Maintenance providers in the Middle East are rapidly building up engine overhaul capabilities. But in spite of the region's burgeoning airline expansion, there is fear the new facilities will be unable to attract sufficient custom to make business viable.
Airlines with in-house engineering divisions and third-party maintenance, repair and overhaul (MRO) companies pursue ambitious plans to become not only independent from service providers in Europe and Asia, but also to secure a slice of the global aftermarket.
With the engine support segment being largely controlled by the OEMs, most expansion projects are partnerships with the engine makers. But third-party MRO groups, such as Air France Industries KLM Engineering & Maintenance (AFI KLM E&M) and Lufthansa Technik (LHT), are also trying to gain a foothold in the Middle East.
Dubai-based Emirates intends to expand its in-house engine capabilities to full overhaul
Mubadala MRO network member Abu Dhabi Aircraft Technologies (ADAT) is building an overhaul shop for General Electric GEnx and Engine Alliance GP7200 powerplants. Operations are to be established in stages and should ultimately reach about 200 overhauls per year.
The $150 million project was launched in December 2010 and is scheduled to open in early 2013. ADAT says it continues to work closely with GE to understand "when the optimum time to establish the facility is". While the project is not a formal joint venture with GE, the capabilities are being developed under a GE-branded service agreement, and the site will form part of the OEM's aftermarket network.
In its existing facility, which can accommodate about 70 large engine visits a year, ADAT overhauls GE CF6-80C2 and International Aero Engines V2500-A5 powerplants. Rolls-Royce Trent 500s and 700s can be dissembled to module level and tested, but this is to be expanded to full overhaul in partnership with the UK manufacturer in early 2013, says Abdul Khaliq Saeed, ADAT's president Middle East and North Africa.
FUTURE FLEET SUPPORT
Emirates is building an overhaul shop next to the engine test cell, which the airline opened in 2009 about 40km (25 miles) from its base at Dubai International airport. The $120 million facility is scheduled to open in 2014 and focus on GE90s and Engine Alliance GP7200s for the carrier's respective Boeing 777 and Airbus A380 fleets.
It will expand the existing in-house engine capabilities to full overhaul. So far, Emirates has been disassembling its engines to module level and sending the segments to the manufacturers for repair and overhaul.
The new facility has been designed to handle up to 300 engines a year. Iain Lachlan, senior vice-president for Emirates' engineering division, declines to specify how many engines are being serviced today, but says the future capacity will be gradually built up, with an initial, approximately 100-strong workforce that is to grow to around 500. Piece-part repairs are not on the agenda for the early phases, but Lachlan points out that blade repairs could be added later if it offers economic benefits versus external service providers.
The expanded in-house capability is expected to cut cost and turnaround time "considerably", as engines will not need to be shipped to Europe. The new facility could also generate "potential revenue growth" from third-party customers, but Lachlan says the main objective is to support the parent fleet and external clients will only be served if spare capacity is available and can be offered at competitive conditions.
While the site will be owned by Emirates, GE assists with the facility's design and its production processes. Lachlan does not expect the growing independence from GE to change the relationship with the airline's main engine supplier. Emirates is using OEM spares and processes to maintain its powerplants, and will continue this practice in future, he says, so there should be no difficulty in accessing GE's or Engine Alliance's intellectual property regarding repair schemes.
How Emirates' overhaul shop could affect the co-operation with Rolls-Royce remains unclear. While the carrier will retire its Trent-powered A330s and A340s in the next few years, it has ordered the A350, which is exclusively equipped with Trent XWB engines. Emirates says the overhaul shop will support its "future fleet". However, Lachlan says the airline has yet to decide how the new powerplant will be maintained.
Turkish Technic opened an engine overhaul shop together with Pratt & Whitney at Istanbul's Sabiha Gökçen airport in January 2010. The 50:50 joint venture - Turkish Engine Center (TEC) - is part of the OEM's aftermarket network, which includes four other overhaul facilities in China, New Zealand, Singapore and the USA.
GE works closely with CF6-capable ADAT
P&W had a sixth shop in Norway which concentrated on CFM56 engines, but the manufacturer decided to close the facility last year because of overcapacity for the ubiquitous medium-thrust engine.
TEC's services cover CFM56s for 737s and A340s as well as V2500-A5s for A320-family aircraft. A320 operators with CFM56s are currently served by P&W's joint shop with China Eastern Airlines in Shanghai, but Mike Mahonski, P&W's engine centre director, says that if overhaul demand develops favourably, the OEM could decide to introduce the respective CFM56-5B to the Istanbul site during the next five years.
At the moment, TEC is operating nowhere near its capacity limit. The 25,000m² (270,000ft²) facility is designed for up to 300 engines a year - about two thirds CFM56s and one third V2500s - but it only handled about 70 powerplants in 2012. Mahonski says the volume is expected to grow to more than 150 visits "in the next coming years", which would require increasing staff numbers from the current 200 employees.
He has no concerns that TEC could struggle to gain enough custom because of the base load from Turkish Airline's fleet. Given that TEC is part of Turkish Technic's huge future MRO campus at Istanbul's second hub, Mahonski is confident the engine shop will gain additional business from the shareholder's third-party maintenance customers.
GE is offering overhaul services through its own shops in other regions and license agreements with local partners. Aside from ADAT and Emirates, the manufacturer supports Saudi Arabian Airlines in building in-house CF34-8 and CFM56-5B overhaul capability.
Brian Ovington, principal marketing manager at GE Aviation Services, says the manufacturer is unlikely to set up its own facility in the Middle East because of a worldwide overcapacity for CF6, CF34 and CFM56 overhaul versus shop-visit demand by a factor of 2.5 to 3. "We are certainly not inclined to invest capital to add to that overcapacity," he says. "We would rather develop relationships through licensing and material support agreements. They can use our material and we give them our technology and support."
Despite GE's involvement in the aforementioned projects, Ovington has doubts whether all the new shops will find enough custom to make operations viable. "There needs to be some sort of rationalisation on who does what," he says. "With the exception of Emirates, which has a large enough fleet, they may not have enough volume to sustain their shops."
Winning third-party work will be crucial, but given the range of established MRO providers in Asia and Europe, Ovington thinks new Middle Eastern market entrants could have a "hard time" attracting third-party work from outside the region.
ADAT rejects claims of potential overcapacity. Saeed says there are no other established shops in the Middle East for "many of the product lines" the company supports. He adds that ADAT has been approached by OEMs to increase shop capacity and "become more aligned" to establish an OEM-backed service centre in the region.
AFI KLM E&M generates a quarter of its third-party revenues in the Middle East and Africa, with both regions being equally split.
The Franco-Dutch maintenance provider has supported CFM56 operators but the GE90 aftermarket - which plays a central role in the group's engine MRO strategy - has been difficult because of the OEM's dominance in the segment. AFI opened a new test cell in Paris in November, which should reduce turnaround time and make its GE90 activities more competitive.
AFI KLM E&M is following two approaches to attract customers: offering its services to airlines with no in-house technical support and partnering with carriers which want to build up MRO capabilities. Fouad Benbrahim, sales director for the Middle East and Africa, says the group is negotiating with Middle Eastern operators over several projects covering airframe and component work which could, in turn, lead to engine custom for the shops in Paris and Amsterdam. "If you want to support the customer today," he says, "you definitely have to be close to the region and set up an MRO."
Abu Dhabi Aircraft Technologies
ADAT is building an overhaul shop to compliment itsexisting facility, which can accommodate about 70 large engine visits a year
LHT has also formed such partnerships. EgyptAir Maintenance & Engineering opened an engine shop for CFM56 and Trent 700 engines in 2009, where the German MRO provider assisted with building core overhaul capabilities for the former type, while Rolls-Royce managed the module replacement for the latter. A year later, LHT started co-operating with Saudi Arabia's NAS Holding to establish local line and airframe maintenance capabilities at NAS Tech, while it won engine and component MRO for its workshops at home.
Ziad al Hazmi, LHT's general manager for the Gulf region, says there are opportunities to open local facilities in partnership with airlines, maintenance providers or OEMs. However, the Hamburg-based company is cautious about expanding its existing overhaul capacity because, it says, the global engine MRO market can be served from its European facilities without concessions. Shipping powerplants from Middle Eastern customers creates only a "small percentage" in the total overhaul costs.
The decision whether to invest in local facilities ultimately depends on what scale effects can be achieved. "Certain volumes are needed to become competitive and offer the cost advantages that airlines are looking for," says al Hazmi.
He has no doubt that MRO activities will grow in the Middle East as a result of the region's airline growth, but he also warns of potential overcapacity. "There are a lot of resources available as well as ambitions to build up local capabilities," says al Hazmi, adding that the challenge will be to "identify the opportunities and turn these ambitions into economically feasible and sustainable projects".