Mexican carriers are looking north for growth as capacity expands. Third-party maintenance is set to expand south of the US border as the two main Mexican carriers grow and look north for business
Mexican MRO providers are looking to increase their third-party business as they add capacity and begin to more aggressively target potential US customers.
Mexico, given its location and low cost of labour, is ideally positioned to overhaul narrowbodies operated in the USA. But the country's relatively small MRO players have historically been focused on maintaining in-house fleets, with a small amount of ad hoc third-party work on the side.
Now third-party MRO work is becoming a serious business as Mexico's two main carriers, Aeromexico and Mexicana, suddenly have more spare capacity to market. To improve their positioning in the third-party market, both carriers recently established separate MRO units that could eventually be spun off.
Aeromexico is establishing a separate maintenance company within Grupo Aeromexico called EMA, which stands for Empresa de Mantenimiento. Mexicana's maintenance operation was rebranded last year as Mexicana MRO and is preparing to become a separate company within Grupo Mexicana this year.
Mexicana senior vice-president engineering and maintenance Armando Furio says third-party business already accounts for about half of Mexicana MRO's revenues, but this will grow following the reopening late last month of a maintenance base in Guadalajara. In the same week, Mexicana also joined the Airbus MRO Network, which the carrier hopes will position it to win more maintenance work from Airbus operators.
The Guadalajara facility, which Mexicana had been leasing to Aeromexico since 1992, has one maintenance line, with a second to come in September. It will be used to maintain Mexicana's A320 family aircraft and its new fleet of Bombardier CRJ200s, freeing capacity in Mexico City for third-party work.
In Mexico City, Mexicana has four overhaul lines. Furio says two are used for Mexicana and two for third-party customers, but after the second line opens in Guadalajara most of the capacity in Mexico City will be available for third-party customers. "If we didn't open Guadalajara we'd be overcrowded," he says.
Furio is working hard to sell the equivalent of one line, which is unsold for the remainder of the year. Despite the tough market conditions he says there is a lot of interest in Mexicana MRO and he thinks "we can fill it".
While Mexicana overhauls nine aircraft types and plans to add three more by mid-2010 (see table), Furio says "the focus is to have one family of aircraft for third party work, or a maximum of two". He says A320s will continue to be Mexicana's main third-party product and for now it also plans to continue overhauling Boeing 737s, although Mexicana does not operate this type.
Mexicana MRO's largest customers are A320 operators Air France and Air Jamaica. Its only US customers are leasing companies, but Furio believes Mexicana MRO is well positioned to win narrowbody airframe maintenance work from US carriers. "I think our location is one advantage," he says, adding that at only $30-35 an hour, Mexican MRO labour rates are also "very attractive".
The chief executive of rival Aeromexico, Andres Conesa, agrees. He says: "Mexico is well positioned to become a large MRO provider, especially for North America. There is the obvious geographic convenience, but there is also a good supply of skilled and experienced aviation technicians and the comparative advantages of very competitive costs. Attracting more MRO business to Mexico is probably something that will develop on its own as more airlines seeking efficiency realise the level of quality, workmanship and competitiveness we have in Mexico."
Aeromexico late last year opened a new two-line hangar in Guadalajara to offset the return of the hangar leased from Mexicana. Conesa says the new $10 million "state of the art" hangar gives EMA the same overall capacity, which includes three lines at Guadalajara and three at Mexico City.
Two of the Guadalajara lines are dedicated to Delta Air Lines Boeing MD-80s under a 10-year arrangement that began in 2006 and involves Aeromexico overhauling all of Delta's MD-80s in exchange for Delta TechOps overhauling all of Aeromexico's CFM56 engines. Conesa says this "very important contract" represents half a million man hours a year.
As part of the partnership, Delta TechOps is supposed to help Aeromexico market its excess airframe capacity to other third-party customers. But Delta TechOps vice-president sales and marketing Jack Turnbill says that "hasn't happened yet because they don't have the capacity".
Turnbill, however, expects Delta TechOps will eventually take an active role in helping Aeromexico secure more third-party airframe business. It has large MRO plans, he says, and "ultimately, we have every intention to expand the partnership. I think Mexico is well positioned for narrowbody capability based on location and the type of aircraft they are experienced maintaining."
Conesa says that in recent years Delta MD-80s have accounted for all of Aeromexico's third-party capacity because its other four airframe maintenance lines have been eaten up by in-house requirements. But he believes this will change after Aeromexico retires the last of its 60 Boeing MD-80s later this year. He says MD-80 pre-return heavy checks have eaten up a significant amount of Aeromexico's maintenance capacity over the last four years, but once its fleet renewal programme is complete, giving it an average aircraft age of only 6½ years, it will be able to pursue third-party work outside Delta.
"All our capacity is completely full and that's why today we're not looking for additional third-party service," Conesa says. "[But from June] we will have additional capacity to go to market for third parties."
As a result, Aeromexico expects a rapid rise in third-party MRO revenues. Last year it generated $21 million in third-party MRO revenues, which Conesa says makes it "the largest suppliers for third-party in Mexico".
Conesa adds there is ample space in Guadalajara to expand EMA and reveals it has "been exploring the possibility of creating a joint venture with another company to set up an expanded MRO operation". He says exploratory talks have taken place with potential partners and Aeromexico in particular is looking at adding maintenance capability for the Embraer ERJ-145s and E-190 families.
A much smaller Mexican carrier, Interjet, is also in talks with foreign MRO companies about establishing a new maintenance hub in Mexico. Interjet, which launched in late 2005 and now operates 15 A320s, quietly opened a maintenance facility in May 2007 at Mexico City's alternative airport Toluca. Interjet operates only one A320 overhaul line, but chief executive Jose Luis Garza Alvarez reveals it has a large MRO business as part of its long-term master plan. "It's just about marketing and having the right alliance," Garza says. "If you have big brands like Lufthansa Technik or Sabena Technics it will change the story. We're looking at a joint venture with some of the big names."
Garza says Interjet has yet to perform third-party work, but began pursuing external customers after becoming a US Federal Aviation Administration-authorised repair station last year. Interjet is looking to fill with third-party customers about seven A320 C-check slots for the second half of this year. "The US market is our target. That's why we needed FAA part 145," Garza says. "The large fleets won't come to us. So it will be the marginal market - leasing companies and small operators."
Mexico's third legacy carrier, Aviacsa, also has lofty MRO ambitions. It has a large MRO facility in Mexico City with limited third-party business and technical president Miguel Cisneros reveals it is planning to open a new facility in Saltillo that will be "10 times the size".
Cisneros says Aviacsa is not looking to partner a foreign MRO company as it has secured financial support from the state government of Coahuila. "We're planning to make an investment in Saltillo," he says. "There's a lot of help coming from the local government as they want to develop a local industry."
At Mexico City Aviacsa has a large hangar with two 737-200 overhaul lines, plus an adjacent shop that overhauls Pratt & Whitney JT8D engines and Honeywell auxiliary power units. At another Mexico City airport hangar, Aviacsa repairs components and structures, including landing gears, wheels and brakes and thrust reversers. In Monterrey, Aviacsa has yet another shop focusing on avionics, hydraulics and accessories.
Cisneros says Aviacsa will move all the capabilities except airframe to Saltillo, where it will have capacity for more third-party work. Cisneros says Aviacsa does "very little third party", just one or two 737-200 heavy checks and three or four JT8D overhauls a year. "A lot of people keep asking us to do more, but we don't have the capacity," he says.
Aviacsa in particular is bullish about increasing its third-party engine business. When it moves to Saltillo, Aviacsa plans to double its engine capacity from about 30 to 60 overhauls annually and introduce capability for the CFM56. "Nobody else in Mexico except Queretaro has an engine shop," Cisneros says. "You'll see us in future with CFM."
Mexican engine maintenance provider ITR and Snecma Services last year opened a joint venture CFM56 shop within ITR's Queretaro facility. Cisneros says the new joint venture, known as Snecma America Engine Services (SAMES), is overhauling "-5s and up" while Aviacsa plans to focus on the older CFM56-3.
SAMES has capacity to overhaul about 30 engines annually, but aims to eventually overhaul as many as 200 CFM56s a year. ITR chief executive Emilio Otero says there is ample space to expand the CFM56 line as demand for ITR's core product, the JT8D, decreases. Otero says ITR had capacity to overhaul up to 150 JT8Ds, but this year it only expects to overhaul about 70, down from 100 in 2008. "In the future SAMES will need more people and we'll probably reduce the number of engines we'll do per year, so we'll probably be able to pass more employees to SAMES," Otero says.
While Aviacsa and ITR move from the JT8D to the CFM56, they are likely to be the only Mexican players in the engine MRO market. Aeromexico, Mexicana, Interjet and Aeromar, a regional carrier with an MRO division, plan to continue focusing on airframes, saying investment to expand into engines is too steep.
Aeromar, which claims to be the world's first airline to perform a 36,000-cycles check on an ATR 42, is now preparing to add capability for the ATR 72. Executive vice-president Ami Lindenberg says that while Aeromar's Mexico City MRO base has capacity to overhaul four aircraft simultaneously, it has no plans to grow its third-party business beyond the two or three ATR 42s it now maintains annually. "That's more or less what we need to make sure our people are busy during low periods of maintenance," Lindenberg says.
He adds that Aeromar does not want to follow other Mexican carriers in pursuing more third-party work because of the risk of ending up with customers that do not pay. Mexico City's hangars are surrounded by aircraft from recently defunct carriers such as Eos. "We're now just taking customers that we are sure are capable of paying before the aircraft leaves the hangar," Lindenberg says.
||ATR 42, ATR 72^|
||DC-9, DC-10, MD-80, 727, 737, 757, 767|
||737-200, 737-300^, JT8D, CFM56^|
||JT8D, TPE331, CFM56, |
A320, DC-9, MD-80, DC-10, 727, 737, 757, 767,
Fokker 100, CRJ^, 717^, A330^
Planned additions *Includes joint venture with Snecma Services Source: The MRO firms