Refurbishment work on idle aircraft has helped third-party maintenance companies survive the downturn of the past 12 months

Leasing companies are riding to the rescue of stricken European third-party maintenance companies, providing them with refurbishment work on idle aircraft as business from airlines has dried up since the US terrorist attacks on 11 September. "Non-critical modifications, such as passenger cabin upgrades and configuration changes, are being delayed," says Declan O'Shea, group vice-president and general manager of the region's biggest independent maintenance company FLS Aerospace (FLSA). "But there has been an increase in business from leasing companies, as returned aircraft are refurbished while lying idle or in preparation for new customers."

Lufthansa Technik (LHT), sister company to Germany's flag carrier, says switching priorities has allowed it to survive the worst of the downturn. Director of corporate strategy Nikolaj Schmolcke says: "By concentrating on modern fleets and engine types, the company has so far suffered less than it might have." He says Pratt & Whitney JT8D-powered narrowbody fleets, such as Boeing 727s and early-generation 737s and McDonnell Douglas DC-9s, are bearing the brunt of the aircraft retirements, and that within LHT only Lufthansa Airmotive Ireland in Dublin now overhauls these engine types.

O'Shea says airlines are delaying non-essential work until their financial situation improves. FLSA is particularly feeling the impact of this strategy on the Airbus A330/A340 line at its Dublin facility, where O'Shea says last year non-essential customer modifications accounted for far more work than the standard C checks required on the types.

Improved throughput

On the other hand, he says the improved throughput of leased aircraft is helping to lessen the effects of the airlines' cutbacks.

Flight-hour based maintenance contracts have been hit hard by the downturn, and LHT's Schmolcke highlights this as a major area of reduced revenue, conceding that revenues have been "seriously affected". The reduction in size of the active airliner fleet has also had an obvious, if less publicised, knock-on effect on the aircraft maintenance, repair and overhaul (MRO) market. The inactive fleet of Western built jets almost doubled from 1,200 at the beginning of September 2001 to more than 2,200 earlier this year, and the active fleet has only just recovered to its pre-September 2001 levels. Airlines have removed older, maintenance-intensive aircraft types from service, further reducing the maintenance requirements of the active fleet. Coupled with overcapacity in the European and CIS MRO industry, the market collapse has forced all players to tighten their belts and control costs.

The leaner times have emphasised the importance of optimising efficiency and costs. Schmolcke says that LHT is aiming to run its maintenance centres on a factory concept, specialising in a particular product at each of its locations and keeping the production line moving. It is in the process of transferring its A330/A340 heavy maintenance line to its Manila-based Lufthansa Technik Philippines joint venture with MacroAsia. The line will overhaul A330s and A340s nose-to-tail from next year. Similar production line principles are being introduced at its Shannon Aerospace joint venture, which will specialise in narrowbody D checks, in common with the Lufthansa Technik Budapest joint venture with Malév. LHT's joint venture with Air Malta, Lufthansa Technik Malta, will focus on narrowbody C checks.

In FLSA's Dublin facility, a move towards reducing turnaround time was introduced in 2000/01 with the Formula One project. By assigning computer workstations to each zone of the aircraft, and by making technical manuals and job cards available electronically to mechanics, the time spent obtaining information is reduced, and the progress of work can be tracked online. "Using the system, electronic job cards and records of work can be supplied to the customer on CD-ROM, which is particularly valuable to leasing customers," says O'Shea. The company followed this with an efficiency drive based on Six Sigma quality controls, one result of which was a reduction in Boeing 747 Classic D-check turnaround times from 54 to 34 days.

LHT's Schmolcke is hopeful that early in 2003 the passenger traffic growth rate will be restored to its long-term rate of 6%, with the MRO sector achieving a 4% growth rate sometime afterwards. To remain competitive, he says that "it is crucial for a company the size of LHT to have a worldwide picture and to have a flexible network".

Strategic partners

He also detects a change in the relationship with carriers: "Airlines have become strategic partners over the last 18 months, not just customers." Schmolcke believes business transactions will be more open as each party appreciate the other's difficulties.

At FLSA, O'Shea is more confident, saying the signs of recovery are already visible. "We are already approaching capacity for the winter programme," he says. He predicts a potential "bubble of modification work" from customers that had deferred such improvements and he believes the company's contracts with rapidly growing low-cost carriers EasyJet and Ryanair will provide significant growth opportunity.

O'Shea warns, however, that to secure its future, FLSA will need to belong to a larger aerospace organisation. Although any consolidation plans have been put on hold, he says the company "needs to grow substantially to attain the critical mass required for stability".

FLS and LHT have weathered the current storm better than many, mainly because of their size, customer base and broad range of types serviced. But it is significant that, despite its strong presence in the regional industry sector, FLS identifies consolidation as the best way forward. Maintenance of long-haul types in Europe is likely to suffer because of lower labour costs in Asia, as the LHT Manila venture indicates. With the traditionally busy winter season approaching, the industry will hope to maximise its gains during the coming months to avoid the losses of the summer becoming fatal.

Source: Flight International