ANALYSIS: MROs use Aveos assets to diversify offerings

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The maintenance, repair and overhaul (MRO) landscape in Canada has changed significantly within the past year since Aveos Fleet Performance filed for bankruptcy and immediately shut its doors on 19 March 2012.

Due to the closure, Aveos' assets have been distributed among several maintenance organisations with their own operations. As a result, Aveos' capacity is being distributed across a pool of companies with diverse offerings and business models, whether through capabilities or types of businesses they offer in addition to maintenance, repair and overhaul.

Aveos at one time was a part of Air Canada and known as Air Canada Technical Services, but it was divested in 2007 and then became known as Aveos. Along with heavy maintenance services, the facility had an extensive engine and component capability. But in the wake of its departure from the industry, no MRO as large will be taking its place.

Instead, the capabilities have been absorbed by several players-some local and some international-that say diversifying operations is the key to being successful in the North American MRO market and to stand up against global competition. These players want to leverage the expertise of the workforce while maintaining its own brand. Several companies, including Avianor and Kelly Aviation Centre and AJ Walter, have hired ex-Aveos employees. In Montreal alone, about 1,800 employees were left without work.

After Aveos shut down, its specialties were divided into three main divisions-airframe, component and engine maintenance. The facilities at the engine and component maintenance facilities have been purchased by two international companies, while the heavy maintenance division was split between five maintenance companies and a liquidation firm for C$10.8 million ($10.5 million) after the court passed a motion to uphold the transaction in June.

The companies that purchased lots of the heavy maintenance business included AAR Aircraft Services and Premier Aviation, both based in the USA. Canadian MROs Avianor, Discovery Air Technical Services and Avmax Aviation Services also won bids for parts of the business.

Interested bidders felt that there was a "limited role in a global context" for Aveos' maintenance model. It said that the structure of the business was not "globally competitive". However, while no company wanted to re-start Aveos as a large company, several wanted portions to add to their own operations, which often include services beyond commercial heavy maintenance.

Diversifying capabilities and types of business is the key to succeeding as a maintenance organisation in the North American market, several companies said. For those that are taking on Aveos, that takes on different forms.

Discovery Air Technical Services is one company that says diversification is the key to success. The Quebec City-based MRO is using assets from the Aveos bankruptcy to expand into the MRO market for Embraer E170 and 190 models.

Discovery's maintenance certificate now covers Transport Canada and EASA approvals for the Embraer E135/145 models and Bombardier CRJ100/200 jets. It also covers ATRs, the Dash-8, SAAB 340 and Boeing 737 as well as Challenger 600s and Learjets. The Aveos assets will allow it to expand into maintenance for larger regional aircraft, which will become more prominent in regional airline fleets in the next few years as US-based major airlines shed their 50-seat aircraft.

Discovery had been planning to make this move and was on the way to starting to add the capability before the Aveos bankruptcy, says Cavin Tuitt, vice-president sales and marketing at the Quebec-based MRO. But the circumstances surrounding Aveos' closure gave the MRO an opportunity to add the capability faster than it might have otherwise.

"It did create some opportunities for us," says Tuitt.

While much of its operations at the Quebec City MRO focus on regional jet work for regional operators-most North America-it does do a small portion of these other aircraft. Discovery has a capacity for six lines of regional jets at the Quebec City location and focuses largely on maintaining its own fleet in Calgary.

Discovery Air Technical Services sees diversity as the key to succeeding as an MRO centre in Montreal, but not just along the way of maintenance capabilities. Along with its heavy maintenance arm, parent company Discovery Air has seven subsidiaries, including a fleet of 160 aircraft that include military aircraft and helicopters. It also provides charter services, logistics support and engineering through its companies.

Discovery Air Technical Services says being part of a larger company differentiates it from other maintenance providers, and it intends to diversify its capabilities at the technical operation.

"Right now, our vision is to grow and become a world-class MRO company, to grow globally and to provide MRO services not only to airline companies, commercial airlines, but [also] maybe do some military business, some corporate business," says Tuitt.

Avianor, based at Quebec's Mirabel airport, is another maintenance, repair and overhaul company that has taken on a portion of the Aveos business. Diversification in this instance comes from a unique business model of managing cabin reconfiguration projects for airlines as well as doing heavy maintenance checks.

In addition to simply doing C checks, Avianor tries to maximise the out-of-service time for aircraft by installing interiors and inflight entertainment. But going a step further, the MRO has found a specialty in taking care of the whole process, including procuring the seats and interior components, designing the layout and certifying the project.

"We have engineering, we have value added, and it's our value added proposition that makes us competitive and puts us in demand," says Earl Diamond, co-owner of Avianor.

The carrier says it does not measure its work in available man hours like some MROs. Instead, it sees itself as more of a project manager, offering an airline "a turnkey solution to their aircraft reconfiguration problem," says Diamond.

The MRO procured more than C$1 million ($980,000) in assets as part of the Aveos restructuring process, says Diamond. This includes the assets of Aveos' wheel shop in Toronto, brake shop in Montreal and non-destructive testing equipment. The carrier performed substantial wheel and brake work for Air Canada immediately following the Aveos closure, and it says the Aveos shutdown led to an influx of immediate growth in its business for 2012.

"We were projecting our business to grow by 5%, our business grew by 30%," says Diamond.

For the next year, the MRO is planning to grow by another 30%, which will be a combination of commercial heavy maintenance work and an arrangement it has formed with neighbouring L3-Mas to perform heavy maintenance as a subcontractor for the Canadian Department of National Defence. Avianor is exclusively a commercial operator otherwise, but is able to use the contract to diversify its offerings.

Other MROs that have purchased portions of the Aveos business have non-commercial aircraft capabilities as well. US-based AAR also acquired a part of Aveos' airframe maintenance assets, but notes that heavy airframe maintenance is only one part of its business. It also provides airlift services, supply chain management, component repair management and modifications. It also creates technology products for the US military.

The two companies taking on the component and engine side of the Aveos business are also operations with several different facets.

Lockheed Martin Canada is a company with a strong hand in the defence space, but it will enhance its commercial maintenance offering by opening Kelly Aviation Centre Montreal in Aveos' former maintenance facility near Montreal's Trudeau airport.

Lockheed opened the 525,000 square foot (48,774 square metre) maintenance, repair and overhaul centre for engines in Montreal to grow its commercial business and complement its existing commercial repair centre in San Antonio, Texas.

The second Montreal-based arm of Kelly Aviation Services is in the process of ramping up its operation and expects to induct its first engine by April. It will seek contracts from global customers for the commercial engine work, specialising initially on CFM International CFM56 and General Electric CF34 engines. However, it is also positioning to move into the realm of military maintenance by 2014, says Amy Gowder, vice-president and general manager of the Kelly Aviation facilities in Montreal and San Antonio.

On the component side, AJ Walter Group is moving into the MRO space for the first time by setting up its AJW Technique MRO in Aveos' former component facility, also near Montreal's Trudeau airport. The maintenance provider has scaled down the 22,000 ft2 (67,056 m2) facility that Aveos was using to 160,000ft2, but says it will not shed capabilities in the process, as it is implementing lean initiatives.

AJ Walter has moved not only into the Montreal area first time, but into the MRO space overall. Being able to a facility with technological advancements such as the Aveos shop was a "once-in-a-lifetime" opportunity that allowed it to expand its brand to MRO services, says Gavin Simmonds, general manager of the new component maintenance centre.

"it really takes us to the next level," says Simmonds.

AJ Walter has traditionally managed repairs through a network of original equipment manufacturers, which will not go away with the new facility. However, adding maintenance, repair and overhaul will allow it to extend its brand to another service that its customers need, in addition to its parts pooling, stocking and logistics services.

The MRO plans to grow its workforce by 250 people in the next three years. AJW Technique will support UK-based AJ Walter Aviation's 800 customers with repairs, in addition to complementing an existing repair network of original equipment manufacturers that its sister company already manages. But while it is extending the brand, it will also seek to be an MRO in its own right.

The facility plans to grow its third-party maintenance business and is engaged in serious talks with at least 12 airline and MRO customers for future work, with interest coming from South America, the Middle East, Russia and Australia, says the facility's general manger. But like some of the other MROs, it is looking to expand into areas where AJ Walter is not a specialist-like military MRO and business jets.

"We will support AJ Walter Aviation, but we're also an MRO shop in our own right," says Simmonds.