There is some tension in the air in the rather rarefied world of airline maintenance, repair and overhaul.

Most passengers who simply expect their flights to leave on schedule and fly safely and comfortably every time would not consider for a moment what MRO delivers for them to routinely do just that.

After all, a modern airliner can spend an average 16 hours a day, 360 days a year in the air. Airlines expect it, if only for the etched-in-granite rule that aircraft sitting at airports eat, rather than make, money.

But while the fundamentals of quality maintenance won’t alter, change is a ‘coming – and it will demand adjustments. There is money to be made and saved. The changes include:

  • New generation aircraft are more reliable and need less maintenance, meaning fewer support staff are needed
  • Unions and governments are concerned by potential losses of high value jobs
  • Airline profits are rare and at best returns are whisper-thin on huge capital investments. Ever more, carriers are interested in outsourcing  - they want to concentrate on running their carrier operations without the burden of expensive maintenance bases
  • This has driven continued growth in third party MRO provider businesses, many of which – like Lufthansa Technik and Rolls-Royce – already number Australian carriers amongst their customers
  • The original equipment manufacturers, the OEMs, have not been backward to see opportunities in the MRO business. It can deliver profits that at least help mitigate the multi-billion dollar costs of developing new engines and airliners
  • The OEMs are increasingly leveraging their unique and expanding knowledge bases to win airlines’ business, sometimes to the cost of third party MROs
  • In difficult economic conditions, many Australian MROs are also transitioning to the Civil Aviation Safety Authority’s European Aviation Safety Agency-derived regulations.

In its 2011 survey of the international civil aviation MRO industry, international consultancy Oliver Wyman suggested the market was poised for recovery after rough years since the international financial crisis.

“During the global downturn, carriers were forced to rationalise capacity; in particular, to park older-generation aircraft,” it reported. “In 2010, the market simply returned to 2008 levels, and had still not yet reached levels attained in 2001, before the previous global recession.”

“Our research suggests that from 2010 to 2014, the global MRO market will grow from roughly $41.5 billion to about $50.8 billion or a 5.2% compound annual growth rate, over the period.”

The overall value of the Australian MRO business is unknown, but according to the 2006 national census, 9715 people worked in aircraft manufacturing and repair. Numbers from the 2011 census are expected mid-year.

The biggest employer is Qantas. A spokesman said about 5500 group employees support its fleet of more than 200 Qantas-liveried airliners and 80 in Jetstar colours. The bill is some $1.4 billion a year.

But how much engineering work, what and where it is done, and by how many, is a central issue for the Qantas group.


Jetstar’s dream


Its low cost carrier, Jetstar, is in contrast to other parts of Qantas, profitable and mid-next year will be the first group airline to get Boeing 787 Dreamliners. The high-efficiency airliner will further cut operating costs and boost profits.

A spokesman said in regard to MRO that it is evaluating whether General Electric’s OnPoint power by the hour would be used for its GEnx powerplants and Boeing’s GoldCare for airframe and systems.

Melbourne’s John Holland Aviation Services was last year appointed by Boeing as its GoldCare provider for the region, but details of what the deal entails have been hard to obtain.

The entry of the Dreamliner into the Jetstar fleet (it is due to enter Qantas service in 2015) will also give the Qantas group its first exposure to the ultra-long interval heavy maintenance promised by new technology aircraft. Boeing estimates the first heavy checks on 787s will occur at about 12 years; Jetstar simply observed: “Given that these aircraft will be new, the need for heavy maintenance overhaul at the initial stages will be minimal.”

Its spokesman also said training for B787 engineers would involve a 10-week program. It will include new skill sets and tools for engineers, e-enablement and, given extensive use of new materials technologies, education around composites.

The airline also expects new technology to deliver innovations through the supply chain, a progressive maintenance program and potential opportunities from e-enablement with greater use of software parts and airplane health management troubleshooting tools.

But more immediately, Qantas Group’s MRO is in flux.

In Qantas’ 2011 annual report, the QFuture “key business change program designed to position the airline for profitable growth” was charged with delivering total benefits of $1.5 billion from 2010 to 2012.

It delivered $1 billion in the first two years: $533 million in 2010 and $470 million in 2011, mostly from cost savings and margin improvements across Qantas’ commercial, engineering, cabin crew and procurement businesses.

Foreshadowing more of what is to come in engineering, Qantas announcements in February cut hundreds of jobs and indicated 60 days of consultations about work and staffing at its bases in Melbourne, Sydney and Brisbane.

The Melbourne site of the aircraft airworthiness division of Qantas Engineering, responsible for airworthiness of Melbourne-based Boeing 737-800s, is being folded into Sydney operations. Some 90 jobs are going.

Melbourne-based supply chain support also moves to Sydney, with 60 jobs affected. The maintenance operations centre in Melbourne is being folded into Sydney, with 31 job losses. Introduction of maintenance on demand on Qantas' Airbus 330s and Boeing 737-800s will see some 30 LAME jobs go, while a company decision is awaited on receipt and despatch, which may affect more.

Jobs have also gone with aircraft retirements. When four Boeing 747-400s left service last August, 30 LAME and AME jobs went. When February’s cuts were announced, another two 747-400s were retired, with 41 jobs going.

Three of the four most affected unions - the Electrical Trades Union, the Australian Workers Union and the Australian Manufacturing Workers Union – have formed the Qantas Engineers’ Alliance to represent the interests of the largest part of the Qantas’ Group’s maintenance-involved staff. The Australian Licensed Aircraft Engineers Association, which has been involved in its own issues with Qantas, is maintaining a dialogue with the Alliance.

Alliance spokesman, Glenn Thompson of the AMWU, says Qantas had advised it that 100 per cent of Jetstar’s domestic A320 work is done at Williamtown, near Newcastle, “but we know that isn’t true”.

Thompson said there were plenty of infrastructure, skills and resources available for Qantas to address “white space issues” by conducting Jetstar heavy maintenance within its Australian based facilities, rather than cutting engineering services.

He said attracting work several flying hours past big recent investments in MRO in Singapore and the Philippines would be economically attractive to potential customers if Qantas better managed its labour force. He estimated a possible 20-30 per cent increase in throughput was possible by more efficient staff management.

Continuously improving aircraft reliability and lengthening periods between aircraft major maintenance are hardly being overlooked by the bean-counters at cost-stressed airlines.

Boeing offers some dramatic numbers when comparing the labour hours saved over 25 years to support a B787-800 against a B767-300 ER: A check – 44 per cent less; C check 65 per cent; and D check 63 per cent.


‘Total flexibility’

Airbus’ Head of Services Integration, Wolfgang Kortas, says major elements of new technology aircraft airliners – the A380 and the forthcoming A350 – are not just stretched intervals for checks, but, “high if not total flexibility of maintenance planning”.

“These events will be mostly usage parameter driven, giving utmost flexibility to the airline or service provider to tailor maintenance to the network and the utilisation of the fleet,” he said. “This is a very potent tool for planning maintenance for whenever you can afford it and to fly whenever you need to.”

Kortas said embedded systems of the latest generations of troubleshooting diagnostics will give great flexibility to maintenance planning.

In mid-2012 Airbus is launching to customer airlines a Flight Hours Services suite that includes Airbus Real Time Health Monitoring. It uses a specific configuration of the systems of the A380: all its components – mechanical, hydraulic and electrical - linked through the aircraft’s Ethernet network (Avionics Full Duplex -AFDX) which has nodes and a central computer connected to all them.

Through the Aircraft Condition Monitoring System more than 250,000 system parameters can be accessed from the different states of the components on the flying aircraft. Reports are down linked automatically by satellite to the airline’s maintenance control centre and to Airbus Customer Services Engineering.  These data are analysed for any failure messages or emerging unfavourable trends.

Airbus can further interrogate the ACMS, get more expert data and then be in a position to advise the airline MCC about actions.

Knowledge, and the capability to deliver it for cost-efficient intervention, is the basis for original equipment manufacturers moving increasingly into profitable MRO support. In addition to Airbus, Boeing has GoldCare (787, 747-800 and 737-800NG).

The engine builders International Engine Alliance (V-Services), General Electric (OnPoint), Pratt and Whitney (PureSolution) Rolls-Royce (TotalCare) are also in the MRO game, offering what are basically power by the hour deals that include maintenance. In P&W’s words: products from “the experts that designed, tested and understand the engine best”.

Rolls-Royce was into the OEM-provided MRO market early - in 1997 – and has pushed hard and built TotalCare into a cornerstone of its civil engines business. The company’s 2011 results showed £3.3bn in after-market services revenues, or just under 60 per cent of a total £5.7bn.

Of the Rolls-Royce Trent engines operating in the Pacific Rim and China, 90 per cent are covered by the service, while in Australia all Trents flying with Qantas and Virgin Australia use it.


Profit opportunity

While some OEMs are sensitive about being in MRO game, Rolls-Royce is frank.

It calls it, “a mechanism to address a fundamental conflict in the traditional aftermarket business model, where the engine OEM realises a profit opportunity when a customer experiences disruption to their operation as a result of maintenance needs or poor engine performance”.

TotalCare's philosophical heart is its business structure. As it is charged on a fixed dollar per flying hour basis, airlines pay Rolls-Royce only for engines that perform. By being charged on a $/engine flying hour basis, it makes reliability and time on wing drivers for profit for both airline and OEM.

As well as a fine monetary return, Rolls-Royce gets an impressive performance information dividend that must be invaluable in refining engine development.   

It says monitoring its entire fleet generates 500 million engine reports per year, or the equivalent of that produced by a typical large engine fleet over 90 years of engine flying hours.

“This volume of data, combined with (proprietary) analytical techniques generates 100 per cent efficacy in our engine health management process (that is, if a failure mode can be detected by EHM it will be).”

Rolls-Royce claims that engines it manages have 25 per cent better time on wing than those managed alone or through a third party, there are 30 per cent less disruptive events, an engine health register is used to plan engine removals and TotalCare-managed powerplants, “have higher increased residual value due to improved asset liquidity and greater confidence in build quality”.

From an airframe manufacturer’s perspective, Airbus’ Wolfgang Kortas says that instead of the airline working the “traditional way” - operating reactively with disruptions to the fleet - the manufacturer takes over technical fleet management.

“This is based on the design knowledge and the resource of some 400 engineers in Customer Service and thousands more in design, to bring to the airline in a proactive manner problems that might arise in the future, along with a solution,” he said.

“That is a step change in added value that customers have been requiring more and more on the new technology, and more complex, aircraft.

“We have been able to demonstrate extra availability of fleet, reduced downtime for A checks, extended utilisation through better maintenance planning and significantly increased on-time performance through availability of spares, line maintenance and so on.

“The airline gets more revenue flights from its fleet at higher punctuality which translates to greater passenger satisfaction.

“Service is a potent tool for us to make sure that on current and future aircraft their whole potential is realised. We have a vested interest in giving the best value out of the fleet to the airlines so they come back and buy more aircraft from us. That’s what it’s all about,” Kortas said.

The temptation for cost-conscious airlines to get as much work done in cheaper labour overseas locations will only increase. Ramping up of capacity and facilities in South-East Asia will also make it less likely for potential customers to fly further to use Australian MRO bases and expertise.

The biggest of the big third party MROs is Lufthansa Technik. In 2011, it racked up revenue growth of 1.9 percent to 4.1 billion euros for an operating profit of 257 million euros. It aims to increase this by 110 million euros by 2014.

Currently LT looks after 770 customers and a total of 2125 aircraft around the world. Among them are Qantas A380s and Jetstar A320s which have used its Philippines base in Manila, which sports a just opened US$30 million A380 maintenance hangar.

Qantas' first six A380 C1 checks have been performed by LT, and it is preparing for LT to carry out their C2 checks and for the newer Qantas A380s' first C checks.

Jetstar was launch customer for LT’s MRO Lite product, which it describes as, “a more lean, efficient and faster layover tailor-made to the needs of low cost carriers’A320 fleets. This includes shortened turnaround times, access to a tooling and materials pool and competitive rates.” Three Jetstar A320s have had checks in Manila.

Consultancy Oliver Wyman says OEMs (predominantly engine and component manufacturers) have successfully pursued several tactics to strengthen their position in the aftermar­ket.

It says these are in three broad categories:

First, OEMs are effectively limiting the ability for MROs to conduct repairs by better guarding their intellectual capital. Examples include limiting access to parts and to technical publications.

Second, OEMs are decreasing the ability for non-OEM material solutions to compete, through means such as influencing lessors into restrictive cove­nants inhibiting Parts Manufacturer Approval (PMA) use. Also included is the use of license agreements with MROs which effectively inhibit the use of PMA parts and/or non-OEM approved repairs.

Finally, OEMs are lock­ing in airlines with longer-term agreements that offer total-care service and guarantee maintenance costs over an extended period. Increasingly these are being entered into at the time of aircraft purchase, effectively locking out other MROs.

The consultancy says given OEMs’ growing strength, many MROs are adopting an “if you can’t beat ‘em, join ‘em” strategy, particularly in the component and engine aftermarket.

“That is, they are more closely align­ing themselves with OEMs as a means of not only growing revenues but also ensuring their future place in the aftermarket. For carriers, we think this will ultimately result in fewer truly competi­tive options in the aftermarket.”

Airbus’ Wolfgang Kortaz views it differently:

“We have worked with third party MROs for many years, exchanging data, benchmarking, giving heads-up information to ensure a worldwide presence of qualified MROs for our customers. It is a complementary relationship,” he said.

“We will fulfil service obligations by working with MROs and OEMs; we may also compete with them. That’s nothing really special – the MROs compete with each other and the OEMs.

“We strongly believe that in the aircraft maintenance market there will always be choice for the customer. We are responding to our customers.

“Services is a business within itself; we have an EADS vision to grow it – we’re not hiding it, but the airlines will never allow anyone to monopolise the market.”

Apart from dealing with demanding financial conditions, many Australian MROs have also been involved in adapting to a changed regulatory regime, with CASA aligning its requirements with those of the European Aviation Safety Agency.

First to make the switch were Australia’s biggest regional airline, Regional Express – Rex - and Hawker Pacific in Cairns.

Rex operates four MRO bases, in Sydney, Wagga Wagga and Adelaide, with Melbourne line only. Both line and heavy maintenance is done in Adelaide in a $3 million building it would consider matching in Sydney, “if the opportunity arises”.

Its engineering department employs about 150 staff, about 110 of whom are engineers (including a usual six to eight new apprentice engineers annually).

It supports 51 Saab 340 aircraft and 20 Piper training aircraft. Rex engineers also support small jet operations on defence contracts, aircraft ambulance operations in Victoria, fly-in, fly-out Pel-Air operations from Brisbane and a fleet of Airlink small charter aircraft in western NSW.

Rex was the first RPT operator to achieve a CASA Part 42 engineering approval and expects to be the first to achieve Part 145 MRO approval.

“It has taken a significant amount of work to get these approvals,” a spokesperson said. “The cost impact is mainly labour, and while we only had a small team on this process they did a lot of hours and it took about a year to achieve. We are hopeful that there are some benefits to being under the new regulations, particularly around the licence privileges area.”

Rex is virtually self-sufficient in MRO and operates to many ports where support is thin on the ground, but has a fine on-time record.

It considers this a result of its quality MRO and a quality main fleet aircraft. Rex points to the fact that half its flights are not to a base or port with engineering support. Its 20-plus years experience maintaining Saab 340s (“very reliable, inherently by its design and the quality of its original manufacture”) and a large spares holding and a strong staff commitment are acknowledged.

A not inconsiderable factor, Rex says, is staff commitment, which can see LAMEs sometimes going to ports to deal with unserviceable aircraft, where they might not get home that night, and have to work outside in poor conditions.

The company also believes there is advantage in having MRO facilities sited outside of the capitals.

“At our heavy maintenance facility at Wagga Wagga we get great support from the airport operator that you would not get from city airport owners,” the spokesperson said.

“The cost of living is a little better, which we believe helps us to retain engineering staff. We employ a lot of local apprentices, and being in the country some have good general engineering skills already.”

Hawker Pacific’s Senior Vice President Australia & New Zealand Operations/Special Programs, Doug Park, described introduction of CASR Part 145 as, “a fundamental change in the MRO marketplace.

“We went down this path because it is seen as best practice. Domestically, this is still a work in progress, but the new regulations are an industry leveller, establishing minimum compliance standards.

“Internationally, we have provided maintenance support for regional airline aircraft from Asia, Asia Pacific and Papua-New Guinea for many years – this is why we initially went down the path of EASA 145 accreditation (in 2005), to open up additional markets.  It is very easy to navigate.

“Therefore, when the CASR Part 145 certificate becomes implemented across the board, it will not just improve Hawker Pacific’s competitiveness; it will give all CASA 145 MRO accredited facilities in Australia the potential to compete in a wider market.”

“This means Australia will be less isolated and less constrained than we have been under the previous CASA CAR 30 regulations, which I see as a good thing.”

There are two particular emphases for Hawker Pacific under the EASA/CASR Part 145 systems: operations are required to have a safety management system, and, there is greater emphasis on human factors.

The new system also requires a different approach to training. Park said Part 66, which covers training and licensing, introduces substantial changes.

“We see here opportunities for a fresh approach. Hawker Pacific has been testing the principles of Part 66 at company military support sites with positive results,” he said.

“Now that we have transitioned our airline support certificate to CASR 145 at Cairns, we have turned our attention to our Australian avionics business, also at Cairns. Moving forward, we will progressively transition all other business units the new standard.

“Ideally our long term goal would be harmonisation of all Part 145 regimes, that is, arrive at a position where all national aviation authorities regard CASR 145 as an equivalent, providing the opportunity to compete globally.

“This would allow us to drop our separate EASA 145 compliance, helping us to save considerably on overheads.”

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