Podcast: A Big Year for Mexicana MRO
Mexicana MRO is similar to the fabled phoenix in Greek mythology, but may now break the cycle and really flourish. But first, expect two big things to happen in 2022.
In advance of Inside MRO’s feature about Mexicana publishing next week, Aviation Week's Lee Ann Shay, executive editor MRO & business aviation, shares her insights from researching the MRO with James Pozzi, MRO EMEA editor.
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Hi, I'm James Pozzi, MRO Editor for the EMEA region. Mexicana MRO used to be one of our two largest aftermarket service providers in Mexico, along with Aero Mexico, but it suffered three years of uncertainty as the Mexicana Group was in bankruptcy. It's been trying to build back since 2014, when it finally became an independent. I'm here with Lee Ann Shay, Aviation Week's Executive Editor, MRO and Biz Av, with some insights about the company. Lee Ann, welcome.
Lee Ann Shay:
Thank you, James, good to be here.
You just interviewed Mexicana MRO's CEO. Is there any big news that came out of that? What did you take away from it?
Lee Ann Shay:
Absolutely. I just finished writing a story about it for Inside MRO's next issue, which will be out on April 18th. So there's lots of details there. But one of the big takeaways is that this is going to be a huge year I think for Mexicana MRO's services.
Emilio Otero joined the company as CEO to return it to both profitability and ideally to help it prepare for being sold. And they are making a lot of good progress. It most likely will be put on the market maybe August, September, and one of the big pivot points to doing this is implementing a new IT system, Empower MX. This is a big factor, a big driver.
Mexicana MRO had implemented Oracle to great fanfare in 2009 after a two year implementation. But then the Mexicana Group went bankrupt a year later in 2010. It couldn't pay for it any longer.
So the MRO hasn't had a robust synchronized ERP system since then. So having this rolled out is a big deal. They have done that on one line, it's operational. And in February, it successfully completed a C check. It went well. And actually they finished it early I believe. So, so far so good. So now between now and August, Mexicana MRO will be continuing to roll that out.
To hear it a little bit more directly from Emilio. Let's listen to this clip from my interview.
We started last year, 2021, in September, and we planned to go live at the end of March. And I think we did pretty well because we did the aircraft at the end of February. And our plan is to have all the company in Empower MX by the end of August. And I think at the moment that we are going to do a little earlier.
Lee Ann Shay:
So you can see, getting this IT system rolled out through the company is a very important milestone.
Obviously a lot of internal restructuring going on there, but it all sounds very positive, ramping up and having that infrastructure in place with the software as you mentioned. An important part of any MRO organization of course. Further down the line, do you expect any capability changes on the way from Mexicana?
Lee Ann Shay:
Excellent question. Just to put in context where they are. They've got eight lines, four for wide bodies and four for narrow bodies. They got a big contract in 2020 for cargo conversions with IAI for the 767s. So two of the four wide body lines are dedicated to cargo conversions through 2024.
And it's also interesting that for wide body, for narrow body, the wide bodies are predominantly for Boeing aircraft. And the four narrow bodies are for Airbus aircraft, the A320 family. And it's important to note that several years ago, Airbus made Mexicana an Airbus service center and they are the only one in Mexico having that capability. So, that's really important.
So going back to your question. In addition to airframe capabilities, they also have extensive back shop capabilities from composites, hydraulics, structures, seats, avionics, NDT, a lot of the big ones. But those capabilities are operational and active, but they are being used at low utilizations. They would like to hopefully find a partner for that. And then the other big capability change that they're hoping to grow is line maintenance.
But let's listen to Emilio talk about the back shops.
We have a very big amount of capabilities, and we have a lot of technicians that are, let's say, able to do work for composites, for structure, hydraulics, avionics and so on. And this area of the company still is not, let's say, full of work. In fact, we are looking for work. We are looking for a strategic partnership. We are looking for alliance with potential customers in order to give or to use that back shops in the company. Because I think we have important capabilities and important capacity, and we need to develop that. And in that sense, we are looking for strategic partnerships.
Okay, very interesting stuff there. And it sounds like there's a lot on their plate for the future. But sounds like they're very much looking forward. Now, if we go over to a very interesting part of the market over the last two years where we've seen a spike, many MROs look to in lieu of reduced passenger traffic, has been in the cargo market. Specifically cargo conversions is a very interesting segment at the moment. How important are cargo conversions to Mexicana MRO's future? And where do you see that part of the market playing a role?
Lee Ann Shay:
Really good point, another great question. Cargo conversions are a very important part. Like I mentioned, half of their wide body lines are dedicated now to cargo conversions. And that also really provides good, stable work until 2024. And as you know, the more longer term contracts you have, that helps both the operator and the MRO, better plan, gain efficiencies, it's this nice steady line. And especially with some of the supply chain problems that the world is having, that's another key factor.
And the 767 work been really booming. Amazon is one of the key operators and customers for 767 conversions these days. And I know that Mexicana has recently done a couple of ex-Westjet 767-300s for Amazon. So, it's very important, it's providing stable, steady work and revenue.
To hear a little bit more about that in Emilio's words, let's listen.
The majority of our customers, they used to be what I call spot and from Latin America. Doesn't mean that they send one aircraft from time to time. We had to look after them. It was a complicated situation. And after COVID, now we have more nose-to-tail companies and mainly from North America.
Okay. But most importantly really for the long-term success of this business, let's not forget Mexicana was in bankruptcy for several years. Is it profitable now? And does it look like a viable, long-term business strategy is in place to ensure its success?
Lee Ann Shay:
Personally, from what I've learned, it's profitable now. And I think it is really set up for success. I'm excited to follow Mexicana because it's had a tough, bumpy ride over the last decade plus. And I really think that a lot of the key things that the company has been doing, and just the way that they handled the pandemic, trying to retain as much of its workforce, and then getting the cargo conversion.
Mexicana like other MROs in Mexico and Central America are seeing more long term contracts from North American customers too. So they're diversifying their customer base and just being profitable in 2020/21, that's been a tough time during the pandemic. So the fact that they pulled it off, I think is pretty impressive. So as long as this Empower MX implementation happens this summer as expected I think it's set up for success.
But to hear Emilio talk about it himself, let's listen.
This year, I can say that in our budget we have $55 million revenue, that I think we are going to increase a little bit. I mean, last year, the '20 and '21 and this year, we are in black numbers. We are making money. After many years of red numbers, these two years, we have black numbers.
Very interesting stuff. And it's sure to be obviously a pivotal couple of years for the business in the near term to ensure their long term success along the way. But certainly a lot going on there.
Well, Lee Ann, thanks for joining us today and going through the Mexicana news and your interview with Emilio. That's all we've got time for today.
I know many of you'll be joining us at MRO Americas, which opens April 26th in Dallas. For any of you who haven't book your place and want to find out more, head to mroamericas.aviationweek.com or click the link in the description.
Join us again soon for another episode where we'll be assessing the state of the aftermarket in the Americas ahead of that event. Make sure you don't miss it by subscribing to Aviation Week's MRO podcast in Apple Podcasts or wherever you listen to podcasts.