The oldest hangar at SR Technics' large facility at Zurich airport is home to its youngest business venture. In mid-February, a former Airbus widebody airliner, refitted with a luxury interior for an undisclosed Middle Eastern customer, left the 1940s-era 4,800m2 Bogenhangar, which SR Technics has transformed into a modern completion centre with luxury customer facilities and highly restricted access. The aircraft arrived in Zurich in August last year and was the company's first VIP refurbishment project. With negotiations for a second contract under way, president André Wall believes SR Technics can establish a profitable foothold in a highly specialised sector.
The company's majority shareholder - Abu Dhabi sovereign wealth fund Mubadala - is "fully behind the project", Wall says, and wants to position its subsidiary at the top end of the market. "We don't want to be just one of 20 people in this market," he says. "We want to be a leader." The Swiss company spent a year and a half planning the venture. It announced its intentions at the Middle East Business Aviation show in Dubai at the end of 2010 and began recruiting "hand-selected people from the supply chain" and training its own staff.
© SR Technics
February brought first rollout of a VIP widebody from SR Technics' Bogenhanger completions centre in Zurich
Breaking into airliner-size business jet completions is difficult, requiring dozens of skilled craftsmen and individual certification of many unique, hand-built fittings, but SR Technics had two factors in its favour. Firstly, it had decades of MRO heritage, having been a unit of Swissair before the airline failed in 2002, and secondly, Switzerland is a centre of the VIP completions industry, with Jet Aviation and another new player, AMAC, based in nearby Basel. Hence, SR Technics could tap into the talents of a supply chain as well as its rivals: Wall himself was formerly chief operating officer at Jet Aviation.
Although the knowledge gap between airline MRO and business jet completions is wide, there are synergies, says Jean-Marc Lenz, senior vice-president, aircraft services. "We cannot switch straight from MRO to VIP, but we can use the best of both worlds," he says. "The disciplines are completely different, but there is a degree of commonality. It is not about industrialising the VIP process, but bringing in processes and systems from MRO that we are comfortable with, such as a rigour on scheduling."
With 1,000-plus aircraft under its watch, SR Technics can offer aircraft on ground (AOG) and other airline-type support not always available in business aviation, says Wall.
Still, Wall does not foresee completions exceeding 10% of SR Technics's revenues in the medium term. However, he deems it part of a wider strategy of moving the Zurich company up the value chain. SR Technics has already transferred most of its low-cost carrier maintenance work to Malta and, as part of Mubadala's MRO gameplan, will share customers with its sister company Abu Dhabi Aircraft Technologies, which has a lower cost base. Like many Swiss firms, SR Technics prides itself on its reassuringly expensive, precision-based brand values. Of 3,000 staff at Zurich, 200 are apprentices. "They take four years before they can even touch an aircraft," says Wall. "We constantly have to justify our additional price tag. Zurich is not the cheapest place on earth."
Bogenhangar has room for two widebodies, but Wall does not intend adding a second line for now. "We might at some point, but it will be years away," he says. "The business plan, which has been accepted by our shareholder, is that we will have one dedicated team to concentrate on one project until it is finished." As a new market entrant, SR Technics must build flexibility into its schedules, says Wall. "We are still in the learning curve, so we need breathing space in case the customer has additional requirements. Even moving a seat can add a lot of time and we don't want the next customer pushing. We want to focus on continuous improvement and learning from our experience."
Demand for widebody VIP completions has scarcely been affected by the global downturn, thanks to an emerging group of ultra-wealthy entrepreneurs in Asia and the former Soviet Union keen to join the private-jet club, a resilient Middle Eastern head-of-state customer base and new types such as the Boeing 747-8 and 787 coming on the market. However, just as demand has risen, so too has supply in a segment that had been dominated by two European completions houses - Jet Aviation and Germany's Lufthansa Technik - and a few North American specialists such as Greenpoint Technologies. A handful of other centres in the USA specialise in the smaller A320 family-based Airbus Corporate Jets or 737-based Boeing Business Jets.
AMAC - founded four years ago by a consortium that included former Jet Aviation chief Heinz Kohli - was the most recent entrant. Its hangar sits almost next door to Jet Aviation's at Basel airport on the French-Swiss border. Along with Lufthansa Technik and Jet Aviation, it has signed up for one of the first 747-8s ordered as VIP transports. MSN37075, for AMAC, and MSN40065, for Lufthansa Technik, will have Aeroloft sleeping quarters installed by Greenpoint. MSN37500 is destined for Jet Aviation in May, while a fourth 747-8 will head for Lufthansa Technik by year-end.
© Jet Aviation
Jet Aviation is one of Europe's major completions houses, but faces more competition
Walter Heerdt, senior vice-president of marketing and sales for the Hamburg-based MRO provider, which has 27 years experience in 747 completions, says the nine 747-8 VIP jets ordered will keep completion centres working at capacity for three years, with the first slots anywhere in the market available circa 2015. VIP versions of Boeing 787s and 777s and Airbus A350s should also keep facilities busy, he says. However, by mid-decade, he expects the recently added capacity in the market to increase competition between centres as the 747-8 backlog works down and demand "becomes more normalised". This would be a new phenomenon in the world of completions, where centres are used to booking work in years in advance.
Jet Aviation undertakes single-aisle and twin-aisle work in Basel, and narrowbody, Bombardier and Gulfstream completions at the former Midcoast Aviation facility in St Louis. Group president Dan Clare says that its parent General Dynamics does not disclose detail on backlogs but there is a "healthy level of activity across narrowbodies and widebodies", with "a lot of activity around 787". Prices are holding up and prospects strong in Russia, the Middle East and China. "I wouldn't say it's robust, but it's certainly a fairly healthy market," he says.
What shape the completions sector will be in by mid-decade is unclear. While AMAC and SR Technics have added to the competition in Europe, newer rivals could emerge from the markets driving demand for their products, including China. Swiss and German players have been able to offset their high costs with a reputation for precision and quality, but Chinese companies have already made the leap from low-cost commodity production into higher-tech fields such as automotive, consumer electronics and aerospace. Wall believes competition from China is inevitable. "It will be one of the major markets for the next six years, but eventually they will do it themselves," he says. "Until then, it's a lot of aircraft to go for."