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More airlines opting to outsource maintenance

Not only are airlines opting for outsourcing as a way to cut costs, but they are also using MRO services to increase their own maintenance capacity. The cost savings will depend on the airline.

'If you are a start up and have nothing, only aircraft, then the need for the complete [MRO] service is very high. For an airline that has, say eight to 10 aeroplanes, the investment required to get into MRO would be sky high and it would never pay off, ' said Heerdt.

Even established airlines that have large maintenance facilities are choosing to outsource. 'There are airlines in the region that are building up their core facilities, but until they are ready they have overflow [of aircraft],' he said.

In 2005, demand for the company's MRO services increased by 7 per cent, 'as a consequence of resumed growth in international air transport,' according to the company's annual accounts.

This growth was above the average for the last 10 years, and has been driven by the recent increase in demand for MRO services by low cost carriers and the large number of aircraft that now require maintenance. In many cases, airlines had delayed doing this as part of a crisis management strategy, especially in the wake of 9/11.

Lufthansa Technik services and overhauls aircraft, as well as engines, accessories and components. It also provides engineering, training, logistics, consulting and financial services.

From this portfolio, the customer can select bespoke packages, single items or the entire package.

The skill of the MRO operator is to ensure it operates within an 'optimum' range — the point at which aircraft have been in service long enough to require regular servicing, but not too long that the cost of maintenance and fuel burn becomes too costly when they are likely to be abandoned to the desert, explained Heerdt.

'If you operate an engine for too long then you have to replace a lot of parts. You have to find the optimum point of operation,' he said. For airlines, the ultimate concern is the cost per flight, 'and we are looking to produce the best cost per flight hour,' he said.

Airlines and other commercial operators also require reliability. 'That's why our contracts guarantee certain reliability. If it is not achieved we pay a penalty,' said Heerdt.

'We also have contracts where a customer pays on a dollar basis per flight hour,' he said, which makes it easier for the customer to calculate the cost of maintenance.

Targeting regions which are experiencing the greatest increase in air traffic, and where airlines are young and growing is a clear strategy. 'During the stage when companies are developing, there are always possibilities for creating long-term relationships,' said Heerdt. The Middle East is one of them, as well as the Asian subcontinent, China, and, to a lesser extent, Russia. 'More Western planes are going into Russia,' said Heerdt, and since many of these are used, a heavy maintenance base will be soon required there, he predicts.

Only 35 per cent of the company's revenues are derived from its parent, Lufthansa, said Heerdt. The other 65 per cent comes from external, or third party, sources, he said, and of this revenue 8-10 per cent comes from the Middle East, and the eastern part of North Africa. The company would like to expand this. In 2005, total income stood at 262.7 million euros.

'We already have five airline customers in the Gulf, including Saudi Arabia,' said Heerdt. Emirates, Etihad and Gulf Air are among them. Potential customers are not only airlines, however.

They could also be original equipment manufacturers (OEMS), financiers and leasing companies, or the owners of VIP jets. 'No matter who owns the aircraft it is interesting for us,' said Heerdt.

To meet demand in the region, the preferred approach is to form partnerships with local companies, perhaps for servicing specific components, such as engines. 'We are looking to form partnerships where both partners can add value,' he emphasised.

'We want to be active in the region, which does not necessarily mean we try to win contracts here and take the work to Europe. We are looking for possibilities to do the work locally,' he said.

'We are not only striving for getting business out of the region, we want to do business in the region.' Heerdt said he is in 'promising' talks with a number of potential partners, but that there is nothing definite to report now.

To boost skill capacity in the region, Heerdt also said he would consider setting up a training facility in Dubai, alongside established facilities in Europe, Asia and South America. It will depend on the partner however.

'If it is a partner that has a big training facility we would probably step in with additional staff and training programmes but, if required, we would set up our own training facilities,' he said.

There is also growing demand for VIP and executive jet solutions, said Heerdt, which includes reconfiguring cabins. Lufthansa Technik has exclusive arrangements to supply the cabin for two types of executive jet, the Bombardier CL-850 and the Airbus-318.

He expects demand for narrow-bodied jets to be strong, with demand for wide-bodied jets to come mainly from 'heads of state and some very rich individuals.'

In terms of deals the company has just signed a contract for the 20th Boeing Business Jet (BBJ). 'We've already completed number 18, one is in completion and we've just signed another,' said Heerdt.

The contracts are with private individuals who own the aeroplanes and not with Boeing, he said.

Earlier this year, Lufthansa Technik also ' gave one 747-400 in a VIP version to a customer in this region, and another one under completion will be delivered this year,' he said.

He envisages other business jets, re-configured from commercial and freight versions, will be available in the near future.