Risk Management—Which Rise To the Top For Aftermarket Execs?

HONG KONG—The aviation aftermarket faces a plethora of internal and external risks—supply chain, workforce shortages, profitability, technology, competition, geopolitical—but which do executives consider the biggest?

Four executives addressed this during a panel at Aviation Week Network’s Aero-Engines Asia-Pacific.

“The number one risk is supply chain. The number two is supply chain. Number three is supply chain,” said Gert Wagner, MTU Maintenance Zhuhai president and CEO. He predicts getting engine parts will continue to be a struggle this year and next.

In terms of risk management, Guangzhou Aircraft Maintenance Engineering Co Ltd. (Gameco) is “watching very, very closely” its workforce’s proficiency and fluency, said Marc Szepan, the MRO’s general manager. While Gameco, a joint venture between China Southern Airlines and Hutchison Whampoa, retained its workforce throughout the COVID-19 pandemic, when China cleared people to travel, China Southern flights rocketed from about 500 to 2,500 daily in three weeks. The workforce “to some degree got used to a somewhat slower clock speed of operations,” but with the increased travel demand, Gameco needs to maintain the higher speed operation, while retaining proficiency, safety and quality, said Szepan.

Another short- to medium-term risk is not being able to count on the recovery of all parts of a business strategy. In Gameco’s instance, it planned to produce the largest number of maintenance labor hours for the Boeing Converted Freighter program. However, instead of it producing a stable amount of work post-pandemic, the demand for narrowbody conversions sank, so it became an unexpected risk in the shorter term.

Simon Middlebrough, CEO of Singapore Aero Engine Services Private Lt. (SAESL), agrees that the “supply chain is going to be the single biggest externality” and “people talent” is the biggest short-term internal risk. Going forward, it ultimately comes down to change management. “We’re all growing and changing at the same time, and I’m worried about the risk that yesterday’s leadership teams might not have the change management competencies to drive the business forward," he said.

As an example, Middlebrough could plot the story of SAESL, a joint venture between Rolls-Royce and SIA Engineering, over the past 20 years to show its expansion. While shocks and challenges existed, he thinks the future exigencies will behave differently. “If I could draw the graph for the next 10 years, there’s going to be many, many more ups and downs,” he said.

“We’re probably all going into an area where we’re going to have to get comfortable with managing ambiguity, managing flexibility on a far more repeatable basis than we have done before,” he added.

While Wagner agrees there will always be obstacles, he stressed that “you should stick to your strategy and don’t get nervous.” As an example, MTU Zhuhai, a joint venture between MTU Aero Engines and China Southern, retained its workforce during the pandemic because it believed demand would return.

The four panelists at Aviation Week Network’s Aero-Engines Asia-Pacific all work for joint-venture companies so they are used to working with multi-shareholders, but when geopolitical events arise, that can generate customer concerns.

HAECO CCO Gerald Steinhoff said that although the company has facilities in China and the U.S., and tensions between the two countries exist, he listens to customers first and finds that airlines act rational commercially when it comes to picking an MRO location. However, he does see OEMs and other companies being more hesitant to invest in Mainland China.

Szepan said Gameco started about 1.5 years ago examining its demand and supply balance to have a regionally balanced customer portfolio, as much as possible, to decrease revenue risk due to geopolitics.

Panelists agreed that climate change also is a risk. While carbon emissions per seat is decreasing, “expect more political pressure on flying,” even though the industry produces about 2% of the total emissions, said Steinhoff.

On this front, Szepan suggests the industry needs to do more now to reduce emissions—such as Europe’s Single Sky effort to improve efficiencies and enabling more airports to use continuous descent approaches. “We shouldn’t wait for one silver bullet," he said.