A numbers game

Historically, that has, for some, led to the outsourcing of maintenance work to third parties, or as is becoming more common, back to the original equipment manufacturers (OEM) themselves.

And at a time when the global aviation industry is set to more than double in the next two decades, it appears only those workshops – whether owned by an airline, OEM or third party – that are able to achieve sufficient scale and secure the scarce skilled labour will be the ones to survive.

OEMs looking for a piece of the heavy maintenance action

In bygone days, the major intent of an OEM was to secure sales of its aircraft to a potential customer.

While there were of course spare parts to supply, technical expertise to share and upgrades to install, maintenance was by and large left to the airlines themselves or to third parties.

That has now changed, with OEMs offering all sorts of maintenance packages for their aircraft, including so-called power-by-the-hour contracts where airlines pay a fixed sum per flying hour that allows them to accurately budget their maintenance needs. Engine manufacturers in particular are very active in this space.

Further, the OEMs are looking to be a part of every possible aspect of the life support supply chain of the aircraft and its systems.

This serves two purposes. One, it can generate additional revenue. Second, it helps them better control the intellectual property of what they are selling, given the advanced systems of these next generation airframes.

And with Boeing’s 2016-2035 current market outlook projecting the global aviation fleet to more than double from 22,510 in 2015 to 45,240 by 2035, there are certainly some big dollars at stake.

Indeed figures from software company IFS show the global maintenance, repair and overhaul (MRO) market is expected to grow from US$61. 1 billion in 2014 to US$90 billion by 2024.

“The OEMs that used to focus on manufacturing the aircraft, if they can get a share of the after-market, it is huge business to them,” IFS business development and sales director aerospace and defence Espen Olsen told media during a briefing in Bangkok in October 2016.

Olsen explained further: “Let’s say an aircraft or engine comes in for 10 heavy maintenance visits during its life today. It could be eight in five years’ time, it could be five in 10 years’ time. ” “If they get a share of the five visits, it’s an important step for them to make more money. It is an important step in order to reduce the number of competitors in this market. ” In a grim assessment, Olsen said this push on after-sales support placed enormous pressure on third-party providers, particularly those which almost regardless of the quality of the work were really struggling to compete on costs especially due to their lack of scale.

“There are loads of smaller MRO shops, typically the ‘shop around the corner’, that are being eaten up by the big OEMs,” Olsen said.

“We are seeing the big OEMs putting big installations now in various hubs, especially in this region. ”

Australia’s largest independent maintenance workshop fighting the good fight

Australian-headquartered Hawker Pacific argues the quality of its work, as well as the experience of its skilled engineers and maintenance staff, gives it a leg up on the opposition based to the north.

Labour makes up 55 per cent of the total cost of a heavy maintenance check, according to a 2015 report from the University of New South Wales on The Future of Aircraft Maintenance in Australia.

That can make the case for sending aircraft to workshops in Asia an attractive one, given the potential savings from cheaper labour costs.

Hawker Pacific chief operating officer for Asia Pacific Doug Park said it was an extremely competitive market.

“Everybody is chasing the labour rate, the lowest labour rate that is measured in US dollars,” Park told Australian Aviation in an interview.

However, Park cautioned that looking purely at labour rate was to miss the bigger picture.

“It is more than that,” Park said.

“You’ve got to look at the outcomes and the outcomes are not just the labour rate, it’s the final price for the check including any additional work and the efficiency of the labour force.

“Just because you are selling labour for X amount of US dollars doesn’t mean that the person performing the work is going to be as efficient as a Hawker Pacific Cairns person. The outputs are important,” Park said.

“The way the airlines talk about it is they know what it costs them for every day an aircraft is sitting on the ground not producing revenue. It’s a simple calculation.

“If we can turn a check around in two weeks and Brand X is going to turn it around in three weeks, straight away they can see the potential five days additional revenue earning potential when it is going through one of our facilities. ” Hawker Pacific’s Cairns workshop performs heavy maintenance checks on commercial passenger turboprops from Bombardier and ATR, as well as Beechcraft aircraft. Meanwhile, its Bankstown facility also specialises in Beechcraft’s King Air and Beech 1900s, along with Dassault Falcon business jets. The company also has workshops throughout Asia in key locations such as Kuala Lumpur, Manila, Shanghai and Singapore.

Cairns is currently running at full capacity, suggesting operators both in Australia and around the region – a number of airlines in Asia and the South Pacific send their turboprops to Cairns for heavy checks – appreciate the advantages of the company’s highly-skilled workforce.

What it did not suggest, Park added, was that Hawker Pacific’s heavy maintenance arm is hugely profitable. Cairns needs scale to survive, with two or three heavy maintenance events running side by side.

“We’ve got a very efficient heavy maintenance location at Cairns with good systems and processes and a fantastic workforce,” Park said.

“You put all those things together and although Australia tends to have a high cost base, we are competitive. As a consequence, we are quite busy.

“One of the difficulties though that in this day and age of high compliance and high cost, you only need to be idle for one or two months and you’ve blown your budget, you’ve blown your annual profit.

“At our Cairns location, for us to be able to be internationally competitive we need to run a very efficient operation and we need for it to be of the scale that I’ve talked about. ” The University of NSW report also talked up Australia’s attractiveness in terms of MRO.

You’ve got to look at the outcomes and the outcomes are not just the labour rate. DOUG PARK

“While Australia is at the moment a long way from being able to compete in the global MRO market in terms of volume, it can gear up to contribute to the impending shortfall, focusing particularly on niche markets, quality and innovation,” the report said.

“The capacity for innovation is a reason why Australia is Boeing’s second largest footprint outside the US, why Airbus has acquired a local presence through the acquisition of Australian Aerospace, and why the Swiss OEM RUAG in 2012 acquired Rosebank in Melbourne, employing its staff of over 100. It is almost as if OEMs have a better understanding of the value of the Australian skills base than the air operators. ”

Growth in aviation also spurs OEM investments in maintenance

When not working to grow their maintenance businesses, OEMs are also pouring more resources into ensuring their customers will have timely access to parts and expertise when things do go wrong.

Dassault Falcon Jets is expanding its customer service footprint in the Asia Pacific through its training network, authorised service centres and third-party providers in recognition of the growth of business aviation in markets beyond traditional regions such as North America and Europe.

To that end, Dassault currently has US$30 million worth of parts in the Asia Pacific, compared with US$5 million a decade ago.

Dassault Falcon senior manager for communications Andrew Ponzoni said business aviation had become far more globalised over the past 15 years.

“We are going where the customers are,” Ponzoni explained to Australian Aviation at February’s Avalon Airshow.

In February, Embraer Commercial Aviation vice president for Asia Pacific Mark Dunnachie flagged an expansion of the Brazil-based manufacturer’s MRO footprint in the Asia Pacific, with further details to be announced in the coming months.

Dunnachie said Embraer was working to ensure operators of its E-jets were able to more easily get the aircraft maintained at a lower cost.

“We are actively working a plan that will substantially broaden the MRO footprint which will bring quality on the doorstep and reduce cost,” Dunnachie explained to Australian Aviation in February.

“We are also planning this year, not under our responsibility but [for a] third party, to have an E1 simulator. This is going to help, particularly of course with our footprint in the Asean region as we target Thailand, Malaysia, Indonesia, Vietnam, Myanmar, all these core Asean countries, but it’s only a short hop over to Australia.

“I think that is going to have a big difference in terms of the baseline cost structure on the existing E1.

“When you add in the already strong benefits of the E2, the geared turbofan, the maintenance cost reduction, the high aspect ratio wing, there is a lot of good stuff coming down the pipeline which we think will help our incumbency. ” (As an aside, Hawker Pacific has just been appointed as the Asia Pacific representative for Embraer Commercial Aircraft with its Singapore Seletar operation as the first nominated support facility. ) It is a familiar story at fellow business jet manufacturer Gulfstream.

Roger Sperry, Gulfstream regional senior vice president for international sales in Asia Pacific, said the company has about $5 million worth of spare parts in Australia, $50 million in the wider Asia Pacific region and $1. 5 billion worldwide.

“We are placing a lot of emphasis on this whole region,” Sperry said at Avalon.

Heavy maintenance in Australia

The frequency and nature of line maintenance – tasks such as regular daily checks, minor servicing and repairing/replacing broken parts – makes it impractical for airlines to send their aircraft overseas for that work.

However, it is a different story for heavy maintenance, where aircraft and life-limited components including engines are stripped bare for detailed inspections and servicing.

The irregular nature of the work – heavy checks occur every five to seven years for older aircraft and up to 12-15 years for the new generation airframes – means airlines have far more flexibility in choosing where the work is done and who does it.

For Australia’s largest carrier Qantas, the decision for the majority of its fleet is, for now, Australia.

The airline’s Brisbane workshop does heavy checks on its 737-800 and A330-200/300 fleets. Meanwhile, the Bombardier Q400s and Dash 8s operated by regional wing QantasLink are sent to the airline’s Tamworth hangar.

And in 2015 Qantas brought back in-house heavy maintenance work on its fleet of Boeing 717s, establishing a new capability at its facility at Canberra Airport.

Qantas has said previously it chose to go offshore for heavy maintenance checks for aircraft it operates in numbers too small to achieve in-house economies of scale.

That occurred in 2013, when a review of its Avalon workshop found the dwindling number of Boeing 747-400s in the fleet meant the facility would be “sub-scale”. Avalon was shuttered in March 2014 and the 747s sent to Hong Kong-based HAECO for their heavy maintenance checks.

Meanwhile, Qantas sends its 12 Airbus A380s to Lufthansa Technik Philippines in Manila for all base and heavy maintenance checks under a 10-year contract signed in 2015.

In January 2017, Qantas opened the doors to a new US$30 million, (A$40 million) 5. 7-hectare engineering workshop at Los Angeles Airport that was specifically designed to handle the Airbus A380.

The facility will be used for maintenance checks on the airline’s A380 and 747 aircraft during ground time in Los Angeles, given Qantas’s nonstop flights from Melbourne, Brisbane and Sydney arrive in the early morning and return to Australia late in the evening.

And it also gives the airline the opportunity to bid for maintenance work on other carriers’ aircraft.

“We can have up to four aircraft on the ground at LAX at once and some are here for around 14 hours, so it makes sense to have a facility where we can make good use of that time by doing scheduled maintenance,” Qantas chief executive Alan Joyce said in a statement on January 28.

“Ultimately, this helps us increase the amount of time our aircraft can spend serving our customers.

“Australia will always be where we do the majority of our maintenance, and we’ve invested heavily in our onshore facilities in recent years, but LAX is our next biggest transit point so we’re pleased to now have a facility that reflects that. ” Elsewhere, Virgin Australia does heavy maintenance on its fleet of ATR turboprops and sends its jet fleet of 737-800s, 777-300ERs and A330-200s overseas. The airline did use John Holland Aviation Services’ Tullamarine workshop for its 737s but JHAS shut up shop in 2014 after losing Virgin and Jetstar contracts.

In May 2016, Tigerair Australia signed a two-year heavy maintenance contract for its Airbus A320 fleet with SIA Engineering Company Limited (SIAEC). The work will be carried out by SIAEC in Singapore and its joint venture company SIA Engineering (Philippines) Corporation at Clark Airport.

It also gives the airline the opportunity to bid for maintenance work on other carriers’ aircraft.

Tigerair Australia chief executive Rob Sharp said the airline’s evaluations showed getting the work done in Australia was not really an option.

“Heavy engineering is very labour intensive,” Sharp said at the time.

“Its efficiency is based on critical mass and historically Australia has struggled to develop the critical mass as well as the labour cost competitiveness to actually compete in that space.

“So we have gone out to the best of breed across the Asia Pacific region, which is reasonably close to Australia so in terms of actually getting your aircraft there keeps the cost down and you can also tap into the expertise and efficiencies.

“Singapore Engineering has a number of their own aircraft here in Singapore but they also have a number of other airline customers, meaning they have ended up with a very large facility and the critical mass that keeps their costs efficient. ”

The future

Jetstar took delivery of its first Boeing 787-8 in October 2013, when VH-VKA touched down during a celebratory Melbourne afternoon at Tullamarine. Since then, 10 more have joined the fleet.

And there are further Dreamliners headed for the Qantas Group, with the Flying Kangaroo to receive the first of eight 787-9s on order in October and holding scores of options and purchase rights for the next generation widebody.

Whether these aircraft will get their heavy checks performed in Australia is a question unlikely to be answered for a while – the 787s are not due for their first major overhaul until 12 years of flying.

Until then, Jetstar does conduct line maintenance on its Dreamliners in-house at its Melbourne Tullamarine workshop.

Whatever the decision, there are concerns the recent closures have led to the loss of hundreds of maintenance jobs.

The University of NSW report warned of an emerging global shortfall of appropriately trained and licensed engineers.

“This will make it difficult if not impossible to keep up current standards of maintenance on its fleet,” the report said.

Further, in Australia, “training capacity has declined below its replacement level”.

Hawker Pacific’s Park said the company had picked up “very few” engineers who had lost their jobs at Avalon or Tullamarine.

In addition to recruiting experienced engineers, Hawker Pacific has also looked to develop its own talent in partnership with the Queensland Government-owned Aviation Australia training organisation.

Park said there have been 62 apprentices who have joined Hawker Pacific from Aviation Australia’s Cairns campus alone, helping ensure a steady pipeline of skilled staff to meet the projected demand in the years ahead.

Aviation Australia’s Cairns campus sits alongside Hawker Pacific’s facilities.

“We wouldn’t be able to meet our operational objectives had we not had that training facility there,” Park said.

“The big picture is we have an ageing workforce. The average age of a licensed engineer is well over 60 now.

“You don’t have to be a rocket scientist to realise that we’ve got to get a hold of this.

“If we want to be continuing to carry out maintenance, not just heavy maintenance, any maintenance, on aircraft in Australia we need to make sure that we’ve got a secure supply of appropriately trained aircraft maintenance technicians. ” Will Australia harmonise its regs? The prospect of and attractiveness for more maintenance work coming to Australia also rests with the government and the regulator moving to complete the harmonisation of Civil Aviation Safety Authority (CASA) regulations with those of the European Aviation Safety Agency (EASA).

That process began a number of years ago and still has some way to go.

Echoing the sentiments of many in the industry, Park said he was frustrated at the lack of progress being made.

“It has been dragging on forever,” Park said.

“The cost of audits and maintaining multiple NAA certificates is expensive. If the harmonisation process that was started between CASA and EASA were completed with the appropriate bilaterals in place it’s conceivable we wouldn’t need a separate EASA accreditation anymore.

“If they are auditing to the same requirements it is just redundant isn’t it?”