Monday, May 21, 2012


In the UBM Aviation, Airline E&M: Middle East Conference held on 15 and 16 May 2012, the discussion centred on the future of the MROs, Engine/Component support and the impact of New Technology Aircraft on maintenance costs. Three topics that are interrelated and very relevant.

The new technology aircraft are increasing the involvement of OEMs in the MRO market, potentially squeezing out the medium and smaller MROs from the Global and MENA markets in particular. 

Why would OEMs get into the MRO business; their short answer is The Customers Wants Us to Provide Support.

Boeing has Gold Care which integrates support with designated MROs, Suppliers and Boeing services while Airbus has the Airbus MRO Network of leading MROs capable of supporting the Airbus fleet.  

While both major manufacturers rely on Independent MROs for the support, Engine and Component OEMs have a different view. Engine OEMs wanted the business and they had the means; they controlled data and supply of parts and hence who can and cannot maintain engines. Their approach varied from wholly owned MROs, Joint Ventures with MROs and Airlines to licensing arrangements. Component OEMs followed the same path. 

OEMs do not necessarily make good repairers, it is a different mind set.

The third element is Component Support. Operators are very reluctant to invest in components and parts inventories. The initial investment is high and with the current economic conditions financing is at best difficult. OEMs have provided operators with support plans for their specific components, how comprehensive these plans are, depends on the operator and the size of the fleet. Nevertheless, that means operators have to deal with multiple OEMs when they prefer dealing with a single entity that provides total support including components availability, repairs and warranty application in support of an agreed aircraft dispatch reliability and component availability. Such arrangements include Base Consignments, Pool Access, Repair Services and Line Support. 

The industry is looking at a concentration of work with a few "GLOBAL" MROs for airframe and engines squeezing out the smaller MROs specially those not affiliated with an airline. As for components OEMs need to look at how operators want to be supported and take steps towards meeting these requirements. 

The new technology aircraft promise a 25% reduction in maintenance costs due to new materials and better designs in the airframe and engines. However, the concentration of work and the involvement of OEMs is going to reduce competition resulting in higher rates and costs and lesser choices.

Friday, May 18, 2012

Airline E&M: Middle East Conference

UBM Aviation, Airline E&M: Middle East Conference was held at Yas Island, Abu Dhabi UAE from 14 through 16 May 2012. This year's conference is probably one of the most important because it brought together major players in the region to discuss the future of the industry in view of the ever changing threats both regionally and globally: from the ever rising price of oil, the Arab Spring and the situation in Syria, Iran and the West, Greece, Spain and the Euro Zone crisis.

This year UBM Aiation invited people from outside the industry to provide their analysis of the ever changing world scene; Richard Thompson, Editorial Director, MEED and Mr. Riad Kahwaji, CEO, INEGMA.
Mr. Thompson discussed the economic outlook and the challenges facing the region while Mr. Kahwaji discussed the security implications of regional and global threats. The final analysis was; economically optimistic about the economic environment and short term pessimism but long term optimism as far as security goes.

The conference as usual discussed the future of MROs regionally and globally and the prospects of the smaller MROs as OEMs expand into the Repair and Overhaul field (more in future blogs). It also discussed Component Support, Engine Support, Leasing and Airworthiness issues.

This year's discussions were relatively more important, not only because of the prevailing global economy but because of the introduction of new technology aircraft and their impact on costs, support and operation.

Overall, the conference was a success and the introduction of speakers who are not aviation professionals to discuss issues affecting aviation from their perspective, I think is a great idea and should be repeated at later conferences

Kudos UBM Aviation

Monday, May 7, 2012

Balance A Commodity in Short Supply

As Europe falls into a double dip recession the debate of austerity vs. growth is raging. The argument that austerity measures do not create growth and jobs is gaining credibility. The answer does not lie in uncontrolled government spending but rather in an approach of cost savings and measured spending to spur growth. 

On a micro economic level, this is similar to the approach taken by airlines globally. This tends to explain the resilience of the airlines in MENA/GCC when compared to those of Europe and North America.

With every crisis in the last two decades western airlines have cut costs and tightly controlled growth. The best example is US carriers post 9/11, that instituted deep cost cuts and throttled growth to the point it took more than a decade for the sector to recover and barely just. It took a major shake up with consolidation and bankruptcies to energize the industry.

In this region, similar things happen. Airlines start by cutting costs and canceling unprofitable routes and flights to stem losses. Productivity drives and cost cutting becomes the battle cry of the season, just as conventional wisdom dictates. But then common sense or folly prevail depending on your point view. Aircraft are not grounded in mass and orders are not canceled, maybe deferred.  

The airlines of the region continue their growth either by increased frequencies to popular and new regional destinations or by expanding into new regions such as Asia, Africa, CIS and South America, the emerging and frontier markets of the global economy. Markets that are totally ignored by Western European and North American carriers. Instead, we hear the criticism of how airlines are subsidized by their governments, as if western carriers are not protected by their respective governments.

This balanced approach to regional and global crises is what have saved the airline industry of the region, over and over. 

MENA and GCC Airlines Upbeat But...

This year's Arab Travel Market (ATM), the most prestigious regional event in travel and tourism in the MENA and GCC regions, was the most successful in many years. Attendance was 10% more than last year's. African and Asian countries attended to market their countries, even Europeans attended despite the Eurozone crisis. The mood was upbeat. Airlines in the countries of the Arab Spring showed Q1 traffic growth of around 25% higher than last year and airlines in the GCC had around a 10% growth (the difference being the lower base for each region).

Political instability is still a factor in the prosperity and financial performance of tourism and the airlines in the region, but things are stabilizing as political and hopefully economic reforms take hold.

However, oil prices are by far a larger threat, almost every airline has indicated fuel costs constituting around 40% of its total cost in spite of fuel hedging ( 25% to 30% of their annual fuel needs are hedged on average). This has prompted Qatar Airways CEO to declare that if oil prices persist or increase we are bound to see higher ticket prices. An increase that might derail a fragile recovery.

Of course, the Eurozone crisis is another problem and the recent elections in France and Greece are not very encouraging. If the economies of the Eurozone enter into a deeper recession, a further reduction in European visitors to the region will occur with negative consequences to tourism and airlines.

Airlines in the region are again discussing growth plans and expansion into new markets and destinations, exhibiting the vibrancy and resilience of the sector.


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