SAN FRANCISCO—Wary of making technology and strategic mistakes they will live to regret, and Continental Airlines have assigned integration of their MRO services a lower priority than the merger of operations that most directly affect passengers, such as flight reservations.
The new partners' caution springs partly from knowing how difficult mergers have proven for other large organizations. “History tells us that one reason mergers fail is because carriers didn't realize that everything doesn't have to happen at once,” says Jim Keenan, United's senior VP for technical operations, who heads the new United Airlines Technical Operations (UATO) business unit. It combines United's former MRO operations in San Francisco with Continental's in Houston and Orlando. According to United's website, they look after some 701 aircraft in the mainline fleet, including 545 narrowbodies and 156 widebodies and account for 8,500 of United's 86,800 employees. The airline will receive the first five of the 25it has on order this year plus 19 .
Beyond their caution about moving too fast, the airline's senior executives are also acutely sensitive to the role that information technology plays in their operations and to the challenges they face in marrying two systems. “IT is a huge dependency for everything,” Keenan says. “IT resources are limited, as is the ability of any organization to stomach the changes” associated with a merger.
United's initial IT integration push has centered on the front office operations at the heart of generating revenues—creating a unified passenger reservation system and bringing the two partners' respective frequent flier programs together. Their caution is with good reason; the early days of the switchover produced a predictable number of dropped or changed reservations and some frustrated passengers with long telephone hold times.
Meanwhile, an operational blueprint for the new UATO has not emerged. Integrating the two airlines' operations has begun, but at this stage it is largely in basics, such as swapping line-maintenance operations where it makes sense. The bigger picture issues remain undecided and will be worked on through the end of 2013.
However, Keenan emphasizes, as an operating principle the partners are not looking at the merger as a license to restructure nor are they looking for, say, overlaps in line maintenance as an opportunity to close bases. “We are not looking for consolidation,” Keenan says. Instead, the emphasis is on leveraging available skills and being as competitive as possible.
Their fleets are a mix ofand aircraft in narrowbodies and an all-Boeing fleet in widebodies. United's narrowbody fleet was dominated by Airbus and A320s, but it also flew . Its widebody fleet was all Boeing— , and . Continental operated only 737s and 757s on its domestic narrowbody operations. It had 767s and 777s for long-haul flights.
Usually, mixed fleet types are viewed as inefficient in terms of parts stockpiling, tooling and crew training. But those are not typical concerns where the competing types are on the scale of United's fleet of 152 A320 and 238 737-series aircraft.
There also are big differences in the two partners' preferences for the nearly 1,900 powerplants in their combined fleets. Continental's 737-300/500s are powered by-3s while United opted for the International Aero Engines for its A320 series. Continental has been a customer for its larger aircraft while United has favored Pratt & Whitney. That means, for instance, that Continental 767s are powered by CF6s and its 777s by GE90s, while the United 767s and 777s are all powered by variants.
Continental handled more of its airframe maintenance operations in-house than United did. Both selected outside providers for component work.
One of United Airlines' strategies for emerging from bankruptcy in the mid-2000s was to transform its San Francisco-based United Services operation from a cost center business model into a profit-center that looked for third-parties. Engines were regarded as the best outside revenue source.
United Services de-emphasized major airframe work, outsourcing all heavy maintenance to VT Aerospace for its Airbus fleet, Ameco Beijing for its 747-400s and 777-200/300s, and Pemco for 757-200s and 767-200/300s. Line maintenance was split between in-house work and a variety of outsiders, including Timco Aviation Services,and HAECO.
At this stage, UATO is split in how it is handling engines. For instance, the CFM56-3 series from the former Continental 737 fleet are remaining in-house for engine shop visits while the V2500s for the Airbus narrowbodies are being outsourced to IAE and Pratt, according to Aviation Week's MRO Prospector.
Besides optimizing operations, the two-year evaluation process will look 10-20 years ahead to determine what to keep in-house or outsource.
The new organization also is tackling the question of whether Orlando and Houston should take in third-party work. But even more fundamental is the question of whether a business case can be made for doing third-party work over the next 10-20 years.
“One of the questions we've taken is whether to continue overhauling our engines internally,” he says. “Power-by-the-hour [engine services contracts] are becoming much more popular, there is a lot of attraction to that type of business model.” In fact, that question is so basic that even without the merger United Services would have faced it, he adds.
Keenan predicts the ratio of in-house and outsourced work will not change much, but the mix of what engines, components, line maintenance or overhauls are done in-house or outsourced will shift, in both directions.
One problem Keenan does not face is union representation; the Teamsters Union represents both. Contract negotiations will open this year; United would like to sign a contract covering 5-6 years.
One legacy of United's bankruptcy stress was the emphasis United Services put on lean manufacturing efficiencies at its San Francisco shop. While Continental's Houston and Orlando operations have not been as formal as San Francisco was about lean, the principles are there, he says. “So continuous improvement is in the fabric of our [merged] culture” and will be a priority in the future.