MROs in Estonia and Lithuania face expansion choices.
Modern aircraft maintenance in northern and eastern Europe is little more than a decade and half old. It has been fueled by rapid growth in local air traffic, especially in low-cost service, integration of many eastern states into the European Union and lower labor costs, which attracted airframe work from outside the region.
But lower labor rates signaled less wealth in eastern Europe, which created challengers in raising local capital for maintenance infrastructure. And low-cost competition put pressure on the budgets of major airlines in the region that might have built up larger maintenance facilities.
This eastern European market is still less than fully mature, but MROs are beginning to face the same choices as those in western Europe and North America. One basic choice is whether to build independent shops, tightly focused on core competencies, or seek fuller services through partnership networks. Two important shops are making very different choices.
Air Maintenance Estonia's business is very strong now, says Lars-Olof Bolinder, who has led AME as CEO and is moving up to its supervisory board. David Williams, a former manager at SAS Technical Services, Emirates and Abu Dhabi Aircraft Technologies, will replace him.
“Last year, our business dipped a little, as with other MROs, but airlines are beginning to fly more and maintenance is coming due,” Bolinder says. AME generally looks for business within a two-hour ferry-flight time, but it sometimes reaches more broadly, for example into Russia.
Eastern Europe still enjoys a labor cost advantage, while other costs, such as infrastructure, are similar to western European levels. On average, Bolinder estimates AME labor costs are less than half those to the West.
But the labor market differs within eastern Europe. Bolinder puts AME labor costs at about one-third of Norwegian levels, half the costs in other Scandinavian countries, and about half of costs in northern Europe. “U.K. sterling prices are a little low now, but we are still below them. In Bulgaria, they have even lower costs then we do. We are about the same as Hungary, the Czech Republic, Poland and Lithuania.”
The AME exec disputes the notion that lower labor productivity offsets this cost advantage. “We work with Lean, as all MROs have to do today. And our infrastructure is not as bad as those who have not been here think.” AME will open a state-of-art three-bay hangar in September that will triple capacity. At the same time, it expects to haveheavy check capability.
Bolinder acknowledges some difficulties in getting sufficiently trained labor in AME's early days, but says that problem has eased. Because Estonia is small, the firm runs its own programs for apprentices. “Some skills, like working with sheet metal, do take time,” he admits. The firm uses contract workers for peak demands.
AME has done 250 C checks onNGs and Classics over 12 years. Due to its limited capacity in the past, these have been mostly one-off or short-term deals. Now that capacity will expand, it is looking forward to larger, longer-term deals.
Bolinder says linking up with an MRO network is a question for AME's owner, BaltCap. “We would like to see if we can joint-venture with someone and are in discussions with a paint hangar. On joint ventures with other MROs, we shall have to see.”
AME has been doing line maintenance forin Vilnius and Kaunas, Lithuania, but it will concentrate in the future on line work in Talinn, where it provides all line support. For line work, AME is certified for A320s, 737s, ERJ-170s and -190s, CRJ-900NGs, Fokker 50s and 340s. Passenger traffic in the Estonian capital increased 35% last year, and that should provide plenty of demand for line maintenance. Bolinder hopes to convert some of that to heavy-check work.
AME also repairs some components, mostly wheels and brakes. It has no plans to get into more complex components like avionics. The workforce of about 160 will expand gradually, with an additional 30 techs each year for four years.
FL Technics, another major MRO in the region, is looking at providing wider services, geographically and functionally, throughout northern and eastern Europe.
“When maintenance developed in eastern Europe 10 year ago, the advantage was low labor rates,” says Jonas Butautis, CEO of Lithuania-based FL Technics. This advantage of about 40% made Eastern shops the “back office” of major MROs.
Butautis says the labor-cost edge has decreased while labor productivity in the region remains below western levels, “So there is not a huge advantage in having C checks done in the East.” And the industry is moving away from labor-intensive airframe checks toward more capital-intensive engine and component work that require massive amounts of capital. “And there is not a huge amount of money in eastern Europe.” New aircraft models, needing less frequent heavy checks, will intensify these trends, in his view.
So the question will be how to compete with players like, which is linked to an airline and can provide a vast array of services, or with other rivals like SRT-Mubadala, which has funds to finance initial provisioning and buy and lease back current inventories.
“We are at a crossroad in the industry,” Butautis believes.
FL Technics is already the largest MRO in the Baltic states and one of the largest MRO companies in eastern Europe and CIS countries. It supports airlines in the CIS, EU, Middle East and Asia. It has two base maintenance facilities in Lithuania and Ukraine and 30 line stations across the EU and CIS. It can support, , , Embraer, and other types of aircraft. And it is backed by Avia Solutions Group, a strong aviation group in eastern Europe.
So FL Technics plans to build on these assets to offer total technical solutions. “We do not want to compete on labor rates in Bulgaria,” Butautis says. Total solutions will include base maintenance, landing-gear overhaul, cost-per-hour support of components, line maintenance, engine maintenance, engineering services, technical training and logistics. “We want to be a miniature LHT, the local guys around the corner who speak your language and who you can speak to on the phone with a real person, not an IT system,” Butautis explains.
Providing the same range of services, at lower prices, is the strategy. In five years, “we want to be the first local alternatives to the big global MROs,” Butautis says. “If they don't want to deal with LHT, SRT or AFI-, they can come to us.”
FLT has customers on cost per hour component support agreements, for which it does some repairs itself and sends others outside. It also offers engine overhauls at outside shops. “It's all about sales and owning the customer, not owning the shops,” Butautis says. In engine support, FLT supplies materials, does work-scopes, micromanages shop visits and offers financial support, including leases.
For airframe work, Butautis says FLT is partially closing the productivity gap by getting the latest IT systems and working on Lean programs. But its check productivity can never be as efficient as that of an airline that has a constant stream of its own aircraft coming in nose-to-tail. “We may have a gap in the line, or have to meet a short turn-time for a customer.”
FLT has all the necessary European and Russian regulatory approvals, including recent certification as andesign organization. Part access is not an issue within the EU, but getting parts into, or equipment out of, Russia can be a challenge. For that reason, FLT has its own local organization in Russia, familiar with local habits. “You must have a local organization in Russia that knows how to work with the Russian bureaucracy.”
And if this strategy works in the EU and CIS, it may have broader applicability. “We are good at emerging markets,” Butautis notes. FL Technics has set up offices in Malaysia and Bangladesh and is looking into Sri Lanka. “These countries need infrastructure. We can start by setting up line stations and we can do part trading.”
Butautis says there are additional emerging markets FL Technics can enter. “We can be the guys around the corner, the alternative to the global MROs.”