Investment is seen as key to sustaining growth in the service industry

Doug Birch/LONDON

In today's competitive environment, maintenance, repair and overhaul (MRO) providers must continually review their operations to stay viable. Most providers are taking full advantage of the boom in a healthy MRO industry to improve and stabilise their financial resources ready for any downturn in business, which the cyclical nature of the aerospace industry dictates will happen.

Growth is seen as the answer to long-term viability. Tactical joint ventures, plus global investment to ensure worldwide capability, are helping create mega-maintainers interested in achieving greater market share.

Singapore and China remain the epicentres of Asian MRO. Foreign investment into these countries has fuelled the establishment of potent joint ventures between original equipment manufacturers, airlines and local MROs.

Singapore International Airlines (SIA)subsidiary SIA Engineering derives much strength from partnerships with companies in Hong Kong, China, Taiwan and Ireland. ST Aero, Singapore Technologies Engineering's aerospace arm, sees its MRO growth developing through foreign expansion and seeks to extend overseas investment into the Middle East and/or Europe. It has two US subsidiaries, ST Mobile Aerospace Engineering and Dalfort Aerospace in Texas.

Such is MRO's strength in Singapore that it contributed 87% of the country's total aerospace output over the past year and has the potential to grow by more than 10% annually.

Hong Kong Aero Engine Services, the Rolls-Royce/Hong Kong Aircraft Engineering (HAECO) 50:50 joint venture, which has the region's only Trent engine overhaul capability, launched a new joint venture company last year with R-R and SIA Engineering. Set to open in 2002 as Singapore Aero Engine Services, it will overhaul Trent engines in Singapore.

HAECO, a Cathay Pacific Airways subsidiary, has seen its sales volumes and profit levels fall over the last two years, a situation attributed to moving its base to Hong Kong's new Chek Lap Kok Airport, a 26.6% fall in line maintenance because of increased competition and Cathay's fleet reorganisation and disposal of older aircraft. The company forecasts difficult trading conditions for some time and seeks to offset this by expanding its airframe maintenance service at Taikoo (Xiamen) Aircraft Engineering (TAECO) China, in which it holds a controlling 41% stake. Its partners in the joint venture are China Xiamen, Cathay Pacific, SIA, Japan Airlines and the Civil Aviation Administration of China (CAAC).

Buoyant China

In mainland China, the major joint venture MRO facilities are recording buoyant trading conditions. Quality maintenance, with quick turnaround at competitive costs, is a major attraction. Aircraft Maintenance Engineering, the Air China/Lufthansa partnership, is the country's largest MRO and is establishing a worldwide reputation as a reliable and professional maintenance provider, particularly in Boeing 747 overhaul.

Guangzhou Aircraft Maintenance Engineering and TAECO are the two other major providers of MRO in China and both confirm increasing business. Analysts believe the number of established maintenance facilities in China are adequate for current market demands, but other investors hint at moving into the territory.

All Nippon Airways and Japan Airlines (JAL) are the two largest providers of maintenance in Japan. Third party work, although offered by the two companies, comprises a relatively small percentage of their maintenance operations. JAL subsidiary Japan Turbine Technologies, recently signed a joint venture deal with Pratt & Whitney to establish Jet Engine Maintenance, an arrangement that boosts P&W's presence in Japan and JAL's capability. JAL also has a 10% shareholding in the TAECO joint venture.

Despite industry and press criticism over its safety record, Korean Air says it is committed to MRO excellence. Its maintenance division's recent receipt of a major P&W award for achieving zero-in-flight shutdowns and 100% dispatch reliability has bolstered that goal. The carrier provides line maintenance for 32 airlines passing through Seoul and, to support its maintenance capability, holds a $600 million, 120,000-item inventory.

Substantial savings in India

Indian aircraft maintenance is an emergent culture and aspires to become a major force, says V K Mehra, Air India's director of engine overhaul. Last year Air India opened its new P&W PW4000 hangar at a cost of $5 million.

Air India is making substantial cost savings by buying locally manufactured tooling. Up to 80% of this indigenously produced equipment is used in the repair and overhaul of PW4056 engines, resulting in savings for Air India of $2 million. Locally manufactured tools cost 30% less than imported ones, which are subject to import duties of 60%.

As maintenance costs fall, Air India and Indian Airlines plan to attack the third party market. The airlines' maintenance needs for their own large fleets may delay the achievement of those objectives, however.

SriLankan Airlines' engineering and maintenance facility is, to a certain extent, under the guidance of Emirates Engineering, after its 25.99% shareholding disposal to United Arab Emirates flag carrier Emirates. With the two airlines committed to 100% Trent-powered fleets, scales of economy for material purchase, joint efficiencies and planning for their joint 50-aircraft fleet will help keep costs down.

Emirates' neighbour, Abu Dhabi-based Gulf Aircraft Maintenance (GAMCO), has different objectives and a worldwide portfolio of third party customers, including the UK Royal Air Force. A complete review and reorganisation of its operations by managing director Allan Dollie has seen GAMCO become a world-class MRO. Growth and expansion are important to GAMCO strategy and acquisition of two new maintenance facilities underscore those strategic elements: in 1998, it bought a new A330/A340 size hangar in Abu Dhabi, which it has since opened, and in Bahrain, GAMCO is to lease a state-of-the-art, four-bay hangar from Bahrain's government. The company intends to establish a narrowbody and executive aircraft MRO facility.

In Africa, quality MROs are established in most regions, apart from West Africa (with the exception of Ghana). In South Africa, privatisation is a major issue, and the requirement for a partner for South African Airways Technical (SAA Technical) is a commercial necessity. SAA parent Transnet and the South African Government are determining whether SAA Technical will remain an independent division of SAA.

Zurich-based SR Technics, owned by SAirGroup, would like to establish a joint venture with SAA Technical, but all is not clear cut: the South African Government does not want to appear biased, despite SAirGroup possessing a 20% holding in South African Airways. It says that selecting a joint venture partner for SAA Technical has to be an open and transparent process. Industry sources, however, are optimistic about the prospect of an SAA Technical/SR Technics joint venture.

Denel Aviation Transport Aircraft Maintenance (DATAM), with its knowledge of ageing aircraft, has developed a lucrative niche market corner in MRO and Boeing 727 passenger-to-freighter conversions. .

KLM Royal Dutch Airlines' 26% shareholding in Kenya Airways may have influenced the Kenyan carrier's decision to replace its Airbus A310-300s with four Boeing 767-400ERs. When these are delivered in 2004, KLM Technical and Engineering will be strong contenders for maintenance contracts.

Royal Air Maroc, Tunisair and EgyptAir head the North Africa MRO quality list, with all carriers involved in heavy check maintenance on their own and third-party fleets.

Israel Aircraft Industries' subsidiary Bedek Aviation Group has a high global MRO profile. As a full-service provider specialising in routine maintenance and special aircraft modification projects, it last year recorded sales of $468 million, of which 80% was generated by overseas clients. Bedek is involved in the Boeing Airplane Services (BAS) international network of modification and engineering programme, for which it is undertaking MD-11 passenger-to-freight conversions under the BAS FedEx contract.

Primarily because of the vast distances involved in inter-Australian airline travel, most regional carriers there are self-sufficient maintainers. National Jet Systems, with an engineering staff of 170, operates from Adelaide; Flight West Airlines is capable of checks to D level at Brisbane and Impulse Airlines, the first airline in Australia to order the Boeing 717-200, has its own engineering facility at Williamstown, New South Wales. Hazelton Airlines, a major Saab 340 operator, also has a specialised maintenance facility in Cudal, New South Wales.

Qantas and Air New Zealand Group, the latter having taken over full ownership of Ansett Holdings, represent the two countries' major airline-related MRO groups. Today the provision of total technical services by Qantas and Air New Zealand Engineering is vital to the continued success of both companies.

Source: Flight International