primarily military customer base fares in the commercial market. Devine is blunt about the results: “We found that we weren’t competitive.”

The analysis considered three possible commercial MRO market segments to enter – heavy structural repairs, major avionics upgrades and low-end VIP interior completions. The picture was not entirely bleak, though. “We found that we were competitive at the lower end of the VIP completions market,” Devine says. “We had some things we could do to be effective in the avionics world. In heavy structures we weren’t really competitive.”

Boeing is working to transform the facility to meet the cost structure targets required to be competitive in the two most promising categories – VIP interiors and major avionics upgrades.

The ICF SH&E consultancy has estimated that avionics upgrades could be one of the fastest growing segments within MRO over the next decade, doubling in size to $1 billion by 2023. If realised, this growth would be driven with the promise of fuel savings from upgrading cockpits with required navigation performance (RNP) procedures and continuous descent approaches.

Boeing’s Port San Antonio facility has already picked up valuable experience in the avionics retrofit market, serving Rockwell Collins as a subcontractor on the global air traffic modernisation upgrade programme for the KC-135 fleet. The company’s strategy is focused on commercial aircraft larger than the 737, due to the size of the Port San Antonio facilities, which are built to accommodate the C-17 and tankers.

At the same time, Devine is not ruling out eventually branching out into commercial MRO work beyond Boeing-manufactured aircraft, including Airbus types. “Obviously Boeing platforms are our preferred,” he says. “Until we can become successful and build the base up on the commercial side, we wouldn’t look to reach out at this point.”

Another possible route into the commercial MRO business is becoming a regular subcontractor for Boeing’s Commercial Airplane Services. CAS has signed GoldCare-managed MRO deals with 787 customers. “The reason why we went for a third-party assessment [of cost structure] was because we were having issues trying to capture that work,” he says. “So we definitely see that as an opportunity.”

The company’s long-term vision, however, has been complicated by short-term realities.

The Port San Antonio’s role on the 747-8 programme has already ended. Meanwhile, three of the six 787 flight test aircraft are being refurbished. Port San Antonio has the first 787 test aircraft – line number 6 – in work now. But Boeing plans to transition refurbishment of line numbers 5 and 4 to Everett, Washington.

That decision, announced in late February, resulted in painful cuts at Port San Antonio. Boeing announced plans to lay off 600 workers, on top of 50 more employees that it let go last year. It nearly offsets the 800 employees originally hired to perform the commercial aircraft work in San Antonio.

It also faces a commercial MRO market that has been challenging for even established players to survive.

But Boeing believes that two discriminators – fast turnaround times driven by a highly-trained, flexible workforce and the power of the company’s name – could be critical, he says. The site’s previous work on the 787 and 747-8 also provide valuable experience, along with direct contact with several potential future customers.

Boeing signed a 20-year lease on the Port San Antonio facility in 1998. There are four more years left on the deal, but negotiations are already underway about a possible extension. Devine notes that the company has two, five-year options in the lease agreement, which could extend its presence in Port San Antonio to 2028 if exercised.

At the same time, Boeing is also wondering if it should consolidate its presence at the site, given the declining military business and the uncertainty of the commercial MRO move.

“We’re definitely running lots of exercises,” Devine says. “At issue is our availability to the runway. It’s at both ends of the facility and it kind of limits your ability to make changes to the footprint. Although we’re weighing options, we don’t have anything planned at this point in terms of a reduction.”