INDEPENDENT BUSINESS-aviation service companies are facing increased competition from the producers of the aircraft they support, as those manufacturers push for a larger share of the after-sales market for maintenance, modification and refurbishment of their products. The major independents are thriving, nonetheless, thanks to strong demand for their services in a market that welcomes competition.
More business-aircraft manufacturers are recognising that company-owned service centres help build brand loyalty, resulting in repeat orders, while providing valuable feedback on in-service experience with their products which can be used in designing new and improved aircraft. At the same time, manufacturers recognise the role of independent service centres in providing the competition on time, price and quality that the operators want.
Bombardier has been the most aggressive in reshaping its product support. The company combined its Canadair Challenger and Learjet service centres in the early 1990s, and acquired four maintenance centres from AMRCombs in 1995, creating Bombardier Aviation Services (BAS). The company now has six service sites in the USA, and its first international centre is to open by October, in Berlin, in a joint venture with Lufthansa Technik.
"We have realised the importance of having more contract with our customers," says BAS general-manager Jim Zeigler. The six US sites handle some 400 Challengers and Learjets a month, about 55% of the market, he says. Most customers are 1-2h flying time from a BAS centre. "We're about where we need to be in the USA," Zeigler says, but the company would like "a couple" of additional sites in North America.
International growth
Near term, growth will come outside the USA. Lufthansa Bombardier Aviation Services, at Berlin's Schönefeld Airport, is an "equal partnership" with the German airline and provides one model for future ventures. Zeigler sees BAS ending up with "five or six" international centres, but how they will be set up will depend on the country, he says. Options range from company-owned sites to joint ventures with local airlines or aviation-services companies.
An Asian service centre is likely to be established within the next 12-24 months, followed by a site in South America, Zeigler says. An opportunity may emerge earlier to set up a centre in the Middle East, he says, and the company is evaluating the potential for a service site in the former Soviet Union. "Five to seven years out, we may need additional capacity in Europe, possibly in the former Eastern Bloc," he says.
The Berlin centre will support some 185 Bombardier business jets now in Europe, and develop a capability to refurbish Challengers and Learjets. BAS' main refurbishment centre is at Tucson, Arizona, but the company is looking at the potential to handle interior upgrades at its Montreal completion centre, acquired from Innotech Aviation in late 1996, Zeigler says.
Lufthansa Bombardier Aviation Services will have access to a strong engineering capability for aircraft modifications, Zeigler says. BAS will certificate some 60 modifications this year, while a typical independent will develop 20-25, he estimates. Zeigler admits that Bombardier's move into service centres has concerned the independents, but argues that its launch of new aircraft has created a growing market "-which has made it easier to take".
Factory-authorised independent service-centres are necessary, Zeigler says, because the customer wants competition. Fleet sizes in some regions are not yet sufficient to justify a company-owned centre. "Authorised centres handle more than one type of aircraft, while company centres focus on Bombardier products and need a volume of aircraft," he says.
Cessna says that it was the first company to create a service-centre network, and believes that it leads the industry in customer-support satisfaction as a result. Other manufacturers "-are hearing from their customers how good Cessna's support is," says Jim Morgan, vice-president service facilities. Three company-owned and six independent service-centres were in place even before delivery of the first Citation business jet in 1973, he recalls.
Cessna's service centres are all inside the USA. The company has just opened its ninth, in San Antonio, Texas, and would like one more in the USA, Morgan says. The company is exploring the international market, and an announcement is expected at the Paris air show in June. The US manufacturer declines to comment on rumours that it will buy the Euralair fixed-based operation (FBO) at Paris' Le Bourget Airport, where the show will be held.
COMPETING FOR BUSINESS
Morgan is open in acknowledging that, in the USA, the Cessna-owned sites compete for business with the five factory-authorised independent centres. With some 1,600 Citations in the US fleet, however, there is plenty of business. The Cessna centres account for some 46% of the US Citation-maintenance market, Morgan says, while the independents garner around 18%. Fixed-base operators and corporate flight-departments account for the rest.
Some 85-90% of the US Citation fleet is no more than 45min flying time away from a Cessna-owned service centre, and 60% are only 30min away, Morgan says. The company sites compete with the independents by offering "reasonably accessible, high-quality services at good prices", he says. Data on Cessna's labour and parts rates are shared with the authorised independents, to re-assure them that the manufacturer is not manipulating prices, he says.
Cessna also encourages its authorised service-representatives (ASRs) to allow the manufacturer oversight of any modifications they develop. "Our customers operate all over the planet with their aircraft, and we want to facilitate maintenance of any system installed [by an independent]," Morgan points out.
Outside the USA, Cessna now works exclusively through ASRs, typically one per country where Citations are operated. With the 360 aircraft in Europe making up the second largest fleet outside the USA, it is inevitable that the manufacturer's current exploration of the potential for international service centres should focus first on this region.
Europe is also the site for Raytheon Aircraft's first company-owned service centre outside the USA, at Chester in the UK. The expansion into Europe comes after Raytheon Aircraft Services (RAS) took the unusual step of reducing the number of sites in its US network.
John Willis, RAS president, explains that Raytheon, which had acquired several fixed-base operations over the years, embarked on a product-support strategy based on service centres within 1h flying time of their customers, able to provide the "highest-quality service available for Beech or Hawker aircraft".
A review of its existing sites for redundant locations or duplicated capabilities determined that six "were outside the programme's scope", he says. Two of three RAS service centres in Atlanta, Georgia, were judged to be surplus to requirements, for example. When Raytheon set out to find a buyer for the six sites, "-we looked for a partner interested in acquiring them without the Raytheon franchise", Willis says.
The sites were sold to Mercury Air Group for $9 million, and became part of the 12-location Mercury Air Centers FBO chain. Mercury's interest is in fuelling and line service, explains Willis. RAS' Dallas, Texas, site was sold, but Raytheon leased back the maintenance centre, with Mercury providing line services. Unlike Bombardier or Cessna, RAS provides FBO services at ten of its 14 remaining US locations. "If we can pump a million gallons [of fuel] a year, it makes sense," says Willis.
The main business is supporting Raytheon aircraft, however. Each of the RAS centres is expected to handle 50% of the aircraft based within its assigned area. In fact, they serve slightly more than half of the turbine fleet, Willis says. Raytheon is careful to work with, rather than compete with, its ASRs, he says. "We try not to duplicate the independents." The requirement is to have a service centre, company-owned or factory-authorised, within 1h flying time of every customer. RAS is building a new centre in the North East, at Atlantic City, New Jersey.
Logical expansion
Chester was the logical place for RAS' first international service centre, says Willis. The location is the former final-assembly site for the Hawker business-jet line, acquired by Raytheon from British Aerospace in 1993. As part of its deal to transfer assembly of the Hawker 800 to the USA, Raytheon agreed to establish Chester as a depot-level maintenance centre for the Hawker family, targeting operators in Europe, Africa, the CIS and the Middle East.
RAS is in the process of equipping some of its US centres to support Hawker aircraft. So far six sites have been upgraded, providing Hawker service within a "reasonable distance" of most operators. The Tampa, Florida, centre handles customers in the Caribbean, says Willis. RAS is evaluating whether to support Hawkers from its Rockford, Illinois, centre near Chicago, he says.
In an example of its strategy not to compete directly with independents, RAS does not provide Hawker service at its Atlanta location, because Garrett Aviation Services does.
Willis describes Chester as RAS' "first international centre", suggesting strongly that there will be others. "We are looking at emerging markets where [fleet] demographics could require a centre," and where there is no ASR available. "There is no finite plan to add centres," and any additional sites "-will be looked at in co-operation with authorised service-representatives, not in lieu of", he cautions.
This is good news for the independents, although they do not appear to be suffering too greatly at the hands of the manufacturers. One reason is that two of the makers of high-end business jets, Dassault Aviation and Gulfstream Aerospace, continue to rely heavily on ASRs. Now Boeing has entered the business-jet market, and has picked independents Jet Aviation and K-C Aviation to compete and support its aircraft. Airbus is also targeting the market, generating the prospect of additional business.
RELYING ON INDEPENDENTS
Gulfstream is upgrading its factory-owned completion and service centres in a bid to win more business. The company has sites in Savannah and Brunswick, Georgia, and Long Beach, California, where the majority of new, "green" GIVs and GVs are completed, and a significant number of customer aircraft are maintained and refurbished. Outside these centres, the company relies on ASRs.
Dassault, similarly, has two factory-owned sites: the Dassault Falcon Jet completion and service centre in Little Rock, Arkansas, and Dassault Falcon Service, at Le Bourget in Paris. Only Little Rock can complete new Falcons, but both locations can perform heavy maintenance and interior refurbishment of customer aircraft. Outside these centres, again, Dassault relies on a network of ASRs.
Large business-jets produced by Dassault, Gulfstream - and Bombardier - account for a large part of the business of major independents such as Atlantic Aviation, Garrett Aviation Services, Innotech Aviation, Jet Aviation and Midcoast Aviation. While moves by manufacturers to capture new-aircraft completions are edging independents out, the influx of new aircraft is generating demand for upgrades and refurbishment of existing business jets.
Montreal-based Innotech sold its Canadair Challenger green-aircraft completion business to Bombardier in late 1996, yet in May unveiled a C$11.5 million ($8.3 million) expansion of its maintenance and refurbishment centre. Chief operating officer Stephen Plummer says that business is increasing. "Innotech holds factory authorisations from more manufacturers than any other service organisation in North America," he says.
According to Plummer, "-the maintenance business is strong" at Innotech's Montreal and Vancouver centres. Refurbishment work is also on the increase. "New aircraft are more expensive, so a lot of customers are willing to refurbish their aircraft for $1-2 million," he says.
Plummer is not overly concerned by neighbouring Bombardier's moves into the service business. "Bombardier was always a competitor," he says. Independents can compete with manufacturers on turn-around time and price, because they have lower overheads and are "quick on their feet", Plummer believes. Manu-facturers and independents alike agree that aircraft downtime is a major factor in an operator's decision of where to go for service.
Innotech, like other independents, is looking to expand internationally. The company operates eight FBOs in eastern Canada, and one in the north-east USA, and plans three additional Canadian locations. Innotech is looking to acquire additional US sites, and has been trying for several years to establish an FBO in Russia, so far without success.
Jet Aviation has just completed a year on expansion, adding a maintenance centre in Singapore in February 1996 and an FBO in Las Vegas, Nevada, in August. The Swiss company, which is based at West Palm Beach, Florida, is a global aviation-services company, with locations in the USA, Europe, the Middle East and Far East. Some 60% of its revenues come from maintenance, 5% from outfitting and 10% from FBO services.
With 17 locations in the USA, Germany, Switzerland, Saudi Arabia, Singapore and Moscow, the FBO business is "very important" to Jet Aviation. "It allows customers to see the level and range of services offered. They fly in with minor maintenance problems and learn that we offer a full maintenance service," says vice-president, marketing, Heinz Aebi.
Jet Aviation is forecasting substantial growth in the USA and Far East. FBO and maintenance business will increase in the USA, the company says. "We will acquire or build another two FBOs in the next year," says Aebi. In the Far East, Singapore-based Jet Maintenance "...is doing better than expected," he says. The next international venture is likely to be into South America. "Brazil is the second-largest market in the world, with 500 aircraft," notes Aebi. A joint venture is possible, "-.but we need the right partners", he cautions.
CIRCLE OF BENEFITS
Aircraft management is an important part of Jet Aviation's business, accounting for 20% of revenues, while charter management making up 5%. Both help bring customers into the company's "circle of benefits", Aebi says. Jet Aviation acquired K-C Aviation's management operations in September 1996, bringing its managed fleet to almost 150 aircraft, divided roughly equally between the USA and Europe - most of which are maintained by the company.
The acquisition brought Jet Aviation into the charter-management business, enabling the company to generate income for customers by operating their aircraft on corporate charters. This is a market Bombardier entered in 1995 through its Business JetSolutions joint-venture with FBO chain AMR Combs. The venture took over AMR's Alliance charter-management programme, which now covers 75 aircraft.
Business JetSolutions also operates the FlexJet programme providing fractional ownership of Bombardier aircraft, which is expected to cover 40 US-based Challengers and Learjets by year end. With Executive Jet Aviation now operating some 95 Citations, Hawkers and Gulfstreams under its pioneering NetJets pro- gramme, and Raytheon planning a scheme involving King Airs and Beechjets, fractional ownership is now increasingly important to the business-aviation service industry.
Source: Flight International
