All around Europe's periphery, business is burgeoning at new independent MRO houses and offshoots of the continent's major players. Offering competitive quality and turnaround times (TAT) in addition to their historical cost advantages, the newcomers are outstripping the growth rates of core European competitors.
Air France Industries/KLM Engineering (AFI) announced the creation of a Moroccan joint venture at this year's Paris air show, Lufthansa Technik has long made the running in creating similar ventures in and around Europe, while SR Technics is close to selecting its own new location.
At the same time FL Technics in Lithuania, a cluster of Turkish companies and a new Irish operation are snapping at their heels and are already regarded as serious competitors.
The AFI teaming with Royal Air Maroc, which will take over the Moroccan carrier's existing facility, is focused on providing Airbus narrowbody base-maintenance for operators in Europe and increasingly North Africa and the Middle East.
AFI chief executive Alain Bassil makes it clear that cost is an important, although not the only, factor in the move. He says: "We aim to have a centre of excellence in terms of airframe overhaul in Casablanca with excellent quality and an interesting cost base. When you look at the heavy maintenance business the man-hour rate is a significant part. With D-checks you have to be very attentive to the cost base because it is mainly man hours.
Lufthansa Technik has specialised in developing new business units
"This is an ongoing trend, which we think will continue, that heavy maintenance checks on airframes will probably be more and more provided by centres that are in low-cost areas.
"This is not the same with the lighter checks. The C-check is much lighter and TAT and high standards and good quality become again the key issues."
Lufthansa Technik, with its bases in Budapest, Malta and Sofia, makes no secret of the importance of costs as a motivation. Explaining the "group" strategy, chief executive August Henningsen says: "The essential benefit of the group is the cost advantage it brings in production. Our strategic decision to establish optimal locations around the world to carry out the more manpower-intensive tasks has paid off.
"The overhaul centres in China, the Philippines, Malaysia and, for narrowbody aircraft, on the edges of Europe, are helping us out of the crisis. Because now more than ever, our customers want to know that they are getting not only a fair price, but a competitive one."
AFI is looking at other locations, too. It is paying particularly close attention to the fluid MRO situation in India, continues to build its nacelle-support venture with Aircelle in Dubai, and has an eye on eastern Europe.
Nevertheless, Bassil insists that AFI can continue to grow its core European business despite the cost challenges, noting that the company has worked successfully with its unions to develop mutually advantageous working practices.
He says: "The first thing is that we are still consolidating and growing our business through new customers and existing customers acquiring new aircraft - and we are looking to eastern areas.
"The second is that we are also bringing work to Europe - specifically on components and engines. For example, through Spairliners for the A380, which is very successful on Qantas A380s. And there are other examples.
"In the European area there are very clearly still opportunities. We have already reached in our European operation a very high degree of flexibility, particularly in the airframe business, which is a very seasonal business, and there are a lot of empty slots."
He argues that AFI is able to bring its expertise and size to bear to drive down costs in its core operation. He explains: "The cost issue is clearly one of the main issues and there are many dimensions to it.
"First is material cost. Material needs high investment and with modern aircraft the investment is bigger. We are working very strongly on reducing material costs by globalising negotiations with OEMs [original equipment manufacturers] and suppliers.
"And we have been developing new repair processes especially on engines. We are working on TATs for engines and aircraft because lower TATs lower your inventory needs, which is important.
"Also, if you only have a dozen aircraft then you still need to pay for inventory and materials whereas if you have 200 or 300 aircraft then you have a size effect in which you can hugely benefit from inventory."
Like other carriers, Air France-KLM has seen traffic fall dramatically with a knock-on effect on its internal maintenance requirement, but Bassil says that AFI is well placed to handle the resulting staff issues.
"In the short term we have been successful in significantly decreasing the temporary workforce, but we are also a bit lucky in having big retirement numbers," he says.
"About 300 AFI employees will retire per year, for three years. That allows us to flexibly adapt our organisation depending on the situation. And in the meantime, we continue to welcome trainees to invest for the future."
He says 150 trainees are being integrated into the company this month and more are being taken on.
In the near future SR Technics will reveal the location of its planned new low-cost operating location after shutting down its Dublin base with the loss of 1,100 jobs and trimming its Swiss and UK operations in the light of weakening demand and dissatisfaction with cost levels.
Chief executive Bernd Kessler says: "SR Technics is committed to further develop and grow its airframe business in the international markets. A component of our growth strategy is therefore the establishment of a new maintenance centre in a low-cost region, offering customers a wider range of services at more attractive rates."
HIGH OPERATING COSTS
The company adds: "Currently a competitive disadvantage for SR Technics lies in the high operating costs, primarily due to its major operations being located in countries in western Europe where labour costs are among the highest in the world.
"Dividing maintenance operations between the home country and lower-cost locations elsewhere has long been a reality for all our MRO competitors. SR Technics will take this path, too. As part of the accomplishment of this strategy we are assessing options."
Back in Dublin, however, Irish aviation entrepreneur Conor McCarthy has acquired selected SR Technics assets and believes his new operation on the same site can generate at least 500 jobs.
Trading as Dublin Aerospace, the fledgling business has secured €11 million ($15.7 million) in investment to create a three-bay operation focused initially on landing gear, wheels and brakes, and auxiliary power unit maintenance. Training services and eventually narrowbody airframe work will round out the offering and it is launching with about 150 staff.
After founding AirAsia with Tony Fernandes, and successful stints at Ryanair and Aer Lingus, the one-time avionics engineer is confident he knows how to avoid the mistakes of the past.
He says: "I trained in Dublin as an avionics engineer in a very strictured environment where you could only do certain things and work in a particular way. But I have been on the buyer side for at least the last 20 years with Ryanair, AirAsia, Qantas/Jetstar and airlines in South America. So I have a real feel for what airlines need and what MROs were traditionally trying to do.
"With SR Technics one of the problems was that they had no focus or strategic direction. They had this huge workforce that they had to find work for rather than focusing on the work they could do profitably.
"You have to meet airlines' needs. TAT is critical. Cost per man hour is not the issue. With landing gear and APUs it is the overall cost that matters and can you do it in a certain time. And there is a long history in Dublin of being able to do that."
The company, which claims to have its first customer already, will service landing gear for Boeing 737 Classic and Next Generation 737 lines; wheels and brakes and landing gear for Airbus narrowbodies; and Honeywell APUs.
"We are looking to be expert in the A320 family - there is a huge fleet of A320s that we can address," says McCarthy, who plans to run the company as executive chairman for around six months before hiring a permanent chief executive.
"We just have to be leaner than anybody else. We need a much leaner superstructure. We need to focus on what we do well and recognise that every hour we spend there must be on things that the customer values."
He points to Ryanair and Southwest Airlines as examples of operators paying high salaries but achieving success through efficient working.
He says: "We will have no overtime as such. If someone does the job then they will share in the profit. I am not a believer in people working 70h a week, but in more efficient working. The intention is for them to earn more rather than to pay them less.
"The key is not slashing salaries, but a different type of model. We have a good angle on that. We have good experience and a knowledge base. In the past when people got experience and knowledge they used it to maximise their income through more overtime."
Unsurprisingly, unions are not on McCarthy's agenda. "Our intention is to deal directly with our staff so that they know the business and they can respond as quickly as possible," he says.
He is doubtful whether the major MRO organisations are capable of the kind of change he is implementing. "It is difficult to do it organically," he says. "That's not to say it cannot happen but it is easier to do it dramatically. But at the end of it all you have to help people to earn a decent living. Basically you have to align the interests of customer and staff."