Fundamental change is afoot in maintenance, repair and overhaul as original equipment manufacturers aim for more aftermarket share and third-party MRO providers are in increasing danger of being squeezed out. As new-generation aircraft enter service, strategic co-operation has become an imperative for maintenance firms, be it with manufacturers, airlines, other MRO providers, suppliers or, ideally, a combination of these.
No other topic attracted more attention at September's MRO Europe 2011 conference in Madrid than growing aftermarket influence by OEMs and its implications - a concern sure to get a fresh airing at sister event MRO Asia, which kicks off in Beijing on 8 November.
While the debate might not be as existential for airline executives as for heads of some maintenance companies, it boils down to how much choice the MRO market will offer between OEM support deals and third-party maintenance services, a question which leads straight to the airline executive's doorstep.
"Competition is really mandatory to keep control of our costs as an airline," says Franck Terner, president of Air France Industries. He questions what would give airline purchasers a frame of reference in a maintenance market dominated by the manufacturers, and urges operators to take action via purchasing power "to make sure that nobody will take control of the aftermarket, [be it] equipment manufacturers, aircraft manufacturers or MRO [firms]".
Co-operation between OEMs and third-party maintenance providers has a long history but competition has stiffened since manufacturers decided to make aftermarket support a central revenue source in each product's business case. Their argument is clear, and valid too. Demand for more efficient, lightweight, reliable and long-lasting equipment has inflated development costs. At the same time, prices have come under pressure, with tougher discount negotiations with operators and leasing companies as the industry and, ultimately, consumers became used to cheaper air fares. So the costs need to be recuperated throughout the equipment's lifecycle.
Increasing aftermarket business is a main objective in EADS' Vision 2020 roadmap. Airbus offers its Flight Hour Services (FHS) programme, which focuses mostly on component support but can be complemented with other MRO services, such as letter checks, fleet technical management and engineering services, under a Total Support Package. The airframer guarantees a certain reliability level at a fixed cost and manages repair work through a network of OEM and selected MRO companies.
Pierre Reville, vice-president of services solutions at Airbus, says operators increasingly demand such support programmes - not only start-ups which outsource maintenance but also legacy carriers with their own MRO operations, such as Singapore Airlines, which has subscribed its A330 fleet to FHS. Last year, the manufacturer's sales tripled, says Reville.
The aim is to build long-term partnerships with OEMs and independent or airline-affiliated MRO companies, he says. Within these, Airbus dictates where repair work will be carried out and airlines cannot direct custom to individual maintenance providers of their choice as this would disturb relationships and contracts within the FHS network, says Reville. "If they [airlines] want to shop around, they can do it by themselves," he adds.
The level of information in aircraft maintenance manuals has declined over the years, making it more difficult for independent MRO providers to repair parts without advice from manufacturers. Aviation regulators require the OEMs to include instructions for continued airworthiness in equipment documents for the operator. But in some cases these instructions are limited to which OEM facility the airline or its designated maintenance provider has to send the relevant part for inspection and possible repair.
Knowing acceptable tolerance levels is essential for repairing damaged engine components and assembling powerplants, but this kind of information is increasingly excluded from engine maintenance manuals, says Stefan Weingartner, president of commercial maintenance at MTU Aero Engines.
© Lufthansa Technik Budapest
Lufthansa Technik says it looks at components "from an airline perspective"
"The OEM is, and will remain, mandated to include enough information in the manual to be able to evaluate the serviceability of an engine. [But] how the engine needs to be repaired when it is not serviceable any more will be less and less described in the manual."
With the introduction of new equipment, manufacturers have increasingly restricted access to their intellectual property (IP), and equipment has become more sophisticated and complex, requiring more demanding repair processes, advanced materials and workshop kit. In many cases, MRO companies must make big investments to develop those capabilities, and require heavy volume to recuperate the initial lay-out.
Examples of complex equipment on the Airbus A380 and Boeing 787 are 5,000psi hydraulic systems, fibre-optical cables, liquid-cooled electronics and software-controlled components which, rather than working as discrete, individual systems, are interlinked as an aircraft-wide server network. The new systems architecture offers flexibility in terms of functionality, but it will be hard for MRO providers to understand equipment in the same depth as with previous system generations.
Other factors are higher levels of standardisation and reduced buyer-furnished equipment, which could concentrate maintenance activities among fewer parties. For example, Hamilton Sundstrand is providing about 42% of the 787's components.
"The position of a truly independent MRO is going to be a very difficult one to sustain," says James Stewart, SR Technics' chief executive. "There will be more limitation on the number of shops to support the engines and there will be strict restrictions on the number of partners who will have access to the IP to deal with components."
In July, SR Technics' parent, United Arab Emirates-based Mubadala Aerospace, inked a partnership deal with Hamilton Sundstrand to give the Zurich-based maintenance provider - as well as Abu Dhabi Aircraft Technologies and Sanad Aero Solutions - access to the future business. Last year, Mubadala signed a similar contract with Honeywell for 787 avionics and mechanical components. In September, Lufthansa Technik (LHT) and Hamilton Sundstrand agreed to co-operate on 787 component maintenance.
Different and competing partnership models are possible, and arguably necessary, to uphold some independence as a MRO player in the marketplace. With its subassembly manufacturing activities for various engine programmes, MTU sits between the chairs in this debate. But the Munich-based company developed different co-operations to secure its position. For General Electric's CF34 regional jet turbofan family, MTU is a partner in GE's repair station network. For the high-thrust GE90, certain CF6 models and the CFM International CFM56-family, they compete.
A decade ago, to secure its foothold in the high-volume CFM56 market, MTU established a 50:50 joint venture engine-overhaul shop with China Southern Airlines in Zhuhai, near Hong Kong. Market access to China and other emerging Asian economies was the aim but the airline's fleet of about 275 CFM56-powered 737 and A320-family jetliners adds the necessary weight to negotiate IP access and favourable spare-part prices.
There is a flow of know-how in both directions. As the CF34-10 engine core is a shrunk version of the CFM56-7, repair processes MTU develops for the latter can be applied to the CF34, for which the company acts as GE's partner. Weingartner says OEMs are equally as interested in reducing costs by repairing rather than replacing, especially as they take more airlines under contract with power-by-the-hour-style full-support programmes.
GE says it develops about 1,000 engine-repair processes each year. "As the OEM, we are responsible for product cost of ownership," says Brian Ovington, senior marketing manager for GE's Aviation Services division.
Maintenance providers can also team-up with direct rivals. MTU and LHT formed Airfoil Services, a specialist repair shop for engine vanes and blades, near Kuala Lumpur in 2003.
There are also numerous engine production programmes, including the GEnx and Pratt & Whitney's PW1000G geared turbofan, which MTU participates in as risk- and revenue-sharing partner. However, this option is not usually available for pure maintenance providers, which are under the greatest pressure, squeezed between manufacturers and airline-affiliated MRO companies.
In the engine-maintenance sector, OEMs control about half the market, with the other half split between independent and airline overhaul shops. But operators increasingly outsource engine maintenance, especially for new powerplant generations, and use full MRO-support programmes. The market is likely to be taken over by the OEMs, says Weingartner. He foresees growth potential for MTU via the expansion and consolidation of the MRO market, but he does not expect the roughly 25% share of independent maintenance companies to change greatly. Stewart echoes this, saying the engine MRO market is "pretty much sewn up" by the manufacturers.
In recent years, Mubadala has entered a number of Abu Dhabi-based partnership projects with manufacturers, including an overhaul shop for GE90, GEnx and Engine Alliance GP7200 powerplants, a landing gear facility with Goodrich and a maintenance base for military aircraft, with Sikorsky and Lockheed Martin. "We can produce better costs than the OEMs because they are geared to manufacturing, not MRO work," says Mubadala executive director Homaid Al Shemmari. Mubadala plans to establish new locations in Asia and North America.
Partnerships with different manufacturers can cater for complete equipment ranges rather than selected systems, particularly as airlines outsourcing their maintenance will want to deal with few partners rather than a broad range of specialist suppliers.
Mubadala's aftermarket services will go beyond mere technical maintenance. Sanad will purchase engines and components and lease them to operators as running equipment and spare inventory. This business can only be offered by a financially strong company and, with sufficient take-up, could put Mubadala at an advantage over competitors. Al Shemmari expects the engineering departments in Abu Dhabi and Zurich to develop repairs on behalf of manufacturers, and airlines within the three-way partnership will be a counterweight to manufacturers to reduce MRO costs.
Operational experience is an MRO provider's central asset. "We look at the components from an airline perspective," says Burkhard Andrich, LHT's senior vice-president of aircraft component services. "That means finding out where the cost drivers are and what can be done to reduce those costs. The OEMs also do this in certain areas but sometimes this is actually against their interests. That is the nature of the business."
Andrich sees nothing new in LHT's tie-up with Hamilton Sundstrand but deems it vital that competition between OEMs and third-party MRO providers thrives. "With aircraft life cycles of up to 20 years, where it is usually not possible to change from one equipment OEM to another, the carriers need to become aware of their market power - and use this strategically to achieve a balance in the market forces," he says.