Listen in as Aviation Week's James Pozzi and Dan Williams share insights they gleaned from the recent MRO Australasia 2024 event in Brisbane with executive editor Lee Ann Shay.
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Transcript
Lee Ann Shay:
Good morning, afternoon, or evening. Welcome to this edition of the MRO Podcast. I'm Lee Ann Shay, Aviation Week's Executive Editor for MRO and Business Aviation. And I'm here with my colleagues, James Pozzi, MRO Editor for Europe, the Middle East and Africa, and Dan Williams, Director of Fleet Data Services. Last week you were both in Brisbane, Australia, for Aviation Week's MRO Australasia event, and you've been home for a few days, so I wanted to pick your brains about insights from the event. Dan, let's start with you. What stands out about the fleet in the region?
Dan Williams:
Well, yeah, thank you, thank you, Lee Ann, and yes, we had a very enjoyable show. It was my first trip to Australia, and our hosts, the Queensland government were most gracious, so I must thank them. But we are seeing changing fleets in Australia. I'll start with utilization in and around Australia. When we look at Asia-Pacific as a whole, which is where we put Australia in, their current utilization is still about 3% lower than the equivalent month 2019. So Asia-Pacific as a whole is still not quite back at these pre-COVID levels; however, Australia on the other hand, are about 5% above those equivalent 2019 levels. So Australia, as a country in itself, has returned and is blossoming in this role now, which is really good to see. And we're seeing that in the fleets.
Australia over the past few years have had some ups and downs. They've had some stop-start airlines, Bonza as an example. We saw that Rex, for example, had their failed experiment with their 737s and have consolidated back into the smaller turboprop type. So we've seen some stops and starts with the fleet in Australia. It's a very difficult market to break into with two of the big boys that is Qantas and Virgin Australia. However, we have seen some of these more, I don't call them niche airlines, I don't mean to be rude, but they're not the big two airlines. So for example, Alliance Airlines, they are becoming more sustainable. And you wouldn't think that an operator taking Embraer 190s is becoming more sustainable; however, they're replacing old Fokkers. So they are becoming greener in that respect. It's not becoming green that is NEOs and MAXs, but they are moving forward. Those bring different MRO challenges. Obviously, the MRO and the Fokker and the MRO and Embraer 190s are going to be slightly different. However, it's a change and shift in model.
And then we've seen some greening up of fleets. For example, Qantas are getting rid of the 717s, they've started to come out of service, and they're supplementing them, or I should say replacing them, with like A220s. So again, we're seeing operators in the region greening up, using these aircraft that can do long legs. So we're seeing some nice, pleasant shifts, and along with these comes different MRO. You bring a new aircraft in, the A220 as an example, you now have to wait a period of time for MRO to start on those aircraft. So you're going to change and shift the MRO dynamics within Australia, predominantly. However, there's still plenty of A330s and 737 Next Gens that are going to swell the coffers over the coming years for the MRO providers, certainly in and around the region.
So it's nice to see there's some aging in that fleet, which is great for the MRO market. However, there's some greening up, be it moving from really old engine and aircraft technology to slightly less old, in terms of the Embraer 190s, and then also moving from old, like 717s, into the brand new, the A220s. So we've seen those progressions across the board, so that's really good.
Lee Ann Shay:
Well, Dan, thank you for those insights, lots of movement there, and the 5% figure, I think, is really interesting.
Dan Williams:
Yeah, and it's good. It's just Australia's a massive country. The ground infrastructure doesn't allow for trains and buses, so they have to pivot to the air. So and again, it's good that it's showing that it is above, it is on a slightly-increased fleet size, so you would expect that, but again, the industry's growing, so it's all good news.
Lee Ann Shay:
Sounds good. And James, Qantas and Virgin Australia have maintenance facilities in Brisbane, where you were, but they also outsource maintenance. When you were there, any surprises, anything that you learned?
James Pozzi:
Well, yeah. As Dan said, both of these airlines, of course, they are dominant in Australia. It's definitely widely seen as a duopoly. I think I read 98% of domestic routes are operated by these two carriers alone, which I guess shows the, that that's a real illustration of that dominance. So yeah, let's start with Qantas. I mean, they outsource a lot of their heavier maintenance overseas, or certainly a good proportion of it, to the likes of ST Engineering in Singapore. They also send maintenance to the Middle East, of course, in the United Arab Emirates, but they would like to bring more back to Australia. That's ideally where they would like to position themselves. In terms of base maintenance, they do base maintenance on the 737 Classic and the NG and the A330, so obviously a large part of their fleet, but not all the aircraft types that they operate, they do the full base maintenance services for.
So Viv de Beus, who is head of base maintenance at Qantas, he spoke at MRO Australasia last week, some very, very interesting things to say. And he was very candid, actually, about the operation and where it's been over the last few years. So in sourcing, that's what he'd like to do. But he was very honest, there are constraints to this, and he cited the supply chain and the lack of available labor to Qantas as being the big barriers in order to achieve this. As I said, they do a lot of their base maintenance in Brisbane, of course, but they've got extensive maintenance operations across the country as well, in Sydney and Melbourne, to name but two. So there's challenges to being able to do that and bringing more of that in-house. Long term, could we see that? Certainly, Qantas will aim to do that, but that could be a lot of work in order to do that, certainly around labor.
That came up quite a lot over the course of the two days at the conference. And he said until a few years ago, amazingly, Qantas didn't really formalize its plans to bring people into its shops, in terms of workforce, and I think he was kind of admitting that they dropped the ball on that for a while. But they're trying to rectify that by bringing in 30 base maintenance apprentices annually and 50 people on the line maintenance side as well, across its line station network. So they're looking to rectify that, and that certainly would help, I guess, on the maintenance side of things, of course, and having the manpower there.
Now, Virgin Australia, like Qantas, but they outsource, I'd say, more of their work to Asia, of course. I think HAECO in Hong Kong is one of the big MROs that they sent maintenance to on their 737s, for example. Now, they talked at the conference about more resilient supply chains. That is something they would like to aim for and see from their suppliers. They outsource a lot of it overseas, of course, but they do some functions now, but I don't think that model will change any great deal long term. But they're really, as we'll come onto a bit later on the issue of supply chain and parts supply, Virgin Australia really examining how they work with suppliers and the performance they get from them and how that affects them in their own shops.
I think, as well, it's worth mentioning, it was brought up a few times, of course there's no full-capability engine MRO in Australia for the commercial maintenance. So that will continue to be outsourced overseas unless something really drastic changes, which I very much doubt. I think the nearest full-overhaul shop actually is in New Zealand, of course, the Pratt & Whitney operated venture there as well.
And interestingly, before we move on, it's worth saying that smaller, independent MROs, of which there were several at the show, it was good to be introduced to them and get a feel for what they do, they talked about on the maintenance side how the bigger fish, ie: Qantas and Virgin Australia, they can snap up not just people, but any available hanger space that comes available in Australia. Most recently, I think Virgin Australia leased an available hanger in Perth, obviously on the west, western Australia, last year and grown their network. but that was a frustration from smaller shops. They do find it hard to get some of this hanger space, even just leased hangers, let alone building their own, because it's in short supply in Australia, and the likes of Qantas and Virgin, they do have the power and the resources to get those hangers. So that was an interesting point, I felt.
Lee Ann Shay:
So speaking of parts, I remember when I was at the Qantas Brisbane base in March of 2020 as part of our MRO Australasia thing, like literally a couple of days before the pandemic lockdown started. And I remember seeing a big area for parts, and it was new, they had the parts carousel, but given the geography barrier, part strategies have to be a little bit different.
James Pozzi:
Yeah, you're right, Lee Ann. I mean, I think even before COVID, logistically Australia is a challenge. Even when the supply chain was functioning better in those days, 2019 and before, there was still a belief that Australia, of course, geographically it's very remote, so that makes it a challenge, but there was also a belief that still exists that maybe Australia isn't prioritized by suppliers as such, like other regions are. And there was also a thought that in terms of the hierarchy or the ladder of that priority, defense work is given priority over commercial work in Australia, in terms of supplier services. However, someone also remarked as well about the geography thing. In North America where you are, Europe, where Dan and I are based, if you're an airline and you need a part, you can order that, have it shipped, and receive that 12 hours, yeah, maybe even shorter than that these days, but certainly that's not an unrealistic timeframe.
Now, putting that into the context of Australia, that same timeframe of 12 hours, that could be the flight time from Asia-Pacific, which is the neighboring region for Australasia, and that would just be to transport the part to Australia. Of course, when you're in Australia, a lot of the major cities are all very spaced out and can take hours as well to fly to. So even from a supposed near location, that just shows that the geographical scale of getting to Australia and just how remote you actually are. Around the same time, I could fly from London to Los Angeles, or the other way, I could nearly be in Singapore or Hong Kong. So that really puts it into context.
But yeah, on the parts supply issue, at the conference, there was a really interesting panel on that on day one, and the panelists all agreed that it was a challenging environment. The replies did range from patchy, was what one gentleman said, to another one said still very bad, but albeit he did stress that is dependent on the part type. So that's something to take into consideration as well. In terms of mitigating these issues, we heard from some APAC MROs who do have Australian clients. They mentioned about developing more repairs in-house, of course, which we've heard a lot about over the last couple of years, module swaps, which we've talked about on this podcast in recent times, to offset more extensive shop visits as a means of reducing TATs, and that is owed to part shortages as well, and even mobile engine service teams. That's becoming quite popular in Australia and the neighboring region, some airlines who like to utilize that and tap into that.
Now, a specific example in relation to an airline, again, is back to Virgin Australia. They had some really interesting things to say on this panel about PMA parts and DER repairs for its fleet. They, like other carriers we've seen on a sort of case-by-case basis over the last few years, have turned to PMA and DER repairs. Virgin Australia particularly are doing this for older aircraft type, they say. So Afrooz Ahmadi, who is components and purchasing leader at the airline, she said it changed its procurement strategy in recent years, essentially to cope with the extended lead times and reduce their reliance on the OEMs, which of course are, depending on which company, you know, it varies different degrees, but they are all very much challenged at the moment.
So Virgin Australia said they're constantly evaluating whether to repair parts versus sourcing new ones, and that's something they're always looking at on a sort of case-by-case basis. And they're just trying to navigate and mitigate the risk through partnerships, relationships, and getting their requirements across to their supplier and understanding the supplier's requirements. So very interesting cooperation there. And they're always looking at that, depending on what the environment is saying at that time.
Lee Ann Shay:
James, you wrote a really interesting story earlier this week about MRO innovation gaps in the region. Really briefly, what kind of technologies or innovations are sought? What stands out to you?
James Pozzi:
Well, yeah, recurring theme, Australia's viewed as not having kept up with other regions in terms of technology advancements and adopting the innovation. There's several reasons for this, but I think long-term adopting this is seen as key to Australia's, you know, the full recovery, but also prosperity in its MRO industry, and seen as being able to help bridge the gap. That gap was cited as problematic for areas such as efficiencies. And it's just simple cultural things, really, for the business culture I'm talking about, rather than countries, so a lack of will from boardroom level, for example, or simply the will might be there even, but they just have not prioritized the investments.
And that's, obviously, technology projects can be expensive and time consuming. It is sometimes hard to make a business case, particularly for smaller companies that maybe don't have the vast resources to draw upon for this. However, there is a belief that the landscape and innovation culture is changing in Australia, and the regulator, the Civil Aviation Safety Authority, CASA, they were credited as being quite integral to this. And it is seen the likes of CASA, the regulator, airlines and MROs, they ultimately will lead this. So mentioned technologies, Lee Ann, predictive maintenance, drones for inspections was cited as well, and of course artificial intelligence. That's on the radar of companies, but also the CASA regulator as well. They're doing a lot of collaboration with the likes of the FAA, the UK CAA, and a few other regulators as well, to try and identify the best practices around this and for adoption.
And they're all just trying to keep that collaboration going to see how they can move with this technology five years from now, 10 years from now, and even beyond that, because that will ultimately be the challenge for the regulators like CASA, keeping pace with this technology, because it moves quite fast in terms of development, and the regulators have to do their best, at least, to stay or to keep up the pace with that.
Lee Ann Shay:
Sounds good. Last question. At our conference, I think one of the beautiful things is that we get to talk to a lot of people and ingest a lot of information. Now that you've been home, had a little bit time to digest the event and maybe recover from jet lag, does anything stand out?
Dan Williams:
So insights from the show is that Australia is no different than any other MRO or aero engines events. Supply chain, workforce, supply chain, workforce, supply chain, workforce, is the two comments. The right honorable Mr. Last, right at the beginning, was talking about supply chain. The government, over the past decade, have pumped money in and around the Queensland region to help develop it. They want to help businesses within their region. Many people said on the panels the labor rates are high, the labor is scarce, demand is high, but the labor is low, so you have to pay high levels for it, which is why operators choose to send some big, heavy base maintenance overseas where costs are slightly lower, in terms of labor costs. So that's not going to help the nearshoring or inshoring that they want to do. However, these are all hurdles that it's not exclusive to Australia. We talked about it a lot. I joke about the supply chain bell. It's a perpetual issue.
The other thing that I learned, having flown Cathay Pacific, which was very pleasurable, but we are seeing aircraft and airlines hanging around more. My first flight, actually, was on a British Airways 319 that was 23 years old. By any normal, reasoned decision, that aircraft should retire from service next year at 24, when it approaches its second de-check, I suspect these aircraft will be going on longer. We're going to see these older aircraft carrying on due to the difficulty of getting new-build aircraft. So in terms of the MRO world, this is music to the ears of probably the people listening to this podcast, because that is business for them, keeping aircraft going longer.
We need to look at cabin interiors because I'm not saying that my flights needed a refresh, however, they needed some IFE refresh at the bare minimum. And I suspect that most operators are doing that as well. Operators had a tough time through COVID. They need to recoup some of that money, and updating interiors is an expenditure that people don't necessarily need. So we're in this difficult time right now where people are looking for new aircraft that aren't available. How long do they push these older aircraft on? So there are my takeaways from both the show and the journeys to and from.
Lee Ann Shay:
Fantastic. Thank you. James?
James Pozzi:
Yeah, interestingly, I moderated one of my panels, and there was obviously an MRO slant to it, but it was on the topic of startup carriers in Australia. And obviously Dan mentioned earlier, there's been some high-profile failures in recent times, of course, Bonza and Rex very recently went into administration as well. But that was very interesting in terms from a knowledge perspective, of learning about the landscape in Australia in terms of the airlines and the duopoly, but also maybe where that'll go in the future, of course.
I mean that growth of airlines and aircraft in the commercial fleet, of course, we'll present more maintenance opportunities as we've mentioned, but given those two airlines dominates the passenger commercial airlines, will we see more startups coming into Australia over the next five to 10 years? And that was a question I put to the panel, and they seemed to think that there will be someone else who wants to have a go and make a success, and I think the latest one is the wonderful-named Koala Airlines is planning to launch in the next couple of years as well, to kind of bear the mantle, but also the idea about how airlines do crack this market. And one of the unanimous points that my panel made was that they need resources, of course, but also fleet density. And some of these airlines have come into the market with pretty small fleets, really, and there's a feeling that they need to maybe have at least 20, I think was mentioned, to really have a go at the market and try and have a crack at it.
And the interesting idea was that perhaps maybe a low-cost, established carrier already from Asia, perhaps, might have an Australia offshoot business in the next few years. That could maybe be seen as cracking or breaking into that market and adding some more competition to that duopoly. And I guess having more aircraft in the skies, in Australian airports, on routes, and of course presenting more MRO opportunities. So yeah, it looked a bit different from what I would usually moderate or talk about, but I thought that was very, very interesting, and how that will play out in the next five, 10 years will certainly be something I'll be paying attention to.
Lee Ann Shay:
Absolutely. So James, were you hinting at AirAsia by any chance?
James Pozzi:
I couldn't possibly say, but yeah, there were one or two names mentioned at the conference who they speculated on who may take the mantle. But yeah, that seemed to be the consensus, that if someone is to break into this market and make a go of it and be a successful, viable, operating airline, that yeah, it would be an established carrier from that region, let's say, with the resources and access to aircraft and have the sufficient fleet to do so. So yeah, wait and see, I think,
Lee Ann Shay:
Okay, so lots of things to follow, including Koala Airlines. So James and Dan, thank you so much for your insights. That's a wrap for this MRO podcast. Please don't miss the next episode by subscribing to the MRO podcast wherever you listen to them. And if you are listening in Apple Podcast today, please consider leaving us a star rating or writing a review. Thank you all.
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