MRO Yearbook 2011

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    AIRCRAFT TECHNOLOGYS ANNUAL PUBLICATION FOR THE MRO PROFESSIONAL

    MRO Yearbook (vers4) 2011 Artwork:Layout 1 17/8/10 09:33 Page 1

    MRO Yearbook 2011.indd 1 14/09/2010 13:52

  • We do not convert all Airbus aircraft,some of them we maintain.

    EADS EFW offers stand-alone

    maintenance for Airbus aircraft as well.

    A310 / A300 A320 family A330

    MRO Yearbook 2011.indd 2 14/09/2010 13:52

  • EDITORJason Holland: [email protected]

    ASSISTANT EDITORMichael Gubisch: [email protected]

    EDITORIAL CONTRIBUTORSAlex Derber, Bernard Fitzsimons, Chris Kjelgaard, Alan Martyn, Nathan Smith.

    CIRCULATION MANAGERPaul Canessa: [email protected]

    MEDIA MANAGER - EUROPE, ASIA & AFRICAAlan Samuel: [email protected]

    PUBLISHER & SALES DIRECTOR - USASimon Barker: [email protected]

    GROUP PUBLISHERAnthony Smith: [email protected]

    THE MRO YEARBOOK 2011The MRO Yearbook is published annually, each September, by UBM Aviation Publications Ltd.

    Aircraft Technology Engineering & Maintenance (ATE&M)

    ISSN: 0967-439X - USPS 022-901 is published bi- monthly, in February, April, June, August, October and December, plus an extra issue in July, with annual issues of the Yearbooks published in September and October by UBM Aviation Publications Ltd.

    Distributed in the USA by SPP c/o 95, Aberdeen Road, Emigsville, PA 17318-0437, USA.

    Periodicals postage paid at Emigsville, PA, USA.

    POSTMASTER: send address changes to Aircraft Technology Engineering & Maintenance (ATE&M), c/o SPP P.O. Box 437 Emigsville, PA 17318, USA.

    ATE&M UK annual subscription cost is 150.00 GBP. ATE&M Overseas annual subscription cost is 170.00 GBP or $300 USD. ATE&M single copy cost is 25.00 GBP (UK) or $50.00 USD (Overseas)

    MRO Yearbook single copy cost is 55.00 GBP (UK) or $110.00 USD (Overseas)

    All subscription records are maintained atUBM Aviation Publications Ltd.7th Floor, Ludgate House, 245 Blackfriars Road,London, SE1 9UY, UK.

    All subscriptions enquiries to:Paul Canessa: [email protected] Tel: +44 (0) 207 579 4873, Fax: +44 (0) 207 579 4848

    Website: www.ubmaviationnews.com

    Front cover image courtesy of: Lufthansa Technik

    Layout and production by: Dean Cook,The Magazine Production Company

    Printed in England by: Wyndeham Grange

    Distribution/Mailing: Flostream UK

    The MRO Yearbook and ATE&M, part of UBM Aviation Publications Ltd, have used its best eff orts in collecting and preparing material for inclusion in these publications but cannot and does not warrant that the information contained within these publications are complete, or accurate, and does not assume and hereby disclaims, liability to any person for any loss or damage caused by errors or omissions in The MRO Yearbook and ATE&M, whether such errors or omissions result from negligence, accident or any other cause.

    This publication may not be reproduced or copied in whole or in part by any means without the express permission of UBM Aviation Publications Limited.

    Aircraft Technology Engineering & Maintenance is a licensed trademark of UBM Aviation Publications Limited.

    All trademarks used under license from UBM Aviation Publications Ltd.

    1999 2010, UBM Aviation Publications Limited. All rights reserved.

    MRO FORECAST4 GLOBAL MRO MARKET OUTLOOK

    The MRO Yearbook presents a full report on the global MRO market situation and its short- and long-term prospects.

    12 MRO IN BRICS FIRST DECADEThe four countries grouped under the BRICs acronym have extraordinary potential for growth. How has that potential been reflected in the specific case of aircraft MRO?

    16 A FOCUS ON THE AMERICASThe global economy has caused a paradigm shift in the MRO market over the past two years. Both the airline industry and aircraft MRO organisations are facing numerous challenges.

    21 SOUTH EAST ASIA: EMERGING FROM THE DOWNTURNWhy this particular regions emergence from the downturn could be quick and ultimately prove very profi table.

    AVIONICS26 AVIONICS REPAIR IN THE DIGITAL AGE

    The digitisation of cockpit instruments, navigation systems and communication equipment has transformed the work of avionics repair personnel on the ground.

    32 AVIONICS UPGRADESFuture air traffic management systems are likely to demand new communications, navigation and performance capabilities. In the meantime, there are benefi ts to be gained by upgrading older equipment to meet the emerging requirements.

    ENGINE MAINTENANCE36 P&WC: KEEPING CUSTOMERS

    CLOSE TO THE HEARTWhen it comes to aftermarket support, engine manufacturer Pratt & Whitney Canada (P&WC) has a clear goal: to be No. 1 in the markets it serves by placing customers at the heart of all its actions.

    38 CHROMALLOY: LEADING INNOVATION IN TURBINE PARTS AND SERVICESFor nearly 60 years, Chromalloy has distinguished itself as a leading independent supplier of advanced protective coatings, high-technology repairs and replacement components for gas turbine engines.

    44 MAINTAINING THE CFM56Although a successor generation is already on the horizon, sales are still going strong for the CFM56 and in MRO terms, the best is yet to come.

    48 WASHING AWAY FUEL INEFFICIENCYEngine washing is becoming an increasingly important part of the MRO landscape.

    53 NACELLES: REACHING NEW HEIGHTSAs the development of stronger, quieter and more effi cient composite nacelle structures takes hold, these advances will have a resultant eff ect on nacelle repair.

    AIRFRAME MAINTENANCE58 THE A380 INTRODUCTION AT LUFTHANSA

    The introduction of the A380 into service at Lufthansa came after years of preparations at the airline and its technical services divisions.

    61 LUFTHANSA TECHNIKWith more than 30 subsidiaries and over 26,000 staff , the Lufthansa Technik Group says it is the leading provider of aircraft-related technical services in the world.

    62 MANAGING ADVANCED, SOFTWARE-ENABLED AIRCRAFTMxi Technologies explains how the introduction of next-generation aircraft represents new challenges arising from environmental considerations, expectations of passenger comfort, and a highly competitive landscape.

    66 A330 AND A340 MAINTENANCEThere have been several signifi cant maintenance interval increases since entry into service.

    72 777 MAINTENANCEThe 777 was designed with an emphasis on reducing maintenance costs, and the technological, systems and process improvements are being felt today.

    76 737 MAINTENANCEWhat does it take for MRO companies to keep the twinjet fl ying?

    82 LEAN IN THE MRO INDUSTRYWhat are the best practices and how can MROs get the most out of Lean?

    87 YOU ONLY LIVE TWICEFreighter conversions are an enigmatic enterprise. How can it be viable to invest millions in a 20-year old aircraft that a previous owner deemed uneconomical?

    92 COMMERCIAL AND MILITARY MRO PROVIDERSThe military maintenance market is worth more than its civil counterpart and commercial MROs are tapping into its potential to provide a distinct reliable revenue stream.

    97 LOOKING AT LINE MAINTENANCELine maintenance companies face the challenge of ever intensifying aircraft utilisation, shorter turnaround times and pressure to reduce costs.

    101 STTS PAINTING HALL A350The STTS group searched for a partner with years of experience, ability and fl exibility for realization of their innovative aircraft painting hall project. CTI Systems proved to be the perfect partner to meet this challenge.

    102 LANDING GEAR MROChanging technologies and cost and contract trends are aff ecting the landscape of this market.

    SUPPLY CHAIN MANAGEMENT106 ACS ON THEIR TENTH ANNIVERSARY

    Aviation Component Solutions (ACS) designs, certifies, manufactures and distributes PMA parts for airframe and engine components and accessories, boasting a catalogue that contains over 500 PMA parts.

    110 PMA: AN ACCELERATION OF ACCEPTANCE?Has the recession forced a heightened degree of urgency among senior management in obtaining PMA parts, and a much greater airline and MRO acceptance?

    114 KELLSTROM INDUSTRIES PROFILEEstablished in 1990, Kellstrom Industries started out as a small business servicing the aerospace aftermarket. Since then it has grown steadily to become a globally recognised company with an international reputation.

    118 SPARE PARTS LOGISTICSFast, effi cient and reliable logistics services are vital for the aviation industry.

    122 TOTAL SUPPLY CHAIN COLLABORATIONOrganisations that can successfully manage a supply chain can improve their overall performance and cut cost from the bottom line. Here, Aeroxchange explains how to do it.

    MAINTENANCE DIRECTORIES128 THE AMERICAS134 EUROPE140 ASIA, AFRICA & MIDDLE-EAST

    MRO YEARBOOK 2011 | 1

    the MrO YEARBOOK 2011

    We do not convert all Airbus aircraft,some of them we maintain.

    EADS EFW offers stand-alone

    maintenance for Airbus aircraft as well.

    A310 / A300 A320 family A330

    MRO Yearbook 2011.indd 1 14/09/2010 13:52

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  • 4 | MRO YEARBOOK 2011

    MRO FORECAST

    the MrO inDustrY has been badly hit by the global downturn, suffering from a knock-on effect of the crisis experienced by airlines. This is because the airline industry is deferring and completely eliminating maintenance on a large portion of the worldwide fleet. Lighter maintenance work is being performed as the older aircraft which would have required heavy maintenance are pulled from service and stored or parked, reducing the amount of available MRO work in the market. In addition, 26 airlines ceased operations in 2009 in light of heavy industry losses.

    Further worries for MRO companies have been caused by operators removing components from parked aircraft instead of having them overhauled or replaced by purchases, and operators generally placing more maintenance work within their hubs or at airports where they operate, in order to avoid ferrying costs.

    The industry has also been hit by a number of other trends, including increased geopolitical risk, health risks (with a Swine fl u pandemic coming on the heels of bird fl u), and regular increases in fuel costs, with further price rises expected to continue to aggravate the situation in 2010 despite the pending recovery. Consolidation will be the main result of all these troubles, as well as the disappearance altogether of some of the weaker MROs.

    According to recent IATA estimates, international air transport has lost more than two years of growth since 2008. Aerostrategys David Stewart says the amount spent on maintenance in 2008 and 2009 went down from a peak in 2007. He says: The actual amount spent went down from, overall, something in the region of 10-15 per cent. That depends on where you are and who you are. If you are in China, the market is still booming, but if you in North America and only maintain aircraft that have been grounded, than it is the reverse. The total market for technical civil aviation services had an estimated volume of US$41bn in 2009, and was therefore smaller than the previous year, although less so than originally expected, says Bernd Habbel, director of corporate communications at Lufthansa Technik.

    But the industry is cyclical. As the market recovers and airlines return to profi tability, the MRO industry will also experience an increase in demand and regain its momentum. In the short-term we expect to see improvements in 2010, but overall we see the markets remaining relative fl at through 2011, states Nathan Smith, industry analyst North America, at Frost & Sullivan. Aerostrategys Stewart points out that there must be an end to de-stocking and to deferred maintenance. There will be a recovery in money spent as airlines look to re-fi ll their inventory and catch up on some of the deferred maintenance. There will be a spring back and, depending on who

    Although the global MRO market will continue to see small improvements in 2010, overall it will remain relatively fl at through 2011. For a variety of reasons, demand will increase after this point. Nevertheless, some of the structural changes taking place now could have a longer lasting legacy. Jason Holland and Michael Gubisch compiled a comprehensive report on the MRO market situation and its short- and long-term prospects.

    Global MRO market outlook 2010/11 the light at the end of the tunnel

    MRO Yearbook 2011.indd 4 14/09/2010 13:52

  • MRO YEARBOOK 2011 | 5

    MRO FORECAST

    you are, that will be at the end of 2010 or in 2011. We think that in 2010 there will be low single-digit growth, and itll be a higher single-digit growth next year.

    The outlook is not as desperate as was feared at the height of the global recession, and 2010 has begun to see a sense of renewed, but cautious, optimism emerge in some quarters of the industry. We have started to see increased stability in the sector and some encouraging signs are being seen in the economy, but we dont forecast any signifi cant volume

    increases or changes in customer behaviour during 2010, states Tom Wilson, VP component maintenance and business development at Aveos.

    The crisis is also giving rise to new opportunities that can offset the market downturn. Franck Terner, president of Air France Industries, says: In the first place, the crisis is forcing some airlines to postpone investment in fleet renewal: they therefore continue to operate with aircraft that have reached maturity and which need more maintenance than new aircraft. Secondly, again seek ing to reduce their cost base, airlines lacking the critical competitive mass to carry out some maintenance tasks are increasingly turning to sub-contracting, opening up new markets for MROs. Thirdly, MRO market growth is still in positive territory in emerging markets, where recent aircraft in operation are starting to age and hence need more and more maintenance.

    Looking longer-term, there is better news for MROs as demand increases. There is a bright light at the end of the tunnel and its not a fast train moving in your direction, says Frost & Sullivans

    Smith. Air travel and cargo shipments have begun to increase and several airlines have announced profi table quarters, which is great news for MROs if more aircraft take to the sky.

    Increased aircraft utilisation will certainly create more maintenance opportunities in the long-term. Some of the parked and stored aircraft will return to service to meet a growing demand for aircraft; and many of these aircraft will need maintenance. Not only that, new aircraft delivered in 2008 and 2009 will begin to arrive for their fi rst light maintenance checks in 18 to 24 months. However, it must also be noted that passenger aircraft that have been parked may be slow to return since more effi cient aircraft are still being delivered.

    Global MRO growth from 2009 to 2014 is expected to increase at a compound annual growth rate (CAGR) of 2.3 per cent, with 2009-2011 expected to be relatively flat, according to Frost & Sullivan. Beyond this period, the MRO market is expected to accelerate at a CAGR of 2.9 per cent. Aerostrategy predicts that global MRO spend will be up to $57bn in 2018, and $58.5bn in 2019.

    Another major point to make about this downturn is that, somewhat uniquely, it has impacted all regions of the world. The recovery rate will be different in each region. In the rest of this article, we will analyse the particular challenges facing each region, and discover where MRO recovery is likely to be quickest. However, there are many challenges which are constant across all world regions. The biggest is the uncertainty surrounding the current economic climate, and more specifi cally when recovery will take place. Growth will surely be slowed until this uncertainty is resolved. Another issue is fi nancing. [It is] unyielding, says Smith, and fi nding additional fi nancing in the short-term will be complex.

    Other issues aff ecting all MROs include maintaining MRO capacity, keeping maintenance lines full, and retaining skilled labour a unique challenge when there are fewer aircraft to maintain, and one which keeps MRO executives awake at night.

    nOrth aMericaOperators in the North American region were probably more aggressive with reducing capacity than other regions, and of course less fl ying means less maintenance opportunity, states Jack Turnbill, Delta TechOps vice president tech sales & marketing. Nevertheless, in terms of MRO spending North America is expected to maintain the largest MRO market share over the next decade, according to Frost & Sullivan statistics.

    In line with the global prognosis, Turnbill expects the short-term to continue to be difficult, with 2010 ending up very similar to 2009. Longer term though, Turnbill is very optimistic that the North

    American market is positioned for growth. A number of structural changes will take place. You will continue to see increased creativity in terms of providing the most cost-competitive solutions to airline customers, says Turnbill. This may result in greater co-operation between MROs that provide complementary services.

    Phil Fields, VP business development at the Aviation Technical Services (ATS), says that the current downturn has given rise to a unique situation. The difference [in the cycle] this time is the significant presence of MRO companies in lower cost economies, he states. So, between competitive rate pressures and operators not having as much money to spend on maintenance, rates are being severely forced down. The result is less available MRO work, lower rates being paid for that work, and less revenue for MRO companies. For operators, its defi nitely a buyers market.

    Fields says that there has been a trend of increasing load factor for both passenger and cargo operators, and the company remains hopeful that this will translate into new, leased or parked aircraft being inserted into service. Based on what were seeing, we believe the MRO market will begin to turn around sometime during the last quarter of 2010 or the first quarter of 2011, he says. We believe rate pressures will continue from foreign MRO competitors.

    Domestically, the downturn has seen airlines fl ying less direct fl ights in favour of shorter journeys using smaller aircraft, and this trend will likely continue longer term. This means more use and conversion to smaller regional aircraft such as the Bombardier CSeries and Embraer aircraft, points out Fields.

    One of the main challenges facing the North American market is the recruitment of new talent, and being able to retain a skilled workforce. This is especially challenging for lower labour rate (lower cost) areas since aircraft mechanics typically dont want to move to a location where they would realise a cost of living increase, says Fields. In turn, MRO companies cannot charge a premium to operators based on their regional location (a higher cost area), even if they provide a more comprehensive and premium service. Operators just wont pay a higher premium. AARs Sheedy adds: The industry must continue to attract the best and brightest talent to meet future challenges. Training and retaining MRO talent will remain a key measure for successful MROs [in North America].

    Deltas Turnbill emphasises the fact that MROs will have to take regional variations in the global market into account in the future. Our business has now grown to the point that it is a global market. We have over 150 MRO customers on fi ve different continents, so the challenges are not so much regionally focused as they are global, he said.

    Africa

    APAC

    China

    Eastern Europe

    Western Europe

    India

    Latin America

    & Caribbean

    Middle East

    North America

    Global MRO market share (2009)

    source: Frost & Sullivan

    35%

    5%5%

    5%

    26%1%

    4%

    4% 15%

    MRO Yearbook 2011.indd 5 14/09/2010 13:52

  • 6 | MRO YEARBOOK 2011

    MRO FORECAST

    Managing the business under these circumstances has been one of our current challenges. Preparing for the future upturn and making sure we are aligned with the best possible partners for future growth becomes our future challenge.

    Reduced fl ying has had a much more signifi cant impact on operations than deferred aircraft deliveries. From an inventory supply perspective, reduced flying and surplus aircraft conditions have created a de-stocking phenomenon that creates a temporary surplus of new and used aircraft spare parts, says Derek Sheedy, marketing communications manager.

    One tactic in the downturn is to improve processes and drive effi ciency to a point where the impact of reduced work is minimised. Sheedy says: AAR has used the recent activities to provide even greater focus on process improvement. Continuous improvement and Lean implementation are two of the areas where we have invested signifi cant dollars and talent. These investments have served us well in the downturn and will provide event greater results in the market upturn.

    In the end, companies have had to make the best out of a bad situation by focusing on what they do best, and making sure that they do it in the most effi cient way possible. Aveos Wilson states: With the unpredictable circumstances we have lived through for the past 18 months, [our] best defence to counter market volatility is to focus on our core competencies and improving our operational eff ectiveness by re-engineering our processes to better meet customer requirements and reduce costs.

    eurOpeThe European MRO market is largely well established. Most of the market is divided between leading international MRO suppliers which have their roots in Europe; these are often but not always attached to a legacy airline. Changes in the MRO industry are mainly taking place due to restructuring processes or the increase of existing capacities. Market entry and success are mostly driven by price policy, and sometimes by new service off ers.

    The market has changed due to the number of grounded aircraft and the growth of new generation aircraft, says Franck Terner, CEO of Air France Industries KLM Engineering & Maintenance (AFI KLM E&M). When the market stagnates, anticipation becomes important to prepare the next step. We see a market recovery in new generation aircraft. He reports that the active fleets of models such as the 737NG, 777, A320, A330, CRJ and E-Jet families, which all require less maintenance than their predecessors, have grown by over 10 per cent throughout 2009. The Franco Dutch MRO provider has also observed a slight shift

    in the way airlines manage their MRO contracts.Demand for fixed-base power-by-hour (PBH)

    contracts has slowed down while more flexible time-and-material arrangements have become more popular with operators.

    In the typical tradition of a national legacy carriers maintenance operation, the central objective of AFI KLM E&M is to maintain a presence across all aftermarket segments.

    The company wants to use its existing expertise and capacities to provide individual solutions for all kinds of operators. This business strategy is underpinned by the development of local facilities, network optimisation between existing sites, the development of new skills and know-how to off er clients greater added-value, as well as cost control and the search for scale effects that customers could benefi t from. One example for a new facility is the planned airframe heavy maintenance JV with Royal Air Maroc for A320-family aircraft at Casablanca Mohammed V International Airport in Morocco. Terner reports that AFI KLM E&M has adjusted its number of staff to the companys workload in response to the global downturn.

    Further costs have been saved by extending procurement synergies among group entities, revising processes, seeking productivity gains, and adjusting the companys investment programme. Reducing cost across the board is the airlines top MRO priority, agrees SR Technics. This is followed by a greater focus on options that provide liquidity or increase asset efficiency, and by finding ways to offload risk. And in order to achieve these demands, the customers are willing to venture into new territory, states Marco Imboden, VP and head of corporate and marketing communications. Creating added value for the customer is at the heart of the Swiss MRO providers strategy to meet the demands of the current environment, and remain sustainable in the long term.

    The company wants to make use of its engineering capabilities and logistical processes to develop new, innovative and, crucially, differentiating solutions across the MRO value chain. These products and services will then be offered in the geographical locations that are best suited to serve the airlines in a cost eff ective manner. The company is currently setting up a new airframe heavy maintenance facility for the A320-family and, from 2012, 737 aircraft in Malta. Furthermore, SR Technics plans to expand in America and the Asia Pacific region together with its sister MRO provider Abu Dhabi Aircraft Technology (ADAT).

    As part of the Mubadala consortium, Abu Dhabis sovereign wealth fund, SR Technics also wants to off er services beyond the classic MRO value chain. For example, Sanad, Mubadalas fi nancing arm in

    COPING WITH THE DOWNTURNAVIATION TECHNICAL SERVICESATS HAS CONTINUED lean practices and business process improvement for over a decade. However, because of the pressures (foreign competition and airline cost reduction) forcing rates down, there is increased motivation to be better and more e cient at implementing and sustaining lean practices. In regards to competitiveness, we have to be leaner and faster while maintaining high quality standards to be successful long term. In a nutshell, we have to do more with less to be cost and schedule sensitive in response to customer requirements and needs. This includes building and having stronger relationships with our suppliers so as a team we can provide all encompassing solutions to our customers. This also means passing down to suppliers the rate reduction pressures we are experiencing.

    DELTA TECHOPSOUR STRATEGY AT Delta TechOps has been two fold. First, we are looking inward to make sure we are optimised for the services we provide. We have aggressive turn-time improvement initiatives in place that are producing tangible results and will provide our customers with truly industry-leading performance. We are also focusing on cost containment and reduction as well as continuous improvement eff orts. These will ensure that we are well positioned to be successful when the market returns to a more normal condition. Secondly, we are looking externally to make sure we are providing our customers with outstanding customer service at all times. Our customers trust us to deliver for their operations and we take this responsibility very seriously. We are completely aligned throughout our organisation to deliver outstanding service levels.

    AAR

    AAR HAS USED the recent activities to provide even greater focus on process improvement. Continuous improvement and lean implementation are two of the areas where we have invested signifi cant dollars and talent. These investments have served us well in the downturn and will provide event greater results in the market upturn.

    MRO Yearbook 2011.indd 6 14/09/2010 13:52

  • MRO YEARBOOK 2011 | 7

    MRO FORECAST

    Switzerland, is able to off er fi nancing and inventory solutions such as the sale-and-leaseback as well as pooling of engines and components. Combining a broad range of MRO services with financing solutions is directly addressing the airlines focus on liquidity and reduced cost.

    Iberia Maintenance reports that the global downturn has affected its growth, however it has been able to maintain its level of business and make preparations for the future. Our company now is stronger than a year ago, says a spokesperson. He believes that Western Europe has been the most aff ected region in the world due to the combination of high labour costs and the strong euro.

    The short term outlook is turbulent, according to the Madrid-based MRO provider. While the faltering of individual MRO companies would open up opportunities for remaining providers, there are also enormous risks as such casualties may aff ect MRO customers as well. The main goal is to survive without losing size and capabilities. There are still no signs of recovery but there is evidence that the fall is slowing down.

    Iber ia Maintenance expec ts struc tural changes throughout the industry as a result of a consolidation process among MRO providers. Those companies that will survive must be able to serve customers worldwide at facilities around the globe. Mergers and acquisitions among airlines will further increase pressure on MRO providers to reduce costs. Lack of qualified personnel will be another challenge as the downturn will expel experienced people from the industry.

    Lufthansa Technik (LHT) reports that it held a 16 per cent market share in the global MRO market in 2009. This is based on the companys broad product range, covering nearly 80 per cent of the MRO market, and triple certification as a maintenance, manufacturing and development business. Nevertheless, the German MRO group has also been affected by the adverse market developments. Reasons have been: less work within existing contracts, deferral of MRO events, less modifi cations and cargo conversions, as well as parked and decommissioned aircraft

    However, the grounding of aircraft aff ected LHT less than other MRO providers, it says, because those aircraft tend to be older models which are not in the companys main focus; their disappearance from service has mainly affected MRO providers and suppliers who concentrate on those types. This also applies to the decline in the air cargo industry, as freighters tend to be older models too. The deferral of aircraft deliveries has not had a signifi cant negative impact on the MRO industry so far. The worldwide fl eet is still growing and the deferral of deliveries of new aircraft, which require

    less maintenance than older aircraft types, which they might replace, has more of a positive effect for MRO suppliers than a negative one, says Bernd Habbel, director of corporate communications. But the current uncertainty of the entry-into-service date of new aircraft types has an increasing impact on the MRO business as it makes strategic planning more and more diffi cult.

    In response to market changes, the company established programmes for making capacity more fl exible, cutting costs and increasing effi ciency. In detail, these included stretching of investments, realising flexibility in the workforce, introducing lean production initiatives, transferring labour-intensive work to low-cost sites, and expanding into areas that are less aff ected by the downturn.

    Given the growing size of fleets worldwide, the MRO industry is fundamentally optimistic and for the next five years expects average annual growth of 3.9 per cent. The market covered by LHT expects average annual growth of 5.2 per cent, according to Habbel. A main challenge for the future will be increasingly tough competition. New MRO capacities on the market are facing sinking demand, thus intensifying price pressure in addition to the airlines already high pressure on costs and margins. In addition, the entry of new aircraft and materials will force MRO providers to

    broaden their portfolio. MRO suppliers will also have to react to increasing customer wishes for individualised services.

    asia pacific While aviation markets have been declining across all regions as a result of the global recession, China stands out with its continued growth in both demand for air transport as well as its total fleet size. Nevertheless, the economic downturn has also aff ected Chinese MROs, albeit to a lesser extent. This was mainly due to the retirement of old aircraft and their replacement with modern models that require less maintenance. To some extent this [grounding] resulted in reduced MRO workload, reports Andreas Meisel, GM and CEO of Ameco Beijing. He explains that the downturn in the cargo industry, as well as deferred aircraft deliveries, forced MRO companies to plan for a decreased workload in the future and adjust their strategies accordingly.

    An external crisis is always a good opportunity for internal reform, states Meisel. The implementation of lean manufacturing principles, in order to use the companys existing facilities and resources more effi ciently and improve yields, is a top priority for Ameco. But Meisel is cautious in his outlook on the future. It is expected that MRO spend will only return to full growth in 2012. However, recovery

    C M Y CM MY CY CMY K

    MRO Yearbook

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    MRO Yearbook 2011.indd 7 14/09/2010 13:52

  • 8 | MRO YEARBOOK 2011

    MRO FORECAST

    might take even longer due to unforeseeable risks. Such factors could include a significant rise in fuel prices or large US dollar exchange rate fluctuations. Meisel is sure that the recovery will be accompanied by a wave of mergers and acquisitions in the MRO industry in the near future.

    Interestingly, ST Aerospace, does not expect significant mergers and acquisitions among MRO companies. The major players have already been established as a result of their expansion over the years, the company states. There will always be a number of start-ups, but that should not cause much impact to major players, including OEMs who provide MRO services.

    The Singapore-based MRO company reports that its revenue in 2009 was smaller than in 2008 as a result of the downturn but still comparable; profits in 2008 remained reasonably good. The company attributes the performance to its wide

    range of capabilities across the airframe, engines, components and engineering as well as a broad international client base, covering passenger airlines, cargo operators and military customers.

    Given the much quoted double-digit decline in air cargo, it comes as a surprise that ST Aerospaces order book for freighter conversions has not been aff ected by the downturn, according to the company. The FAA has recently predicted that total air cargo registered ton miles (RTM) would increase from 30.8 billion in 2009 to 86.6 billion in 2030 up an average of fi ve per cent each year.

    Over the last year, Qantas has largely brought previously outsourced MRO work back in-house and thus defied the wide trend among airlines to increasingly employ external partners for their maintenance requirements. Qantas Engineering focuses mainly on MRO work for its parent carrier, as well as low-cost subsidiary Jetstar, as opposed to third-party customer work. However, Chris Nassenstein,

    LUFTHANSA TECHNIC

    LU F T H A N S A T E C H N I K H A S established programmes at an early stage for making capacity more fl exible, cutting costs and increasing e ciency in response to market changes. These include: strict cost management; cost cutting programmes; stretching of investments; realising flexibility in the workforce; and increasing productivity and e ciency by lean production, asset management, cash management and use of low cost sites / expansion of network not aff ected by the crisis.

    IBERIA MAINTENANCE

    OUTSOURCING IS A very big risk. At times like these it is better to focus in on added value and maintain the volume of business. If your strategy is to outsource, you may fi nd yourself being outsourced from your customers. When the upturn comes, and it will come for sure, is when outsourcing will become a factor to help growth. Our strategy is to build relations at di cult times by creating partners when survival is critical, so when the situation changes we will have friends better than business partners.

    SIA ENGINEERING

    SIAEC HAS ADOPTED new skill sets and branched out to provide unique services such as PTF conversion, cabin modifications and a fleet & asset management programmes to tap into niche markets. Within the SIAEC hangars, LEAN processes are in place to ensure a smooth delivery of services and improve the quality of work through relentless elimination of waste from business processes. As the market recovers, further growth is on the agenda for SIAEC as it continues to grow its partnerships with more OEMs.

    COPING WITH THE DOWNTURN

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  • MRO YEARBOOK 2011 | 9

    MRO FORECAST

    executive manager of Qantas Engineering, states that the companys outsourcing activities have not fundamentally changed: They ebb and fl ow based on what is being done in our Australian [facilities]. He reports that the return of A330 heavy maintenance work to Brisbane, which had previously been performed in the Philippines, became possible as a result of the increased A330 fl eet size.

    Constant development is necessary to remain competitive as the MRO industry continues to globalise and consolidate, especially as the company has the worlds foremost growth market on its doorstep which also offers some of the lowest labour rates. The operating environment in the Asia Pacific region is always challenging. Australian airlines have access to a large number of quality MROs across Asia, says Nassenstein. Producing quality work is in our DNA, but ensuring we remain competitive and focused will always be a challenge.

    SIA Engineering Company (SIAEC) has had to endure vacant maintenance slots as a consequence of parked aircraft, deferred maintenance and lower fleet utilisation. The MRO subsidiary of Singapore Airlines says it was able to mitigate the impact through the widening of its services across the airframe, engines, components, material management and engineering. However, the economic fundamentals in Asia remain largely intact in spite of the current market situation. The predicted growth potential in the Asia Pacific region and low labour costs compared to Western Europe and America are major reasons for this generally positive outlook.

    SIAECs strategy has been, and will continue to be, based on establishing alliances with OEMs and extending its MRO reach to the growing markets of Asia-Pacific and the Middle East. The company has formed JVs with OEMs such as Pratt & Whitney, Rolls-Royce, Goodrich and Hamilton Sundstrand over the past years and plans to further expand this kind of co-operation in the future. The objective is to be able to offer leading edge technology solutions, which will give the customer added value over standard products and services. As the MRO industry evolves, SIAEC expects to see more airlines wanting not only a complete airline solution but also an OEM solution, states a company spokesperson. The value of the aircraft is extremely important to all aircraft owners, so they want their aircraft to be serviced at the highest possible standard, and this is only possible if they are able to obtain an OEM solution for most of the maintenance needs.

    Co-operating with the OEMs provides economies of scale and increased efficiency as the company performs the work not just for its own immediate customers but for a wide range of OEM clients,

    possibly as the exclusive provider of certain processes. Forming such alliances corresponds with the OEMs own strive for a greater foothold in the aftermarket. The OEMs will become more important and powerful in the engine and component [MRO] markets, which will make life tougher for the independents, says Aerostrategys Stewart. Interestingly, the airframe OEMs Airbus and Boeing will look more to the aftermarket [too]. While the engine and component OEMs have managed to secure an estimated 45 to 50 per cent of the MRO market, the airframers currently have hardly any share in their respective aftermarket. However, their main challenge will be in managing the relationships with the current MRO providers who are also their best customers, such as Air France Industries, Delta Tech Ops, Lufthansa Technik or SIA Engineering.

    Overall then, the outlook for the Asia-Pacifi c region is very encouraging. Asian markets are expected to be the core of MRO activities, says Frost & Sullivans Smith. The growth of air traffi c, the expansion of low cost MRO facilities, and the proliferation of air travel will propel this market forward.

    Latin aMericaAlex de Gunten, executive director of the Latin American and Caribbean Air Transport Association (ALTA), is well placed to assess the future outlook of the Latin American MRO region. He stresses the decrease in the active fleet at the moment, but also the cyclical nature of the industry. In

    ENGINE PERSPECTIVETHE SAME PRINCIPLES which are aff ecting airframe maintenance are also aff ecting engine maintenance. The lower utilisation of aircraft extends the calendar time between maintenance intervals, further deferring MRO spending. Engines powering older aircraft will be badly hit, whereas those powering younger aircraft fl eets that are remaining in service will be less aff ected. According to GE and CFM, the latter situation has generally been the case with their engines and so MRO spending on them has been fl at.

    Brian Ovington, services marketing manager at GE Aviation, says the impact of the downturn has not been as severe as might be imagined. Despite the downturn, or as the result of it, customers are still just as focused on minimising operational disruption, keeping engines on wing longer, increasing fuel e ciency, and reducing variation in maintenance expense all without compromising safety and fl eet reliability, he says. A key benefi t of GEs OnPoint Solutions is fl exibility in their long-term commitments, tailored to meet the customers unique engine service needs. To date, we have not seen a signifi cant change in the interest in or demand for our OnPoint solutions. We are still talking with and working closely with customers to understand their services needs. In fact, the fl exibility and customisation that we off er within OnPoint may be an even bigger requirement given the current state of the economic environment.

    While orders for newer aircraft have been reduced, deliveries have remained fairly stable relative to past downturns, meaning that reductions in utilisation have been achieved by parking certain assets and fl ying those still in operation less. As GDP recovers, GE anticipates utilisation to increase and cargo assets to return, but passenger aircraft that have been parked are expected to be slow to return since more e cient aircraft are still being delivered.

    This means that MRO spending on engines that power the cargo fl eets will increase while models that remain parked will continue to have maintenance deferred, says Ovington. Nevertheless, GE Aviation and CFM International have a sizable installed base (8,500+ GE engines in service and 14,000+ CFM engines) so we anticipate GEs MRO business will continue to grow as we service these engines. Overall, we anticipate MRO spending will begin to trend up toward the end of this year and return to a more historical growth rate from 2011 onward.

    AFI KLM ENGINEERING & MAINTENANCE

    THE GROUPS MAIN objective is to maintain a presence across all market segments and provide solutions tailored to third-party airline requirements. AFI KLM E&M is also being careful to adjust its staffing levels to activity, and to step up its cost-saving measures to safeguard its competitiveness, for example by extending procurement synergies among Group entities, revising its processes, achieving productivity gains, and adjusting its investment programme. AFI KLM E&Ms third-party clients also benefi t from the cost-savings programme implemented by the Group to manage its own fl eets.

    COPING WITH THE DOWNTURN

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    MRO FORECAST

    FPA_check 104:ATEM 11/2/10 17:29 Page 3

    Latin America, the MRO industry derives most of its income from North American airlines, with the Latin American operators providing complimentary business. This is borne out by the size of the fl eet in these regions. There are 125 widebodies in Latin America compared to 1,171 in the US; and 846 narrowbodies in Latin America compared to 3,677 aircraft in the USA. The industry here will therefore be dependent on the need for the North American fl eet to undergo maintenance.

    While there are still some airlines in Latin America that have their own maintenance facilities to support their fl eet, a major trend has been to create separated business units for the airline in which they are selling, or will sell, their maintenance facilities to major MROs from Europe, Asia or the US. The Latin American airlines generally remain as associates, but with little participation, according to de Gunten. This is logical since a MRO that is only dedicated to its own Latin American market is not suffi cient to have a continued and profi table activity, and must look to other markets, especially North America, as a principal source of revenue and the local market only marginally, he says. Some airlines have sold their facilities, such as Aeroman and VEM, and others are in the process of doing so, such as TAM. Initially they begin with the maintenance of the airline fl eet, but over time, there is almost a complete separation.

    The US will put about 600 to 1,000 commercial aircraft on ground in 2010 due to the economic crisis. The Latin American MROs will have to improve their competitiveness to win more business. A challenge for the MROs in Latin America is to decrease their turnaround times (TAT) and to implement processes according to their technological development, states de Gunten. This includes investment in equipment, training and facilities; this logically has the compensation of [allowing the MROs to] offer good quality and less labour costs than MROs in other regions of the world.

    Another predominant factor that influences the Latin American MROs is political stability, especially in some countries that can cause uncertainty or doubts in the investments that are made, and this creates a challenge of betting on success, says de Gunten. He adds: The assets being invested in [by the MROs] tend to have a complex and dynamic structure with changes that the manufacturers suggest, and the regulatory elements for the type of business are subject to the technologically needed processes. The evolution of the needed equipment in any of its stage levels and components are basic elements for the decision making in any stage of the lifecycle of the MRO. For that the challenge is present in the investment and I think the association with MROs that endorse the know-how and the technology to guarantee the level of service that it

    off ers to the market, and what the market looks for good prices, quality and acceptable TATs and with major emphasis on the short-term contracts types such as PBH, is the best approach.

    de Gunten reports that the current market trend in Latin America is for contracts with fi xed costs for aircraft heavy maintenance, and PBH models or fi xed prices for components, engines and landing gears. I think that the competitiveness is given in the advantages offered in these models, with some advantages to obtain contracts with longer periods of time and not event per event as are often used, he says. This can be seen especially with the introduction of new technology aircraft on the fl eets. Airlines do not want to make investments in implementing costly processes and maintenance facilities.

    MiDDLe eastThe Middle East is a hub of activity at the moment and its MRO facilities are expanding to meet airline growth in the region. As facilities and capabilities increase we see many of the regions aircraft remaining in the region for maintenance rather than going to other regions, such as Europe or Asia, says Frost & Sullivans Smith.

    It is one region where the aircraft fleet is still growing rapidly and airlines are still expanding. If you look year on year, there is growing fleet utilisation, says Stewart. As result, relatively speaking, there is some growth in the MRO market.

    Several MROS in Europe and elsewhere have, or are looking to, establish facilities in the Middle East, with a series of strategic alliances and joint ventures being the result. One interesting case is SR Technics, whose major shareholder is Abu Dhabi-based business development and investment company Mubadala. SR Technics partner company is Abu Dhabi Aircraft Technology. Marco Imboden, head of communications, stressed that the companys aim was to develop new and innovative solutions across the MRO value chain. He said: These solutions need to be offered in geographical locations that are best able to serve airlines in a cost eff ective manner. Imboden also revealed that the company intends to intensify the depth of co-operation with ADAT.

    Singapores SIA Engineering (SIAEC) has also got in on the act. It has agreed to set up a MRo facility in Bahrain in alliance with Gulf Technics. According to SIAEC, it will serve the needs of airlines in the Middle East and will also be a springboard to the MRO markets in North Africa and Europe.

    So, along with the Asia-Pacifi c region, the Middle East is definitely an area of growth for the MRO industry, and we can expect the market share of both regions to increase in the coming years. n

    GE AVIATIONGE AVIATION HAS taken several steps to remain competitive. We have leaned out processes to reduce our turn times and get engines to our customers faster so they can increase the revenue generating opportunities. We have also partnered with other MRO providers to ensure access to GE and CFM solutions without having to expand our facilities. Finally, but most importantly, we take the time to listen to our customers and better understand their MRO needs. Our product portfolio offers solutions such as enhanced used material content for airlines looking to meet near term objectives or for customers who want cost certainty and fl exibility of our more extensive Onpoint solutions.

    QANTAS ENGINEERINGTHE B787 DELAY has presented some maintenance challenges for our 767 fl eet the new Boeing aircraft will ultimately replace, and one big project will be managing the reconfiguration and refit of nine 747-400s. Another challenge is ensuring we recruit and develop young engineers to ensure we have access to necessary skills pools into the future. We have traditionally maintained a strong apprentice programme and recently took in a further 100 people.

    AMECO BEIJING A N E X T E R N A L CRISIS is always a good opportunity for internal reform. Ameco Beijing is fully committed to implementing lean management principles in order meet domestic and international customers requirements with regard to quality, cost and TAT. Although operating in a di cult market environment, Ameco Beijing is ready for challenges and opportunities ahead.

    AVEOS W I T H T H E UNPREDIC TABLE circumstances we have lived through for the past 18 months, Aveos best defense to counter market volatility is to focus on our core competencies and improving our operational effectiveness by re-engineering our processes to better meet customer requirements and reduce costs. We continue to believe in the long-term fundamentals of our company and our industry. The long-term horizon of our industry has not changed. More and more people will fly, more aircraft will come into operation and airlines will continue the trend of outsourcing their maintenance.

    COPING WITH THE DOWNTURN

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  • 12 | MRO YEARBOOK 2011

    The four countries grouped under the BRICs acronym have little in common beyond their extraordinary potential for growth. This article explores how that potential has been refl ected in the specifi c case of aircraft MRO over the decade since the term entered the language.

    MRO in BRICs first decade

    BraZiLAs if to anticipate ONeill, in January 2001 Brazilian coach operator Grupo urea launched GOL Linhas Areas Inteligentes. Nine years and 130 million passengers later, the airline has absorbed the former Varig and operates a fl eet of 109 737-700s and -800s, supporting them at its aircraft maintenance centre in Confins, Minas Gerais. We believe there are many more who have the conditions to fly but have not done so yet. In other words, we have a long growth trajectory ahead of us, commented Constantino de Oliveira Junior, CEO and co-founder. Fares pitched to be competitive with coach travel have attracted many fi rst-time fl iers and members of Brazils new middle class, the airline says.

    In March 2010 GOL completed an expansion of the maintenance centre, including a new hangar and an expanded apron. When it opened in 2005 the centre was able to service 60 aircraft, according to Captain Fernando Rockert de Magalhes, the airlines technical vice-president: With the end of the second phase we are now able to service up to 120 aircraft a year. Today the centre is a pinnacle of technological excellence, the largest and most advanced in Latin America. It has 1.154 million ft2 of hangar space and a 506,000ft2 apron.

    Also in 2001, Varig formed its own substantial engineering and maintenance operation into a separate company, VEM. In 2005 VEM was sold to TAP Portugal, which operates it as TAP Maintenance & Engineering Brazil. One of the worlds biggest

    The GOL aircraft maintenance centre in Confi ns, Minas Gerais, supports the Brazilian airlines 737 NG fl eet.

    Back in 2001, in the w a k e o f t h a t y e a r s terrorist attacks on New York, newly-appointed Goldman Sachs chief economist Jim ONeill highlighted the potential for spectacular economic growth of Brazil, Russia, India and China a group for which he coined the collective term BRICs. The name took root, to the extent that June 2009 saw the heads of the four countries governments meet formally for the fi rst time under the BRIC rubric.

    ONeills thesis, developed and widely debated through the rest of the decade, forecast that by 2050 the four countries could multiply their gross domestic output, with China growing 20 times to reach $45tn, India growing 50-fold to reach $26tn and the two others joining the United States and Japan in the ranks of the six- wealthiest nations. Aircraft maintenance did not figure prominently in the analysis, but there is an established relationship between GDP and air travel. And there is no air travel without aircraft maintenance. So, what happened next?

    MRO FORECAST

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    russiaRussia, partly because of its declining population, is the only BRIC seen as having the potential to reach the per-capita levels of wealth seen in the most developed countries. Its government has invested heavily in modernising and rationalising the countrys aerospace industry, and while Russian airlines have of necessity turned to western equipment in recent years, Ilyushin Finance Corporation (IFC) and its IFC Technic affi liate have spent the last decade working to support both domestic and export sales of the Tu-204, Il-96 and An-148. So far IFC has established a maintenance centre and spares pool for the fi rst two types in Cuba. Next it plans another for the An-148 at Chimore in Bolivia, whose national airline Boliviana de Aviacion is buying five: Alexander Rubtsov, IFC president, envisages this as a regional support centre for the type.

    One obstacle to supporting non-Russian customers was removed in February 2009, when the federal customs service approved new procedures for spares that means export clearance should take no more than three hours. The rule, introduced at the urging of IFC, applies to United Aircraft and Perm Engines as well as IFC and IFC Technic.

    The need for support of western aircraft operated in Russia, meanwhile, has encouraged the tentative formation of several joint ventures between Russian and external companies. One of the latest involves IAI Bedek, which last August signed a letter of intent covering a maintenance and repair centre for both Russian and western aircraft at Kurumoch International Airport in Samara. The other partners are the regional government and the Aviacor aviation plant, which, like the airport itself, would contribute hangar space. Aviacor is reportedly building five An-140-100 regional turboprops for a new airline to be based at the airport.

    Gavio Peixoto, location of the Embraer service centre, shows plenty of room for growth.

    MRO enterprises, it is certified to handle almost all Airbus, Boeing and Embraer types, with the exception of the A320, has capability on more than 17,000 components and generates an annual total of 1.8 million man-hours. The fi rst A330 heavy maintenance was completed in November for Canadas Air Transat, and approval to maintain the A320 is on the agenda for the fi rst half of 2010.

    Brazils biggest airline, So Paulo-based TAM, operates more than 100 single-aisle Airbuses on domestic routes plus 20 A330s and A340s, three 767s and four 777s. Planned growth will see the fleet reach a total of 134 narrowbodies and 31 widebodies, including 10 777s, by 2015. Its MRO division has a technological centre at So Carlos in the interior of So Paulo state, with FAA, EASA and

    Brazilian approval to maintain the A320-family, the A330 and the Fokker 100. Last October the Brazilian civil aviation authority, Agncia Nacional de Aviao Civil, certified the company to carry out C and D checks on the 767. It was already approved for component work on the 767 and 777. The MRO division is structured as a third-party business unit, and aims to win more business form airlines operating to South America. Current work includes a series of C checks on three A319s and two A320s plus an A319 D check for LAN Chile.

    Brazil already has one of the worlds most advanced aerospace industries, and manufacturer Embraer has its own service centre. Located at Gavio Peixoto, 180 miles northwest of So Paulo, the centre has EASA/FAR 145 approval to work on most of the parent companys transport aircraft range.

    Tropical Servios de Manuteno in So Paulo carries out borescope inspections on most of the engines operated by the countrys airlines and provides a wide range of technical consultancy services. Formed in 1999 as MTU Maintenance do Brasil before being sold to its management in 2006, Tropical also acts as the German fi rms local representative for aircraft engine maintenance.

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    MRO FORECAST

    Asset Management formed The A Team to provide engine repair management solutions to Gulf and other Middle East operators. By the end of 2009 Air India had completed work sourced through the joint venture on a CF6-80C2, a CFM 56-7B and a Honeywell 131-9 APU.

    The first tenant for the GMR aerospace park at Hyderabad was CFM International, which offi cially opened a new training centre there in March 2010. Modelled on similar facilities in China, France and the United States, it will have the capacity to train up to 500 engineers each year.

    inDiaIn India as in Russia there has been rather more talk than action on new MRO facilities, but that may be changing as the country shakes off the eff ects of the global recession. Nor does slow progress refl ect lack of potential: a report published last year by PricewaterhouseCoopers and the Confederation of Indian Industry identified the country as a possible future global hub for both aerospace manufacturing and MRO.

    Indias advantages, the report suggests, include liberalised civil aviation policies, a strong domestic manufacturing base and manpower cost competitiveness, with hourly MRO manpower costs of $30-35 - comparable to those in China or Indonesia but less than half the prevailing rate in western Europe and the United States.

    Hyderabad is emerging as something of an MRO hub. Bangalore-based GMR Group, operator of

    the citys new Rajiv Ghandi International Airport at Shamshabad, is developing an ambitious aerospace park intended to cater for training, supply chain activities and manufacturing as well as MRO. It has set up a joint venture with Malaysias MAS Aerospace Engineering (MAE) to build an airframe MRO in the airports special economic zone and plans to start operation as MAS-GMR Aerospace Engineering (MAG) in the fi rst quarter of next year.

    Among the new ventures early customers will be SpiceJet and Jet Airways. SpiceJet signed a three-year support agreement with MAE in January 2010 that will see the airlines 737NGs undergoing C and D checks initially at MAEs Kuala Lumpur base and subsequently in Hyderabad. Days later, Jet Airways signed a MoU with MAG covering heavy maintenance for the airlines much bigger fl eet over 10 years plus an option for a further five. Jet also plans to take a stake of up to 26 per cent in MAG, for which MAE is already training 72 new engineers.

    In May 2009 Arvind Jadhav, Air India chairman and MD, laid the foundation stone for a new MRO and engineering facility. Planned to include a 100,000ft2 hangar capable of accommodating two A320s or one 777/747, it is due to be completed before the end of next year.

    Air India already has major MRO activities in Mumbai and Delhi. Last year, as part of en effort to win more third-party work, the Mumbai engine overhaul facility and Sharjah, UAE-based Aerostar

    CFM International opened a new training centre at Hyderabad in March.

    Air India has formed a joint venture with Sharjah-based Aerostar Asset Management in an eff ort to attract third party engine work.

    MRO Yearbook 2011.indd 14 14/09/2010 13:53

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    MRO FORECAST

    Aviation Industry Co. (XAICO), is building an engine overhaul facility near Xiamen Gaoqi airport. ST Aerospace has 80 per cent of the company, which will focus initially on the CFM56-5B and -7B and have an annual capacity of 300 engines.

    At Chengdu in Sichuan province Hong Kongs HAECO and Sichuan Airlines Group are building a new Airbus MRO facility, Taikoo Sichuan Aircraft Engineering Services, which will be able to accommodate four A340s and four A320s simultaneously. HAECO has also expanded its operation in Hong Kong with the opening last September of a third hangar at Chek Lap Kok.

    MTU, too, has announced plans to expand its presence in China. As well as expanding its MTU Zhuhai engine overhaul facility, the company is working with AVIC Commercial Aircraft Engine on the preliminary steps for the establishment of a local aircraft engine insdustry. MTU Zhuhai currently overhauls the IAE V2500-A5 and CFM56-3, -5B and -7, but its test cell can accommodate engines of up to 150,000lb thrust and the company plans to add widebody engines to its portfolio.

    Most of these developments are aimed at supporting growth in Chinas own fleet, but the long-established Air China/Lufthansa joint venture, Ameco Beijing, continues to grow its work for non-Chinese carriers. Having opened a six-bay A380 hangar unsurprisingly, the biggest in Asia -- in 2008 and a new 747 hangar in October 2009, the company has followed up its ground-breaking fi ve-year 777 heavy maintenance deal with United Airlines with a similar arrangement for the next fi ve years. Ameco will carry out heavy maintenance and some cabin upgrades on the airlines 747s and 777s.

    It is tempting to see the United Airlines deal as symbolic. Revisiting his original forecast in March this year, Goldmans ONeill found the BRICs economies had grown even more rapidly than forecast, to the extent that their collective GDP was about 16 per cent of the global total: We didnt think, unless there was a very optimistic scenario, they would get above 10. And each of the four has reached a level of dollar GDP value which we didnt think was possible until 2015. China in particular has actually benefited from the economic crisis, turning from export-led to domestic demand-led growth.

    Eight years since he coined the acronym, ONeill added, we now have seven years worth of data. In that period the increase in Chinas GDP in dollar terms is $3tn. Its the equivalent of China having created two United Kingdoms in seven years. In fact, the banks updated forecast suggests that China could become as big as the US by 2027, and the BRICs together could become as big as the G7 by 2032 -- seven years earlier than it believed possible just eight years ago.. n

    chinaBy far the biggest of all the BRICs is, of course, China, whose aerospace and air transport industries are already growing formidably. Development of the support infrastructure is accelerating to match, and Shanghai alone has seen multiple new maintenance facilities opening in the last year.

    September 2009 brought the opening of the Shanghai Pratt & Whitney Aircraft Engine Maintenance, aka Shanghai Engine Center, a joint venture between the engine-maker and China Eastern Airlines. The 275,000ft2 facility in the Qingpu district has the potential to employ 800 people and overhaul up to 300 engines annually. Its fi rst overhauled engine was a CFM56.

    In October it was the turn of Boeing Shanghai Aviation Services, a joint venture between the US airframer and Shanghai Airlines, to open its new two-bay hangar at the citys Pudong International

    Airport. China is already Boeings biggest international customer for commercial aircraft, and the new facility off ers interior, avionic and in-fl ight entertainment upgrades as well as line and heavy maintenance for the 737NG. It plans to expand its services to include widebody maintenance and passenger to freighter conversions.

    In March 2010 Shanghai Technologies Aerospace Company Limited (STARCO), the joint venture formed by Singapores ST Aerospace and China Eastern Airlines, opened its new hangar complex at Pudong. Sized to accommodate three narrow- plus two widebody aircraft, including an A380, the new hangar complements STARCOs established facility at Shanghai Hongqiao.

    Shanghai is just one among several burgeoning MRO hubs in the country. Another ST Aerospace joint venture, the ST Aerospace Technologies (Xiamen) Company (STATCO) formed with Xiamen

    Groundbreaking ceremony in April 2009 for the new ST Aerospace/XAICO STATCO engine MRO facility in Xiamen.

    The new STARCO hangar at Shanghai Pudong.

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  • 16 | MRO YEARBOOK 2011

    MRO FORECAST

    The global economy has caused a paradigm shift in the worldwide MRO market over the past two years. Both the airline industry and aircraft MRO organisations have faced, and continue to face, numerous challenges. Nathan Smith, industry analyst, aerospace and defense, at global research and consultancy Frost & Sullivan provides this analysis.

    Outlining the current state of the MRO industry in the Americas

    in OrDer fOr the MRO industry to understand where it is going, it must understand where it has been. The years 2008 and 2009 presented signifi cant challenges for the industry - airline capacity cuts and subsequent aircraft storage meant fewer maintenance opportunities and reduced MRO spending. All global regions have felt the pinch; however, each region is unique and has been aff ected diff erently.

    Overall, 2009 might have delivered the aviation industry its toughest challenge. That said, major

    industry players have met these challenges and remain positive. They understand the industry, and have seen economic downturns before, historically; it is not if the market will return, but when.

    Much of the industry growth is driven by low-cost carriers (LCCs) and technological innovations. Looking ahead, Asian markets are expected to be the core of MRO activities. The growth of air traffi c, the expansion of low-cost MRO facilities and the proliferation of air travel will propel the region forward.

    Asia-Pacifi cs MRO market is expected to continue

    its growth, but the Americas are forecast to maintain their position as MRO market leaders. Together, Latin and North America account for an estimated 39 per cent of the global MRO market size.

    The total combined global aircraft maintenance market size is estimated at nearly $48bn with North America maintaining approximately a 34 per cent market share.

    Global estimates pointing towards skilled labour shortages were predicted, but many US MROs do not view labour as a major concern for the immediate future. MROs are working closely

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    with technical schools and colleges as well as conducting in-house training; this focus coupled with the downturn in the economy has produced a suffi cient number of technicians.

    The Americas have seen a significant downturn in MRO spending, but remain positive about the

    future. Currently there are approximately 2,400 MROs of all types throughout the Americas with the vast majority located in North America. Some of the big names in third-party MRO for the Americas include PEMCO, AAR, TIMCO, Evergreen, Aeroman, VEM, Aeromexico, Aveos and Mexicana.

    DecLine in MrO DeManDHow has the MRO industry in the Americas been aff ected by the recession? Kevin Casey, president of PEMCO World Services, an aircraft MRO service provider in Dothan, Alabama, Tampa, Florida, and south-east Asia, shares his perspective: The

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    that one cannot feed off the host. There is a limit to how much one can ask for and receive.

    As mentioned, airlines are putting a premium on not doing maintenance by deferring or completely eliminating it on a large portion of their fl eet. This means they have fewer aircraft to fly, and they are going through wide swings and cycles. The airlines are taking aircraft out of the maintenance cycles and completely disrupting and breaking maintenance lines for months.

    Currently its a short-term benefi t for the airlines, because they do not have to put any maintenance into one or two extra aircraft. However, Casey warns that the long-term effects are not clear; it does place a heavy burden on the MRO to manage and retain people, and ensure they have top quality staff. When maintenance demand returns, it will require regular, recurrent and specialist training before anyone touches the aircraft. All of this is non-

    value cost, which has to be paid by the company that benefi ts from these services.

    In the short-term where there is a lot of capacity for MRO services, it allows airlines to take advantage of what one might refer to as a buyers market. Casey explains that if an airline has an opportunity where it needs one or two years of aircraft maintenance services it can shop the market. If the integrity of these services purchased under that buyers market approach or price-sensitive approach holds, the airline would have benefited, and can exit intact without worrying about reliability or transition cost. He says: There is an interdependence currently going on, and it is healthy, while at the same time some airlines are attempting to squeeze certain service providers into oblivion.

    Chris Heredia, VP sales, marketing and customer programmes for Evergreen Maintenance Center (EMC) in Marana, Arizona agrees that there has been a very negative effect on the industry, but states that as far as the recession and its impact to the MROs in the Americas, we will see it turning the corner this year. He notes that in 2009 competitive levels were very high because the recession meant the amount of MRO work became very lean at times.

    Heredia is now cautiously optimistic: From EMCs position as the largest commercial storage facility and MRO in the world, we have a diverse business model that keeps our group busy. Our active fl ight line relates very well to the storage and the MRO portion of the industry, as it is today, it gives us versatility. This versatility has been able to keep our heads above water, so we have been fortunate despite the correcting economy, and we have a strong forecast for 2010.

    recession has had an impact on PEMCO, I cannot think of anyone who has gone untouched. Everyone has been impacted above or below the waterline in a way that we can see. The obvious impact is the total amount of work that is available declined by an average of 20 to 30 per cent, and no less than 12 per cent depending on which niche an MRO company fi lls.

    He thinks that heavy classic aircraft may have seen the greatest impact within the North American airframe MRO sector; aircraft that are current generation have been impacted far less. Although every airline has fl own fewer aircraft, they have deferred aircraft heavy maintenance and modifi cations that could be delayed. He expands: This has had a twofold effect it has obviously reduced the amount of activity that we could perform as well as put pricing pressure into the equation with more intensity than we have felt in a long time. The confluence of doing less and being able to receive less for less work is a double whammy. For the MRO industry it is very similar to whats happening to Americans all across the country, having less work with less pay.

    Casey adds that another piece of the equation is increased pricing pressure, when the airline customer is losing money; MROs understand

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    DifficuLtY fOrecastinGHowever, Heredia feels there are hurdles facing the industry and concludes that one of the biggest is proper forecasting. When you are looking at manpower, equipment and certainly revenue dollars you want to be as accurate as possible to ensure you have the stability you need to move forward and hopefully grow. This is always a challenge these days, he says. We also look at the strategic diversifi cation on the business model we have. We are a little diff erent from a standard MRO; we off er extreme AOG recovery services and fi eld capabilities including an active fl ight line where we see the aircraft in and out frequently.

    He says that another hurdle to overcome at times is ones ability to team with the right partner. He thinks that EMC has been very successful in this; teaming with the OEM for specific product lines and revenue streams.

    OutsOurcinGIn the Americas outsourcing of MRO continues to grow. Globally, Frost & Sullivan estimates 54 per cent of heavy maintenance work is outsourced compared with an estimated 76 per cent of engine maintenance, 78 per cent of component maintenance and 16 per cent of line maintenance.

    In Nor th America engine maintenance

    outsourcing is estimated at 78 per cent with the vast majority of this work remaining regionally. When we view the rest of the Americas, Mexico, and Latin America we see that the majority of the MRO work is maintained in the region.

    Casey agrees that the aviation industry is outsourcing a whole bevy of services. He adds that the industry is not only outsourcing aircraft maintenance in higher percentages of total maintenance, but is outsourcing wholly new segments of ancillary support. He sees airlines becoming more dependent on MROs for such services as maintenance planning, maintenance-related engineering, record keeping, and maintenance-cost accounting. These services were once accomplished internally but are now outsourced and accomplished externally by suppliers.

    One-stOp-shOp is nOt the nOrMCasey says his view of consolidated services or the one-stop-shop is diff ers from what he reads in the media. I think much is being written about a few MROs that really aggregate service, to a greater or lesser degree depending on the customer. Information is written about one-stop-shopping as if it was the norm and that airlines purchase every service for their aircraft from one entity. The truth is most strong airlines find they can

    more eff ectively and economically procure select services from specialists (whether airframe, engine, or component repair) with minimum additional administration costs, and they do so without purchasing all of their services from one company. The OEMs and some MROs would lead you to believe that there was a trend.

    He believes that the only aircraft operators who buy aggregated services are the very small operators, particularly those which are under-capitalised like certain start-up regional carriers. These operators might have two or three fl eet types

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    with just fi ve to 10 aircraft of one type and 30 to 40 of another type. They will outsource total support on fewer than say 10 aircraft, but not on the other fleet types where there is more critical mass. He thinks that for bigger fl eets, specialist companies such as PEMCO can substantially beat those deals off ered by total support companies on the services they most expertly perform. He says the reasons are simple: PEMCO is a specialist in aircraft MRO, as well as passenger-to-freighter conversion services. We are a top-quality company for our services. We do not perform engine or landing gear overhauls, but we perform the services we off er very well. We have an intense process focus, and we continue to shed the non-value added-costs out of our activities so we can continue to deliver a very attractive cost basis for high quality work.

    eVOLutiOnThe aviation industry continues to evolve, and over the past decade has witnessed substantial growth for global MROs. Partnerships have been formed; there have been alliances and acquisition. Is it likely that we will see MRO consolidation in the Americas? Heredia feels that a consolidation possibility always exists, and MROs have to address the constant rising cost of insurance, capabilities, equipment and technology. There could be a time we see consolidations, but at Evergreen we have leveled out quite well and do not see any consolidation from our end. That it is not to say it would not exist in the future, he says.

    A relationship between OEMs and MROs has evolved over the years. Traditionally OEMs focused on growing an installed base of products, ensuring an annuity of aftermarket parts sales. Minimum focus was placed on after-market services, which were typically provided by airlines themselves and later by MRO facilities. As the airlines industry looked to outsource large aspects of their maintenance operations, they embraced the independence of MRO providers as an alternative to OEMs, and this proliferated exponential growth in MRO revenue. It has been stated that OEMs have become more competitive with third-party services providers and are now competing in the aftermarket.

    Heredia sees it differently; and would not put the OEM as a competitor in the full sense of the statement. He thinks OEMs have certain things that are proprietary, which they guard quite well. From an Evergreen perspective, the company has seen a strategic partnership that has developed with the OEM. Evergreen works closely with several OEMs, and has several approaches and processes, which the OEMs seem to appreciate and utilise for certain services. He says they have found a way to complement each other in a less competitive way.

    future MrO spenDinGEMC predicts the worldwide MRO spend will be $68bn in 2019, with North America slightly increasing toward the end of the forecast to $20bn in 2019. EMC also believes that North America will continue to be the largest MRO market with Western Europe and Asia-Pacifi c following.

    Heredia also feels new materials will have an impact on several levels, but until EMC has more definition on the next generations true DMC (direct maintenance cost) and life cycle cost, more bundling is not necessary. He notes that t h e t e a r d o w n a n d r e c y c l i n g o f c o m p o s i t e m a t e r i a l s h a s presented unique challenges which the OEMs/Boeing and AFRA (Aircraft F l e e t R e c yc l i n g Association) are quickly addressing. EMC is one of the founding members of AFRA and is working to discover best recycling practices that are both safe and economical for the aviation industry.

    EMC is bullish about the future: We see fi rst-hand that operators have been deferring maintenance (when possible) due to a correcting economy. Therefore we are positioning ourselves to accommodate the backlogged maintenance across the new classics and next generation aircraft, while we continue our support of advanced technology programmes.

    pOsitiVe siGnsWorldwide, in service commercial jet aircraft are estimated at nearly 24,000 aircraft. The Americas operate approximately 10,000 of these aircraft with nearly1,400 western built aircraft on order. Worldwide OEM order backlogs in 2009 were valued at an estimated $751bn, which is a good sign for the industry.

    Inflationary pressures experienced by Americas MRO market have decreased. Labour rates have remained steady, and the slowing of the Americas MRO market has mitigated the concerns of a

    shortage for qualified technical labour.

    The steady growth of Americas MROs masks significant instability as low-cost MROs from other regions capture i n c re a s i n g m a r k e t share. The vast majority o f t h e A m e r i c a s narrowbody aircraft are expected to remain in the region with no short-term changes e x p e c t e d i n t h e migration of widebody maintenance.

    Americas MRO players are optimistic about the future of its industry. The current MRO environment is challenging, but Americas MROs are competitive and well-positioned to face any near-term and long-term challenges. n

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    a G at e WaY i n tO Asia, the South East Asia region serves as a stepping stone between North Asia and the Pacific between the emerging economies of China and India and developed markets in Japan and Australia. This is the view of Asian giant ST Aerospace.

    As a strategic location, the South East Asia region has many advantages. Just as important though is the fact that the region is also an established location for receiving outsourced MRO work from airlines in the Americas and Europe. One of the main reasons for this are the lower labour costs compared with MRO companies, such as those in Western Europe, for the same high-quality standard. According to ST Aerospace: The region also offers a combination of competitive advantages such as a large skilled labour pool and generally better developed infrastructure. Its economies are projected to grow at faster rates than many other parts of the world. Aviation is important to support any growing economy, and

    many of the Asian airlines have also been well developed over the years. There is also a strong network of competitive maintenance providers in Asia and they have, over the years, established a reputation for quality maintenance work.

    Other much-discussed factors which make the region attractive for outsourcing work are the tax-free advantages in some countries (such as Malaysia), and the English speaking skills of much of the area, both of which make conducting business a smoother procedure.

    Also important for MRO companies in South East Asia is the close proximity of cities in the region to each other and to a diverse array of markets in other parts of Asia. This means that travel volume within the region is high, and this can be expected to grow as the regional economies develop. Asia has also seen a growth in the numbers of low cost carriers, which as part of the business model outsource most, if not all, MRO work. This means that the potential for business is huge both from within and from abroad.

    iMpact Of the DOWnturnPotential does not always carry over into reality, and at the moment South East Asia, like any other region, is still suff ering from the eff ects of the global downturn. A general global reduction in MRO work has been seen, with some airlines deferring work because of reduced usage, or even grounding completely aircraft that were due for heavy checks. This has resulted in an overcapacity in the MRO sector. A study by AeroStrategy has shown that a four per cent reduction of an airlines capacity will lead to a 12 per cent reduction in MRO spending.

    Yet these are global impacts. Dominik Wiener-Silva, vice president for marketing and sales at Lufthansa Technik Philippines (LTP), provides a South East Asia case study of the effects of the downturn. He says: [LTP] feels the effects of the downturn such as increased competition in the market, cancelled checks and reduced work scope. Realising that the crisis is adversely aff ecting many airlines, we responded by focusing on efficiency and our core competencies. We did this by

    South East Asia emerging from the downturnThere are many reasons for optimism about the MRO industry in South East Asia, both in terms of its present status and future outlook. This is despite the impact of the global downturn, which created particular challenges. Here, some of the major MRO players in the region reveal why the regions emergence from the downturn could be quick and ultimately prove very profi table.

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    implementing lean principles in our operation. We are also aware that this period of diffi culty poses a test on partnerships and I believe we have proven ourselves in this aspect. We have initiated dialogues with our customers which yielded fruitful results. A prime example of this was the reduced turnaround time for C1 checks and C4 checks for Qanta