Five years ago, as the Irish economy boomed, Lufthansa Technik - owned Shannon Aerospace decided to rethink its strategy. In the light of Ireland's newly high-cost economy, it concluded that a move to lean operations offered "the only way to have a chance", says chief executive Martin Kaiser. "The lean transformation is very much focused on repetitive work, with the same people doing the same work again and again and again, and, with that, getting very efficient."
Developed within Toyota's production system, lean management aims not just at eliminating waste but at continuous improvement (or kaizen). Shannon adapted the philosophy to create a process in which Airbus A320 and Boeing 737 aircraft "pulse" from one standardised maintenance line to the next. The process, intended to deliver a 30% improvement in productivity, has six stages: pulse 1 covers removals; pulses 2 and 3, inspections and defects; pulse 4, installations; pulse 5, painting; and pulse 6, dispatch.
The idea of physically moving the aircraft within the hangar during heavy maintenance was a novel one, and resistance to change had to be overcome. It was also necessary to refocus the business on work suited to lean operations. "You are focusing much more on larger fleets... not so much on the individual aircraft where every one is different," says Kaiser. "I think most other competitors of ours would have difficulty in offering a solution for a 200-airplane tender. We are not necessarily just looking for 200-airplane fleets, but the focus is on fleet sizes that can deliver competitive work, so that may start at 20, 30 airplanes, where you get a number of checks every year."
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Customers for which Shannon has recently completed maintenance work include Philippine Airlines, LOT Polish Airlines, Air Méditerranée, Croatia Airlines and Azerbaijan Airlines.
The onset of recession has led to a spike in movement of aircraft between lessees, creating demand for Shannon to carry out end-of-lease work and smaller checks, says Kaiser. But there has been a simultaneous fall-off in standard heavy checks - not so much the result of recession, but of the dip in deliveries of aircraft back in 2002 and 2003. Aircraft of that vintage are now coming due for their first heavy checks. In a booming economy, maintenance of classic fleets would help to fill the resultant gaps. Instead, such fleets are tending to be grounded.
However, the deliveries boom of 2004 should translate to busy heavy maintenance hangars in 2010. And the aircraft in question, being newer, will have "a higher predictability" suitable for lean maintenance, says Kaiser. The A320 family is the major driver of Shannon Aerospace's volume, but Kaiser expects the 737 NG types to grow their share toward a roughly 50:50 split.
"The 737 classics have a lot of issues and it's very difficult to have heavy maintenance on the classics in such a structured, quick environment," he notes. "You depend a lot on manufacturer response times for repairs, which, in general, are too long for the speed at which we work here."
One of the bays in Shannon's hangar complex, Bay 4, remains outside the pulsing system. It is dedicated to Boeing 757 and 767 work, which Kaiser acknowledges is one of Shannon's core products. "Unfortunately, the size of the 767 doesn't fit into our flow concept," he adds.
MAINTAINING FOCUS
Kaiser has worked for Shannon Aerospace since 1995, having originally joined as shareholder delegate for Swissair, which, together with joint-venture partners Lufthansa and leasing company Guinness Peat Aviation (GPA), founded the MRO provider as a greenfield company in 1990. "The business model was that Lufthansa and Swissair would deliver knowhow - Lufthansa on 737s, Swissair on MD-80s - and GPA would deliver the fleet, the workload for the company," says Kaiser. GPA suffered bankruptcy in the post-Gulf War downturn of the early 1990s, and the next major downturn, in the wake of 11 September 2001, consigned Swissair to a similar fate. Lufthansa has therefore ended up as Shannon's sole owner, and the Irish company is now integrated with its global network.
In 1994, after GPA's collapse, Shannon was "virtually bankrupt", says Kaiser. To avert disaster, it devised a new business model under which Lufthansa and Swissair would designate parts of their fleets to Shannon Aerospace as baseload, which the MRO would supplement with third-party work.
A 50:50 split between these two types of work was envisaged. "Huge growth" followed between 1995 and 1999, when A320 capability was developed. After surviving the post-9/11 crisis, it decided to plot a new course, even as the Irish economy enjoyed its mid-decade boom.
Shannon's greenfield origins spared it some of the legacy issues that hit other players in third-party maintenance, including its parents Lufthansa and Swissair. "What we had in Zurich, what we had in Hamburg - things that were organically grown over 50 and more years... weren't the right fit for a third-party heavy maintenance business," says Kaiser.
Since its inception, Shannon Aerospace has aimed to train its own workforce rather than relay on the aviation labour market. With the help of national training and employment authority Fás, it developed a two-and-quarter-year EASA Part 66 A-type training programme. With 150 to 200 people in training at any given time, the company was guaranteed access to skilled labour.
A major advantage of being located in Ireland is the local availability of "young, well-educated people" interested in careers in the aviation industry, says Kaiser. He also cites "good connections with the States". Generally, however, Ireland's geographical location is a disadvantage in terms of logistics. "It takes time and is a nightmare to get material into here," says Kaiser. "If you are in, let's say, Berlin, it takes the same time to fly to Shannon as it takes to Budapest, Sofia, Bucharest. So, in the same flight time, you're really getting into very low-cost economies."
But Kaiser seems confident that Shannon can continue to compete with MRO providers in lower-cost regions. "You cannot have long-term success just based on low cost," he says. "It's very good to start an operation on a low-cost basis, you can get into the business, but then, through continuous improvement, you have to be able to constantly develop your efficiency, because cost will grow. As has been shown here [in Ireland], once an economy becomes successful, their costs goes through the roof. The same is happening and will happen in eastern Europe."
Kaiser points out that a low-cost start-up cannot match incumbents in volume, experience or efficiency, and so cannot achieve higher margins. "That's why I'm also not concerned about new companies that are building up in our network in lower-cost bases - I'm concerned that we can continue to get better here. That continuous improvement keeps you ahead."
Not that there is any room for complacency. "Keeping costs under control is absolutely vital and work practices have to constantly change and adapt," Kaiser adds.
EXIT SR TECHNICS
In February 2009, the Irish MRO industry suffered a hammer blow when SR Technics decided to close its Dublin base - one of its three main European stations. SR Technics had employed 1,135 people at its Dublin Airport facility, which handled aircraft and component maintenance, including landing-gear and auxiliary power unit servicing.
"Recent loss of major contracts from primary load customers in Dublin, the current business and economic forecasts, as well as the high cost base of the operation means it will not be possible to fill the resulting capacity gaps with sustainable business in the medium term," said SR Technics, which took over the site when it acquired FLS Aerospace, which previously took over Team Aer Lingus (and its legacy issues).
In the run-up to its closure, SR's Dublin base had suffered substantial loss of work from Aer Lingus and Gulf Air. Since the decision to pull the plug, 600 workers have been made redundant, and a further 400 posts are slated to go by the end of August.
But there remains a possibility that the facility might survive in some form. Six bids have been placed with SR Technics, says Ireland's Industrial Development Agency (IDA) and Enterprise Ireland. "There are very few bids looking to take over all of the business - it varies from bid to bid," an IDA spokesman told Flight's sister news service, Air Transport Intelligence.
Shannon Aerospace has recently completed checks on EasyJet 737 NGs which had been bound for SR Technics. Kaiser describes the work as "a short-term opportunity" and says it remains to be seen whether it will develop into a long-term engagement (the MRO provider already serves EasyJet-owned GB Airways).
Meanwhile, Dublin-based engine maintenance company Lufthansa Technik Airmotive Ireland (LTAI) appears to have narrowly escaped sharing the SR Technics site's fate, after unions accepted productivity proposals. The company had issued lay-off protection notices to its 465 staff at the Dublin plant, but talks between unions and Ireland's National Implementation Body eventually yielded an agreement that saved not just the jobs, but also a planned $40 million investment in a new engine maintenance line for International Aero Engines' V2500.
Source: Flight International
