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Outsourcing trends | Engine Yearbook 2019

14 Jan 2019

More airlines are choosing to outsource engine maintenance management. While OEMs are hoovering up some of this work, new deals covering the aftermarket present significant opportunities for third-party providers as well as cost savings for airlines.

By Christopher Whiteside, President and CEO of AJW Group


Engine repairs can quickly generate bills that run into the hundreds of thousands of dollars for an airline and this is the case whether repairs are carried out in-house or by a third-party provider. Unfortunately for airlines, the time off-wing and huge cost of these visits are unavoidable.


However, in recent times, many airlines around the world have streamlined their engine departments. Although able to carry out basic maintenance, today's airlines are not usually equipped to perform heavier work in-house. Because of the relative infrequency of engine shop visits, many commercial airlines have made the strategic decision to outsource engine overhauls to third-party providers to help them keep costs to a minimum while they seek to maximize the savings of every shop visit.


In the modern commercial aviation environment it is not just the substantial cost of engine repairs that makes an in-house engine department unsustainable; the mounting cost of engine parts, which typically rise between three and seven pet cent per year, and the hundreds or man-hours involved in repairs, maintenance and sourcing material, mean that external providers such as AJW are a cost·effective option for airlines to carry out engine MRO work.


Outsourcing trends | Engine Yearbook 2019

Shaping the market


Lower fuel prices have meant that airlines are spending more money on the maintenance of older aircraft to keep them in service. However, a more diverse and mature range of aircraft and engines in the market brings extra challenges for MROs and airlines alike. For example, booming demand for engine parts has driven up prices and OEMs have seized the opportunity to capitalise on this demand. This has led to much higher material costs as engine parts are sold at a premium worldwide.


As a result, although many MROs are primed to support customers, it is not always possible to do so in a cost-effective manner because of OEM pricing in the aftermarket. This has placed pressure on MROs to become more innovative and for airlines to become savvier about repairs. In turn, this has increased demand for both half-life and other used life limited parts, with some airlines happy to pay a premium for access to these.


However, this highly commoditised and overpriced market may well change. In 2018 the International Air Transport Association (IATA) entered into an agreement with CFM International that should lead to increased competition in the market for maintenance, repair and overhaul services (MRO) on engines manufactured by CFM. Under the agreement, CFM has adopted a set of "Conduct Policies" that will enhance the opportunities available to third party providers of engine parts and MRO services on the CFM56 and the new LEAP­ series engines.


Despite increasing competition in the engine MRO market, the agreement will improve the opportunities available to maintenance providers. It will enable new relationships to be forged in the market and successful third party specialists will be able to offer airlines a wider range of services beyond the engine shop. Furthermore, it should also mean a reduction in the cost of engine shop visits for airlines, which will in turn reduce their operating costs. A reduction in operating costs means that these savings will in time benefit passengers, who should reap the rewards of lower air fares.



Read the full article




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