Finnair hopes heavy MRO exit will improve tie-up chances

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Finnair's decision to abandon low-margin airframe heavy maintenance in favour of high-value engine and component MRO could be a step towards making the Nordic carrier a more attractive candidate for future consolidation.

The Helsinki-based airline has decided to end airframe heavy maintenance activities due to high labour costs and concentrate on growing its engine and component MRO business instead. The move will make a third of Finnair's technical workforce redundant.

Finnair vice-president of financial communications and investor relations Taneli Hassinen does not deny that the structural changes could make the carrier more attractive to suitors seeking to consolidate in the future.

Finnair is theoretically well-placed to join fellow Oneworld members British Airways and Iberia in the International Airlines Group, which already has extensive maintenance facilities with third-party custom.

The objective for Finnair Technical Services and Finnair Engine Services is to be viable businesses in their own right, which can act freely in response to their individual drivers, says Hassinen.

"Consolidation in the MRO business is a different ball game to airline consolidation. But, of course, the more independent these businesses are, the easier it is to participate in the consolidation discussions."

Claiming that high salary levels have made heavy airframe work "inadequate" for both its own aircraft and third-party customers, the company plans to "completely restructure" its airframe maintenance arm, Finnair Technical Services, as well as its engine and component MRO business, Finnair Engine Services.

A "great portion" of this labour-intensive work came from external clients in the past, says Hassinen.

"[But] the fact is that we are not competitive in that area, pretty much due to labour cost. The global price is too low to cover even the variable cost," he adds.

In future, the company wants to provide mainly line maintenance, light C-checks and ad hoc repairs on occasions such as ground accidents, where the aircraft needs to be quickly returned to service. Work beyond that will be outsourced to external MRO providers.

Around 450 out of a total of 1,600 jobs at Finnair Technical/Engine Services are to be axed. The carrier has begun a six-week consultation period with employee representatives.

However, Finnair Engine Services plans to extend its engine and component MRO capabilities in future and continue offering these services to third-party customers.

"Because this area is much more profitable, we can be competitive," says Hassinen. "That's why we want to develop those areas."

He declines to specify any particular component capabilities but says that he sees potential in markets such as Russia, where relationships with customers have already been established.