Tipping point

Growth and dilution

Two states are leading the re-charge of revitalised indigenous MRO capabilities.

In Victoria, the government has launched the National Aviation Services Precinct (NASP) to provide airlines with one-stop access to aviation training facilities, highly skilled workers and MRO services.

Describing it as the only precinct of its type to be developed in Australia, the NASP aims to not only deliver services to industry, but which is fertile training ground for students and apprentices.

Announcing the initiative, then Victorian Premier Ted Baillieu said the state would “aggressively seek to attract aviation businesses from other states and internationally to establish the precinct as the leading aviation hub in the Asia Pacific region. ” John Holland Aviation Services (JHAS) became a cornerstone partner to the project in which it will play a portal role in what is described as a total aviation services solution. As Australia’s leading independent MRO provider, JHAS will be fundamental to attracting symbiotic businesses. John Holland’s executive general manager for transport services Karl Mociak said the NASP was a complementary strategy that would assist JHAS and other Australian aviation businesses “secure their future”. This will become even more significant as JHAS builds up its capabilities in new-technology aircraft and systems. The company is gearing up ahead of the arrival of the 787 in Australian service and will initially, at least, provide line maintenance support to Jetstar’s operation of the twinjet.

As JHAS general manager for aviation services Ross Alexander said the company has witnessed “diminishing heavy maintenance capabilities and an increase in offshore activities and volumes”, the protection of onshore services becomes an important drive in the company’s strategy, as much as it does the state’s The NASP is pivotal to Victoria’s aviation ambitions, which under the guidance and support of a dedicated aviation minister – something unqiue in Australia – will also be important to national MRO interests.

In Queensland, which in recent years has arguably stolen the lead on Victoria’s dominant role in aerospace support activities, a state aviation strategy remains a high priority.

The aviation, aerospace and defence industry in Queensland comprises around 900 firms, which represents almost 30 per cent of Australia’s aviation firms, ranging in size from global corporations to small and medium sized enterprises.

They operate all facets of the industry from commercial airlines, general aviation and defence activities.

Also represented are organisations specialising in civil aircraft and component design, manufacture, modification and repair, aviation services, reasearch and development, and all levels of technical and services training and education.

Queensland’s Minister for Education, Training and Employment John-Paul Langbroek told Australian Aviation : “Government support of the aerospace industry is greater than attracting individual organisations. This has established the foundation of the aerospace industry through a solid skills and infrastructure base.

“As a result, more aviation organisations are now operating in Queensland,” he added.

Education and training are a key focus for Queensland, which under the Aerospace Gateway project – a partnership between the government and the aerospace industry – provides a clear career pathway from schools into the industry.

“The Aerospace Gateway program provides access to highly specialised aero skills training opportunities for young people through structured workplace learning, school-based apprenticeships and traineeships, and further study through industry-school partnerships,” Langbroek added.

“The program assists young people transition from school to work in the aviation industry. ” Significantly, in the face of waning numbers in MRO trades, Queensland is attracting interest at the grass-roots level. In 2007 the government opened Australia’s first high school dedicated to aviation – Aviation High, based at Hendra in Brisbane – and founded highly successful Aviation Australia, which among a broad scope of subjects offers engineering and maintenance training to Australian and overseas companies.

Additionally, tertiary aviation and engineering training is offered at a number of universities. Combined, the education institutions offer a resource-rich environment that is helping to plug the widening hole in skilled aviation labour in the country.

The Queensland government has created a virtuous circle for the MRO industry by encouraging interest in aviation careers, providing educational resources to fuel that ambition and in turn creating a qualified labour source to an industry the government has actively supported in development.

A sound example of the continuing struggle for aviation business between the states is the relocation by Qantas of its heavy maintenance facility from Victoria to Brisbane AIrport.

In November the airline announced it would create 130 additional engineering positions to support the growth of its heavy maintenance facility at Brisbane. That followed an earlier announcement 100 jobs would be created there as well as 30 apprentice positions. But the decision came at the expense of the Melbourne engineering base and the relocation of 737 maintenance to Brisbane, while the 747 heavy maintenance base at Avalon would be wound down as the 747-400 fleet diminishes.

“Ultimately, Qantas will consolidate to one Australian heavy maintenance base though no timeline has been set,” the airline said.

While recognising Qantas’s internal MRO challenges are part of a broader corporate strategy, its decision to leave to Victoria is a blow to that state as much as it is a gain to Queensland for the employment of skilled labour, economic generation and industry prestige it holds. It also has a material effect on industries that support large MRO facilities such as that of Qantas, the stability of synergies between suppliers and operators being broken through the relocation, again with commensurate downstream economic and employment impacts.

Langbroek described the competitive influences thus: “Queensland faces aviation challenges from both interstate and international competition.

“Competition from other states drives innovation and improves the aviation industry across the Australia, improving international competition.

“The Newman Government remains focused on ensuring Queensland continues to provide the world’s best possible aviation industry. I’m confident we will remain the state of choice for cutting-edge aero skills development,” he said.

Offshoring

The increasingly critical shortage of engineers remains one of the greatest challenges to the industry, as is the increasing move towards offshoring engineering functions. Both these are creating an MRO industry that is at risk of becoming a shadow of its former self.

Carden explained to Australian Aviation : “Airline networks and schedule demands mean that most of Australia’s fleet can be readily moved around the region to derive the most efficient MRO service for airlines without any major impact on schedules.

“In addition, the rise of the capability and capacity of Asian MROs to service the growing market in our region and the downward pressure on costs that is being generated by the growth of the low-cost airline market is having a major impact,” he added.

Carden’s view about the influence of low-cost airlines is reflected in JHAS’s recent experience where they have observed “a high demand for low cost-maintenance opportunities”. The ever-growing drive for cost-efficiency from the likes of JHAS’s customers Jetstar and Virgin Australia is reshaping business strategies for MRO providers as much as operating economics is.

The increasing and sustained strength of the Australian dollar is increasingly playing a role in the move to offshore MRO facilities, particularly in the case of Qantas, which is a customer of operators in Asia where exchange-rated labour costs are significantly lower.

Competition from other states drives innovation and improves the aviation industry across Australia. LANGBROEK, QUEENSLAND

As if to exemplify the challenges facing local MRO operators seeking to grow domestic and inward business opportunities in the current climate, the joint operation between Qantas and Lufthansa Technik – LTQ – a specialist in engine overhaul, closed its doors in July last year after just four years in operation.

In announcing the closure, the company’s chairman and Lufthansa Technik CEO August Wilhelm Henningsen said: “Reduced regional demand, tough international competition and more reliable new generation engines have directly impacted the viability of the business. Simply put, LTQ does not have the scale of engine maintenance work to be competitive. ” Qantas has been actively reducing its in-house engineering functions over successive years in response to what it sees as being uncompetitive and unsustainable labour costs.

Qantas Domestic CEO Lyell Strambi said when announcing changes to the structure of domestic engineering functions: “Our cost base in heavy maintenance is more than 30 per cent higher than our competitors, who do the vast majority of their maintenance overseas. We must close this gap to secure Qantas’s future viability and this restructure will assist in making Qantas maintenance facilities in Australia more competitive. ” In the same way, the dollar’s strength now means Australia becomes an even more expensive place for foreign carriers to send aircraft and components for maintenance and overhaul. Previously labour rates had created barriers to importing business, but the combination of this and now unfavourable exchange rates means MRO providers in Australia must, in the main, sustain viability based on local airline business.

For JHAS its primary foreign airline income is from the provision of line maintenance services to 25 customer airlines operating aircraft on turnarounds.

It, like other Australian MRO providers, pitches aggressively for business in offshore markets, but there is a realism about what can be achieved in the current conditions.

The skills spiral

For more than a decade the aviation industry has bemoaned the constant leakage of experienced and qualified engineers from the industry and indeed the ability to attract them to the industry at all.

In recent months the aviation industry has come together to form a united view on matters affecting it, chief among them the skills issue.

The Australian Aviation Association Forum (AAAF) in December launched an aviation policy squarely aimed at what it sees as a government reluctant to involve itself in issues the industry considers prime for political support.

Forum members, comprising peak bodies representing the diverse sectors of the industry including regional aviation, aerial agriculture, flying training, and maintenance and repair, have a unanimous voice on the urgent need for action to arrest the tangible decline in engineering capabilities locally.

On announcing its policy the AAAF said: “At a time when regional aviation in particular is suffering from pilot and engineer shortages, there is a vacuum of policy aimed at addressing the medium and long-term potential of the industry to make an even larger contribution to the economy and to sustaining satisfying careers. ” Headlining its policy on aviation maintenance, the forum argued: “The safety, reliability and resilience of the aviation industry is underpinned by skilled maintenance providers.

“The Australian aviation maintenance industry is confronted with an ageing population, a skills shortage and a crisis in regulatory framework,” it continued.

“Maintenance organisations have (also) been confronted with a new and complex regulatory regime that will not sustain either the industry or the services it provides to aircraft operators. The new system of licensing and training of personnel and regulation of the maintenance and repair businesses are unique in the world. “Only a thorough independent review – closely considering the advice of local industry – will enable the development of a better system,” the policy concluded.

Forum members personally presented the policy to government and opposition transport parliamentarians, but to date they have had no formal or informal response. With a federal election now set to distract government representatives and the second Sydney Airport exacting a strong influence on political engagement tactics, it seems unlikely the policy will now be responded to in any meaningful way.

It is a sore point with the forum’s chairman Chris Manning, who told Australian Aviation : “It’s very disappointing. We are looking for some vision on aviation matters from the government and the opposition – and a response to industry’s policy.

“With an election now coming, it would be an ideal opportunity for government representatives and industry to sit down and create a forward-looking aviation policy. I strongly believe the importance of the aviation industry warrants that,” Manning continued.

“All we see at the moment is that aviation one is one area where there seems to be bipartisan view – neither currently has a visionary policy. I am still hopeful the forum’s policy proposals will be used in the formation of policies by the major parties. They were the result of significant constructive industry input and agreement. ”

Training and development

Another key tenet of the AAAF’s policy was education and training. It tackled directly the skills shortage, saying: “The inequitable treatment of aviation careers by successive governments has created an aviation skills shortage that threatens to cripple the industry’s capability to service the community. ” Particularly emphatic words from an industry short on political recognition that – at the very least – there is a crisis.

The AAAF has called on government to commit to “a review of the impediments and any support measures required to assist and encourage aviation training in Australia as an increased export opportunity. ” The forum also proposed government funding at least one aviation high school in each state and territory, following the successful Queensland example of Aviation High.

We are looking for some vision on aviation matters from the government and the opposition. MANNING, AAAF

Reaching out to prospective engineers at a grass-roots level is seen as fundamental to the gradual reversal of the trends experienced in recent decades.

An industry less attractive than it used to be, the gradual winding down of indigenous capability and lack of federal government focus concentrated on the desperate need for engineering personnel have created a direction that is perilous for the industry and the MRO sector in particular.

The ALAEA’s Steve Purvinas is robust in his views on the subject.

“The availability of staff with the right skills is a major issue,” he said. ”There is very strong anecdotal evidence coming from MRO operators and engineers that the skills that underpin a good quality engineer are on the slide.

“The shortfall of funding and requirements placed on the training system to stream apprentices to employer-specific pathways are narrowing the exposure of apprentices and trainees to a limited variety of skills that are needed across the whole of the industry.

“Handskills are not being taught to the same degree within the institutions as they were, say 20 years ago as there are insufficient funded hours available to fit the whole syllabus in. More and more of those skills are expected to be learned in the workplace, in many cases the workplaces were used to having apprentices that were taught the basics, now they have to do the teaching,” Purvinas explained, adding that one of the trends that has become evident in the MRO sector is the increased use of contract labour to meet engineer demands.

“Unfortunately this tends to lead to a reduction of new people entering the sector and being trained. MRO operators would prefer to hire a ready-trained engineer than go through the expense and inconvenience of training their own employees,” Purvinas added.

“This also leads to a migration of in-house-trained engineers across to contract companies, which becomes a disincentive for those companies to continue to train. ” Exemplifying Purvinas’s concerns, since 2007 the in-house Qantas engineering workforce has decreased by around 1,860, the vast majority of that from heavy maintenance. The ALAEA said another 450 from Sydney and Avalon are likely to be removed from the internal workforce during 2013 as part of what is reliably believed to be a 30 per cent reduction target.

The reduction in in-house capability at Qantas has had another spin-off effect in that the wealth of third-party maintenance it work it once performed has forced customer airlines including Asiana, Potomac, British Airways, Air New Zealand and the RAAF to seek other providers, causing a perpetuation of the out-sourcing cycle.

Industrial relations have played a heavy hand in strategic changes to MRO services at Qantas, with unions including the ALAEA avidly resisting the tide of out-sourcing that is progressively diminishing in-house capabilities. Aviation/Aerospace’s Jim Carden reflected objectively on the challenge: “Industrial relations remains a threat, with airlines no doubt still a little gun-shy about the long-term stability of their relationships with their organised work force. For their part, I have no doubt the unions themselves are also looking at this period as something of a last stand and for many airlines the risk to long-term investment and commitment to onshore MRO for Australia remains high. ”

Studying the future

In conjunction with the ALAEA and funded by the Australian Research Council, the University of New South Wales (UNSW) is soon to present a study entitled The Future of Aircraft Maintenance in Australia. The core consideration of the study is to examine the future viability of an Australian MRO industry.

It is a very basic question to ask – whether an indigenous MRO industry can be viable.

The study arose from the trend Purvinas saw emerging in 2007 when Qantas first committed to offshoring MRO capabilities. This contrasted with what was widely expected – and now well-known – to be a doubling in air traffic over the next two decades and the demands that would place on the industry as a whole.

Steve Re, lead co-ordinator of the UNSW study for the ALAEA, said: “The ALAEA identified the skills decay spiral effect in 2007 in recognising that Qantas outsourcing of aircraft maintenance overseas creates its own skills decay. The hypothesis is illustrated by the fact that Qantas outsourced heavy maintenance overflow work rather than training more workers up to cater for the demand for maintenance.

“They then run into a shortage of labour for the maintenance demand as people leaving are not replaced, therefore they outsource, therefore they don’t train, therefore the training resources are not needed because the training resources aren’t available. And so the supply of skilled labour in Australia diminishes as does the training resource,” Re added.

“The available skills supply in the labour market decays due to the downward spiralling effect of maintenance demand in Australia being artificially depleted by outsourcing. The problem is now more evident in that all of Qantas highest technology

The role of government is crucial. RE, ALAEA

aircraft A380 heavy maintenance is outsourced overseas. Qantas has shut down its heavy maintenance operations at Sydney and Tullamarine, and now Avalon is in their sights.

“Over 1,000 maintenance positions have been lost in the last seven years. Let alone the loss to Australia of the valuable skills training resource that those heavy maintenance facilities supplied,” Re concluded emphatically on the diminishing fortunes of an industry in which Australia was once a world leader.

With the decision by Qantas to offshore maintenance of the A380 and 787, as older aircraft in the fleet are retired the need for local MRO support will reduce commensurately, potentially adding to the downward spiral.

Re said: “The research so far has uncovered varying opinions on whether it is economically possible to conduct this maintenance onshore. On the one hand, there seems little doubt that the technical competence exists onshore, but there are stronger concerns about the cost of labour and other economies of scale (particularly logistics and parts supply) when compared to the large facilities emerging in Asia, particularly China. ” The study finds another area of common concern that is shared with the rest of industry.

“The role of government is crucial, and our final report will examine this at some length. On the one hand it is against the ideological currents in Australia to argue for government intervention in support of a particular industry, on the other our preliminary research indicates that government support has been a major factor in the rise of third party MRO activity in a number of countries. ” Re hopes the report will be used to inform future policy on aircraft maintenance by “providing a sound academically-respectable evidence base where none existing before”.

“A major output of the project will be a method for assessing aircraft maintenance engineer supply and demand,” Re explained. “This is an ongoing ‘panel survey’ in which a survey is administered to a population of respondents over successive years, tracking their movements into and out of the labour market. ” As the study into future viability of the Australian MRO industry continues, the risks remain manifold.

Carden summarised thus: “The future for the Australian MRO sector lies in cutting its cloth to fit this new market dynamic and perhaps working more as an industry to deliver the most efficient, productive and ultimately competitive offering.

“We are very encouraged by the response of industry to the initiative to create a National Aviation Service Precinct around an existing MRO facility at Melbourne Airport. There is a view that an industry solution that brings together lines of maintenance and the range of other aviation services in an integrated suite of collocated services offers arguably the only long-term solution for the industry, if we are to retain an indigenous capability here in Australia. ”