IN FOCUS: MRO provider Joramco sets new business strategy

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Amman-based Jordan Aircraft Maintenance Company (Joramco) appointed Simon Tate as its chief executive in June last year - and has adopted a strategy aimed at using existing capabilities more effectively and stabilising the firm's mainstay in labour-intensive airframe work.

Tate is an aeronautical engineer who joined the maintenance, repair and overhaul (MRO) provider from engineering and construction group KBR in Abu Dhabi to succeed Bashir Abdel Hadi, who remains on Joramco's board. Tate's central objective is to increase the number of long-term support contracts covering multiple aircraft.

Royal Jordanian Airlines is the largest single customer at the moment, which provides the company's base load with about 30% of its total work volume. The remainder are mainly individual airframe checks, with a range of airlines arranged on an ad hoc basis.

STANDALONE

mro-joramco-green

 © Joramco

Joramco has won work from an area spanning Western Europe, Russia, India and Africa

The fleet support deal stems from when Joramco was the technical division of Royal Jordanian. It was spun off as a standalone MRO provider in 2000. Dubai-based private equity company Abraaj Capital became the main stakeholder, with 80% of the shares, the rest were retained by the airline.

To reduce the dependency on a single client, Tate wants to win two or three additional large-scale support contracts by the end of 2012. "I am aiming at 60% to 70% of business being tied up with long-term customers, which leaves us with a share that we can sell on the spot market."

Shifting the balance towards such large agreements will be difficult, and Tate has no illusions current market trends for heavy airframe maintenance are going in the opposite direction. "There are more operators out there who are prepared to wait until the last minute to go to the market, throw out a tender and compete down a price and a good deal. I guess there are less good, meaty [long-term] contracts out there and more spot work."

mro-joramco-hangar 

 © Joramco

Joramco has yet to decide if it will establish its planned dedicated aircraft paint bay in an existing hangar or a new one

 

The situation is further aggravated by competition from prospering third-party MRO providers in the Middle East. Companies such as Abu Dhabi Aircraft Technologies (ADAT) and Turkish Technic are rapidly expanding capacity and capabilities, and have more financial clout than their smaller rivals to make customers attractive offers.

Additionally, much of the potentially huge maintenance demand in the region has already been allocated to established MRO companies via long-term contracts, or is catered for by internal engineering organisations. For example, Etihad's aircraft will be mainly supported by ADAT, while technical support for Emirates Airlines' enormous fleet will be accomplished by the carrier's own engineering division.

Tate still sees "plenty" of maintenance business from other operators in the Middle East, but expects long-term, multiple aircraft contracts will come from customers outside the region. Joramco has won work from airlines in an area spanning Western Europe, Russia, India and Africa. "The customers where we are going to be successful [with long-term contracts] will be in those other areas," he says.

The intention is to offer an effective mix of MRO services, while focusing on Joramco's particular strengths in labour-intensive work, such as C checks and cabin refurbishment, says Tate. Given Royal Jordanian's fleet of Airbus A320-family, A330 and A340 aircraft, Joramco has extensive experience with these models. However, the Boeing 737 gained increasing significance in the past year, too, and this needs to be further developed along with more capabilities for the Embraer 170/190 family, he adds.

Although the MRO is not occupying its full capacity at the moment, Tate still plans to expand the facility carefully during the next 12 months. "If I was able to increase the number of slots tomorrow, I would do," he says. Joramco also wants to establish a dedicated aircraft paint bay, although this will probably be realised after 2012. It has yet to be decided whether to install this in an existing hangar or a new one.

What holds the expansion back, however, is staff turnover, as employees depart for airlines and MRO providers in the Gulf. "It is a challenging labour market in the Middle East [with] lots of competition for good-quality mechanics... Many competitors have no shame in coming in and taking them away from us," says Tate.

The challenge is to strike the right balance, offering attractive employment terms without jeopardising the company's competitive edge in the market for labour-intensive MRO work, where low man-hour rates count. Tate says measures will be introduced to address a better salary structure and an employee development scheme.

While Joramco evaluates what new aircraft types to support in the long term, it continues to focus on labour-intensive work on existing equipment in the medium term.

Royal Jordanian expects the first of 11 ordered 787s to be delivered in early 2014. Joramco has been selected to service the twinjet but it seems the economic rationale for developing these capabilities has still to be worked out.

Tate admits the airline's fleet alone will not warrant the investment and the provider will have to attract third-party maintenance work for the new type. "We know that we are going to do it [787 maintenance]. It's a case of when we actually pull the trigger," he adds.

NEW GENERATION

Becoming a partner in Boeing's GoldCare MRO programme has been considered. However, Tate says joining the scheme also requires a "significant investment" and "we have not got a convincing business case to do that yet". He adds: "We are some way away from a decision at that level."

Building MRO capabilities for new-generation aircraft independently is becoming increasingly difficult for any maintenance provider, given the original equipment manufacturers' growing involvement in the aftermarket and greater protection of their intellectual property.

On a component level, Joramco has already held discussions with OEMs to become an authorised repair shop and regional depot for their equipment "in the long term", says Tate, adding that the necessary investment requires a partnership.

AIRFRAME MAINTENANCE

For the time being, however, he wants to use Joramco's existing component repair capabilities and capacity more effectively. Most of the component MRO work is part of airframe maintenance contracts where the aircraft is in the hangar.

In future, Tate wants to attract "significantly more" component work in its own right. About 75% of Joramco's total revenue, including labour and material cost, is accounted for by airframe maintenance.

Political unrest across the Arab region had a major impact on Joramco's business last year. During the first quarter of 2011, sales dropped by a double-digit percentage, says Tate. The situation gradually improved and turned around in the later part of the year, says Tate. "I don't think we are going to see a long-term impact [on the business] as a result of the unrest," he adds.

While he expects stiff competition from other maintenance providers, he does not believe that the power balance in the Middle East's MRO sector will fundamentally shift in the mid term. "I think that the current regional players that we compete with will still be there in five years."