When and merged to form the International Airlines Group (IAG), it was clear that the effects of the combination would be felt across the various business units. But BA Engineering Director Garry Copeland does not want to rush into overambitious projects that would put its existing business at risk.
The two MRO subsidiaries within IAG, Iberia Maintenance and BA Engineering, could not be more different in some ways. BA Engineering has historically focused on serving the British Airways fleet; only 10-12% of its business is with customers outside of the group. By contrast, Iberia Maintenance has far more market exposure, with Iberia only accounting for 50% of its work and the company moving into more specialized fields, such as VIP completions, that it hopes will improve margins.
The big question is: How can such completely different companies and strategies be integrated in a sensible way? Copeland's answer is, “slowly.”
As part of the overall IAG integration, the MRO businesses have been given a €65 million ($84 million) synergy target for the initial five years. “We cooperate on a host of different issues,” says Copeland. For example, BA'swere maintained by Iberia until they were phased out. There are also joint projects in line maintenance, and the two companies often look after each other's external customers at airports where only one of the two IAG operating subsidiaries is present. “There are around 10 workstreams at any given time,” says Copeland.
Beyond the initial five-year planning, “all options are open,” he says, and that includes merging Iberia Maintenance and BA Engineering. “We just have not had the time yet to look at what is going to happen after five years.”
However, some strategy adjustments are already happening. Copeland wants to increase the share of third-party work to around 20% from the current 12%. At 20%, he thinks BA Engineering can still deliver the same quality and even while it grows to improve its critical mass.
There are a number of ways to do this, such as through line maintenance contracts or component services, but even in the foreseeable future BA Engineering does not want to do heavy checks for other operators. “We are full with BA [aircraft],” he says.
In terms of unit costs, Copeland is confident that the company will be competitive, in spite of having its facilities in the high-cost U.K. The lower labor rates available elsewhere may not translate into lower costs overall because of productivity shortfalls. Productivity is one key element of in-house heavy maintenance and the decision not to offer it to others: Copeland believes it works even with a U.K. base, but only if there is a large common fleet that provides the organization with a consistent flow of nearly identical aircraft.
Because of that strategy, BA is not exploring joint ventures in Asia. “So far, that has proven to be a good solution,” Copeland says.
Its core business promises to be exciting enough over the next few years. BA Engineering is preparing for servicing of theand , as both models are scheduled to join the British Airways fleet in 2013. “We are using them as a catalyst to get to the generation of airplane maintenance,” Copeland says.
That leads to refinements in training and the skills that are subsequently available. BA Engineering needs to prepare for composite repairs, upgraded electrical systems and issues such as health-monitoring that are present on current-generation aircraft and are being brought to the next levels on the 787 and A380.
On the other hand, the fleet renewal program means that a lot of older aircraft, such asand , will be phased out in the next few years. Preparing them for the next owner requires a lot of work, as well. The last 747s are expected to leave the BA fleet around 2020, while the 767s are likely to be retired earlier. Once they are no longer part of the fleet, BA Engineering will likely lose the capability of serving those types over time. “I don't see much sense in keeping them for aircraft in their declining years and in a high-cost environment,” Copeland notes.
BA also has four cabin refurbishment programs upcoming, adding to the workload for its MRO subsidiary.