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Engine MRO outsourcing heating up

20-Dec-2005

SYDNEY (Centre for Asia Pacific Aviation) - Air New Zealand confirmed yesterday it will commence outsourcing heavy maintenance of engines powering its widebody fleet next year. (It already outsources engine MRO of its narrow body and turboprop aircraft, while a final decision on outsourcing maintenance of widebody airframes will be made in Feb-06).

The airline stated that retaining the business was unviable, with analysis painting “an extremely bleak picture”. According to CEO, Rob Fyfe, “volumes in this business are low and falling…there is no sign of sustainable third party work, due to considerable excess international maintenance capacity and no joint venture partners could be identified”.

Meanwhile, foreign manufacturers and service providers continue their march into China, where lower labour costs offer more attractive margins and the possibility for third party work, due to the outsourcing trend driven by airline restructuring. Pratt & Whitney this week agreed to create a major aircraft engine overhaul JV in Shanghai with China Eastern Airlines. The JV, to open in 2007 will service CFM56 engines which power B737s and A320s.

The past two years have provided some encouraging signs for the global MRO industry. Factors include the buoyant low cost sector, improving legacy carrier demand and record aircraft orders by airlines in 2005. But pricing pressures remain, due to slow consolidation of the MRO industry and increasing competition from volume-hungry providers.

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