Crisis-hit airlines take MRO route for additional revenues

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With mainstream revenues slipping due to the global economic recession, airlines are trying to get a piece of the $600 billion (Dh2.20 trillion) maintenance, repair and overhaul (MRO) market by offering services to third parties.

In the Middle East, too, the main objective of airlines is to use their existing infrastructure to churn out additional revenue. The Middle East has about 586 aircraft, including 323 ageing ones. It is estimated that 221 aircraft will be recycled and 42 will remain in service. This will make the Middle East market one of the main attractions for global and regional players in the MRO segment.

According to industry forecasts, annual civil aviation growth in the Middle East is more than 5.2 per cent as against the international average of 3.9 per cent. The number of commercial aircraft serving the region is expected to triple by 2028. The Middle East is set to take delivery of 730 aircraft by 2018, with a further 689 on order up until 2028, as per the study done by Airbus.

The Boeing 2009 outlook valued the Middle East market at $300bn over the next two decades, which translates into a projected requirement for 1,710 commercial jets. This will result in more demand for MRO services.

Players such as Lufthansa, Air India and Malaysian Airlines, to name a few, are eyeing opportunities in the Middle East market. Indian aircraft operators are eyeing the huge market of the Middle East with the objective of maximising revenues using existing infrastructure and facilities.

Major operators and medium players, too, are entering into this arena. For instance, Air India and another company, Air Works - a small player - are entering the Middle East market.

Air Works has formed a joint venture with the UK-based Air Livery and the JV will take up aircraft exterior maintenance including painting and refinishing.

"It's a 50:50 JV with Air Works and we take up painting works for aircraft. We expect about £10m (Dh 61.04m) revenues in the first year of operations," Tracy Jarman, Director at Air Livery, said.

Air India has entered into an agreement with Sharjah-based Aerostar Asset Management, which will market Air India's MRO services in the Middle East market.

"We offer MRO services to third parties as we have a huge talent pool and infrastructure. We have studied this market and found there's sizable demand. Air India will tap its resources to get into this business," Jitender Bhargava, Executive Director for Corporate Communications at Air India (National Aviation Company of India), told Emirates Business.

By 2028, the region's passenger fleet will almost treble to 1,681 from the 586 passenger aircraft recorded at the beginning of 2009. This growing number is attracting MRO players.

Air India has its overhaul facility in Mumbai. Air India Engine Overhaul Division and Aerostar have created an Engine MRO brand called The A Team for the Middle East market. Through this strategic alliance, Air India will provide MRO solutions to all operators in the region.

"For every 6,000 cycles [a take off and landing is one cycle] engines need maintenance and overhaul. Most engines [in the region] are falling due for maintenance in 2012-13 and we expect a good response. We anticipate 22-25 engines for shop visit in the first year of operations. We have done 14 engines for Air India this year so far," said Bhargava.

Air India Engine Overhaul Division has been catering to third party MRO services since 1999. Air India offers MRO services at 30 per cent less than local market prices.

"We will also expand to other regions later on. Of course, cost is not so much of an issue in this segment. What matters a lot is quality and service. We are also targeting the ancillary onsite maintenance service segment," said Bhargava.

The list of MRO activities includes engine overhaul, line maintenance, component overhaul and repair, heavy airframe maintenance, and modifications. Air India's 4,500 square metre Mumbai MRO facility will initially cover engines models under GE CF6-50 and 80 series, Pratt & Whitney 4000 series, GE 90 series and CFM56-7 series. It will also cover the CFM56-5 series in the near future.

Meanwhile, the German aviation major Lufthansa Technik is spreading its wings in the MRO business. The company has signed a contract with Qatar Airways for carrying out cabin modifications on four Airbus A340-600 aircraft. The contract covers changes in seat classes, galleys and overhead bins. Each conversion is expected to take about 5,000 hours of work and will be completed by January 2010. Lufthansa Technik has also signed a new contract with Yemen-based Felix Airways for providing MRO services.

"This new contract is an important milestone to expand our engine MRO business in the Middle East," said Joerg Femerling, Vice-President for Marketing and Sales at Lufthansa Technick.

The German MRO major has also expanded its co-operation with Afghanistan-based Safi Airways under a four-year contract.

Lufthansa Technik has a work centre for wide bodied aircraft in Hamburg, apart from Lufthansa Bombardier Aviation Services in Berlin and BizJet in Tulsa, Oklahoma, US.

"We have 11 wide-body and four narrow-body aircraft under contract. With the new facilities coming into operation, we will be able to support the VIP market much better despite the generally difficult market environment," said Walter Heerdt, Senior Vice-President for marketing and sales at Lufthansa Technik.

Another Indian company, Air Works, is busy exploring business opportunities in the region. The mid-range MRO services provider is in discussions with airlines in the Middle East for providing its aircraft maintenance services. The company has been providing MRO services to corporate aviation and is now entering into the mainstream airline business and expanding its maintenance operations base.

"Airlines are growing, but they lack MRO support. After Air India, we are the second company offering MRO services in India, and now we are expanding our facilities to support increasing operations. We are investing about $40m in expanding our existing facilities and raising funds from internal and debt financing options," said Fredrik Groth, Chief Executive Officer of Air Works.

Air Works has recently received a European Aviation Safety Agency (Easa) certification for its maintenance facility at Hosur in Tamil Nadu, India. Air Works is the first Indian company to get this award in the MRO segment. "With this Easa certification, we are able to offer MRO services on a global platform, such as in the Middle East. Most MRO business is going to south east Asia - Malaysia and Singapore - and some to the Middle East. We have plans to tap this potential segment, so we are here," said Groth.

Malaysian Airlines, in association with GMR Hyderabad International Airport Ltd, is setting up a mega MRO facility in Hyderabad, India. The Indian MRO business is estimated at $450m.

By Sreenivasa Rao Dasari

© Emirates Business 24/7 2009