Europe’s commercial aviation aftermarket experienced a stop-start 2021. While engine shop visits increased over the previous year, COVID-19 and ongoing travel restrictions throughout the year caused the region’s recovery to stagnate. The Aero-Engines Europe conference, held in Stavanger, Norway, in early December provided a snapshot of how industry stakeholders are seeing the recovery taking shape in 2022 and where some of the main challenges lie.
European Airlines Adjust Engine MRO Strategies
Carriers in Europe are looking to adjust their engine maintenance planning to better maximize assets and reduce long-term costs as the market inches toward recovery.
Turkish Airlines, which has more than 300 aircraft, had sought to reduce engine maintenance costs in the wake of the crisis. “For the engines covered by time and material contracts, we stopped shop visits,” says engineering manager Ahmet Ismail Gulle. “We tried to get the advantage of having certain aircraft on the ground and utilizing them.” Gulle noted the airline did not lease any green-time engines during the period.
For its other engines, covered under power-by-the-hour (PBH) agreements, further cooperation with engine OEMs was required. “We took advantage of clearing some critical issues on next-generation engines by removing them and sending them for quick shop visits,” he explains.
As it stands, around 5% of Turkish Airlines’ fleet remains grounded, but Gulle says the carrier hopes to have these remaining aircraft flying by summer. Gulle sees some risk next year related to providing parts on time, with the availability of manpower also an obstacle following an industry-wide workforce reduction because of COVID-19. “The turnaround time and slot availability of engines also won’t be easy next year,” he notes.
At Norwegian Air Shuttle, Paul Salwik, director of information technology and technical procurement, says the pandemic presented the opportunity to build a “new Norwegian” by changing its strategy from a low-cost, long- and short-haul operator to a short-haul airline focusing on its core markets of Scandinavia and continental Europe. “There has been a restructure on the financial side, and there’s also been a lot of work on the organizational side over the past 20 months,” he says.
With some cross-border restrictions lifted, Norwegian’s fortunes improved last summer and the carrier ramped up to 51 aircraft. Salwik says the fleet will increase to 70 aircraft next year. This means the airline is planning how to use its airframe and engine assets, with some base maintenance work being undertaken at Lufthansa Technik Budapest in Hungary.
“We’re applying active asset management and that means always looking for the right partners to find the right cost level in each and every contract,” Salwik says.
Through concepts such as digitalization, Salwik foresees airlines integrating their MRO partners more into asset management strategies. “That means utilizing digital solutions and making the MRO part of that,” he says, adding that by strengthening ties mutual risk is reduced and ultimately will build stronger partnerships.
Lessors Remain Bullish on Narrowbody Recovery Despite Reduced Lease Rates
With lease rates still well below pre-COVID-19 levels, engine lessors are cautiously optimistic about the market’s midterm recovery prospects, but some narrowbody engine programs are set to bounce back faster than others.
Ian Malin, chief financial officer with lessor AJW Group, says it is seeing a mixed picture across its widebody and narrowbody engine types. “We’ve seen a lot of activity on our [Rolls-Royce] RB211-535 engines . . . we’ve had our CFM56-7Bs on lease throughout, while our CFM56-5Bs have been on the deck throughout,” says Malin. He remains bullish on the -5B market, which he eventually sees recovering. And despite the slump in the -5B market, Malin says AJW has continued to invest in the asset both for serviceable materials and part-out businesses.
GA Telesis, the Helsinki-based company that specializes in engine MRO, has a leasing business with around 30 aircraft and 40 engines on its books. In the narrowbody market, Eddo Weijer, vice president and head of engine transactions, says the Airbus A320 market is softer than for Boeing 737s, a change from mid-2021 when they were matched more evenly. “This would be across the board on the [International Aero Engines] V2500 as well as the CFM56-5B,” he says. However, Weijer credits this in part to external factors, mainly the number of airworthiness directives that have triggered more shop visits.
Like Malin, Weijer is seeing more demand for CFM56-7B engines, which he says is partly driven by the freighter market. “There’s been close to 100 freighters converted this year primarily by lessors looking for the most cost-effective solution,” he says. “This has meant an increase for half-life -7B engines—a market we are in ourselves.”
However, the freighter market has not been shielded completely from COVID-19’s effect, with Weijer stating lease rates for the engine type remain down by 20-25% from prepandemic levels.
“One of the reasons is any aircraft 10 years or older that came off lease was either an aircraft or engine lease [whose] return wasn’t extended,” he says. “The number of parked aircraft and engines available have increased with a few widebody exemptions. I see the supply of aircraft and engines continuing to increase as the fleet matures.”
Francesco Baccarani, the Singapore-based vice president-technical at SGI Aviation, which has around 60 aircraft and 15 engines under management, says China has led the recovery in demand for narrowbody engines in the Asia-Pacific region due to flight schedules picking up faster than in other regions. On a global scale, he is optimistic investor confidence is returning.
“In 2020, SGI was doing a lot of earlier releases of aircraft and engines, and we saw a lot of lessors and lenders interested in investing in narrowbody aircraft and their engines such as the -5Bs, -7Bs and V2500s,” Baccarani says. “The narrowbody market is definitely picking up; engine shops are filling up with more inductions.”
How Can Engine MRO Retain and Attract Talent?
Continued access to skilled labor often is cited as the MRO industry’s greatest future challenge. Boeing’s pilot and technician outlook predicts Europe will need 112,000 technicians from 2021 through to 2040 to meet demand.
Aftermarket providers long have sought to remain attractive in the face of competition from other industries, but in the past two years the added blow of the pandemic has seen workforce cuts and staff subsequently leave the industry. The industry also is evolving with more data utilized, more digitalization taking place and sustainability initiatives becoming increasingly commonplace.
Speaking at Aero-Engines Europe, Alan Phelan, founder and CEO of Ireland-based industry skills specialist APTN.aero, says the drain from engine MRO typically has been to farming, information technology, social media companies and financial services. However, the latter is linked closely to that country’s world-renowned leasing industry, so much of the expertise has been retained in that area.
Specifically, in Ireland, Phelan says the large-scale leasing sector consolidations, such as the merger of AerCap and GECAS, along with smaller-scale consolidations could result in redundancies with some technical skills coming back onto the market. In MRO, Atlantic Aviation’s takeover of Lufthansa Technik Shannon in late 2020 also could result in some job losses.
Over the past two years, outside support from government programs has provided a lifeline to engine MRO repair shops. Caroline Vandedrinck, senior vice president-business development at SR Technics, says the company benefited from a Swiss government initiative allowing short-term working hours so it could retain its workforce at the height of the pandemic. “This was a necessary instrument for retaining valuable knowledge, so we don’t lose that skill set when demand comes back,” she notes.
Prior to COVID-19, Vandedrinck says talent migration from the MRO sector was evident. “Everyone was talking about pilot shortages but less so much about mechanic shortages; we certainly felt it in Switzerland especially in the technical fields,” she says.
One of the reasons for this, given the country’s low unemployment rate, is a low output of students with technical skills. “Overall, there is also a reduced attractiveness toward our industry,” Vandedrinck says. “Who wants to work the graveyard shift? Who wants to work for salaries that equal to other industries? Aviation is no longer considered a sexy business.”
Christian Klein, executive vice president of the Aeronautical Repair Station Association, estimates that pre-COVID, technician shortages were costing the MRO industry in the U.S. an estimated $100 million a month in foregone economic opportunities. “During COVID at one point last summer, the industry employment in the U.S. was down 25%,” he says. However, he notes government programs helped many of these workers come back.
Klein says talent shortage remains the industry’s major issue, and a key obstacle is a perceived lack of industry visibility. “We take for granted that everyone knows our industry exists, but I spend a lot of time talking about the MRO sector with external audiences particularly in government, and there’s not a lot of recognition.”
Vandedrinck highlights SR Technics’ apprenticeship program, which continued during the pandemic, as providing a successful pipeline of mechanics. Further afield, Klein says he is not seeing this as much as he would like with some companies being more proactive than others. He highlights ARSA’s own efforts in helping to set up a $5 million-a-year program with federal government money to help smaller businesses set up apprenticeship programs to attract people to the industry and keep them.
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