MRO Business Heats up in Brazil

Even after the third anniversary of the terrorist attacks on New York, Washington D.C., and Pennsylvania, air carriers are struggling to continue operating and hopefully, return to profitability some time in the not-too-distant future. As with many of their North American counterparts, some Latin American airlines continue to deal with financial woes that are unrelated to the terrorist attacks. Varig Airlines, Brazil's flagship carrier, is one such example. Despite ongoing business troubles, the airline launched its own maintenance service operation, Varig Engineering & Maintenance (VEM) in January 2002 to pursue opportunities in the growing maintenance, repair, and overhaul market.

VEM delivers about 4.15 million man-hours per year from three maintenance centers in Porto Alegre, Rio de Janeiro, and Sao Paulo. The company has attained FAA and JAA certification and has established key partnerships with OEMs including Honeywell, Hamilton Sundstrand, Northrop Grumman-Litton, Pratt & Whitney, and Goodrich.

The VEM complex is considerable in size and composed of two maintenance centers (CEMANs) and 47 line stations. The CEMANs (main bases), located in Porto Alegre (CEMAN POA) and in Rio de Janeiro (CEMAN GIG), are capable of providing heavy maintenance for a diverse fleet of aircraft, including the Boeing 727, 737, 747, 767, and 777 models along with the DC-10 and MD11. In addition, VEM services more than 6,700 components installed on these aircraft. Transit inspections, daily checks, A-check inspections, and routine maintenance services are performed at VEM's line stations.

The Rio De Janeiro CEMAN facility measures 200,000 square meters and houses four wide-body bays, which can accommodate aircraft docking and parking, simultaneously. The smaller Porto Alegre facility measures 78,000 square meters and offers three hangars, which can accommodate five narrow-body aircraft docked simultaneously. VEM's CEMANs have a total staff of 3,978, including 2,993 licensed airframe, engine, and avionics engineers. In all, the CEMAN annual capacity is about 4,533,163 man-hours.

VEM recently celebrated its third anniversary. During its three years of operation, the company has expanded beyond the Varig fleet and now services several carriers in the North American region, including Gemini and Arrow Air. VEM's Asian influence is also growing as indicated by its relationship with Thai Airways. While 40 percent of the company's business originates within Brazil, 20 percent comes from the rest of Latin America, another 20 percent from the United States, and 15 percent of its business originates from the African continent. This leaves about 5 percent of VEM's business stemming from other parts of the world.

VEM also has expanded in other ways, especially in terms of the type of aircraft serviced. As technology progresses, so do the capabilities of the organization's facilities. Luis Alberto, VEM's vice president of marketing and sales, said the company has adapted to a new generation of aircraft.

"We provide maintenance for Varig's new-generation fleet, the Boeing B777," he said, "as well as GOL's fleet of new-generation aircraft. With older aircraft, sometimes we face unexpected corrosion and/or structural repairs that may at times impair the TAT of the aircraft."

So, how has this transition from older aircraft to new-generation jets affected Varig and VEM? Alberto detailed VEM's initial expansion plans and how the company has benefited from the change in Latin America's fleet.

"As we grew, we intended to expand our capability to include other models and components," he explained. `This year [2004] we received certification to perform heavy maintenance on A300 aircraft and have a plan established to receive certification on the A320 in a very short lapse of time, when the proper occasion arrives.

"We are also working on projects with Embraer. On the business jet side, we are already working on Gulfstream aircraft and the Embraer Legacy."

Aside from its expansion in the heavy maintenance market, VEM also has built upon its component overhaul business.

"On the components overhaul side, we just received and installed the ATEC 6-series equipment, which will enable us to perform maintenance on avionics found on several new-generation aircraft. The Latin American fleet has to be modernized in the near future, but nevertheless, we are striving to conquer a larger portion of the market no matter if it includes new-generation or aged aircraft," Alberto said.

Varig has struggled financially for some time and during the month of December 2004, the Brazilian government announced its intentions to take over the airline in a move to keep its jets flying during a restructuring process aimed at paying down the carrier's massive debt. Federal airport authority president Carlos Wilson Campos hinted such a move would allow thousands of workers to keep their jobs, but did not disclose more details about how the plan would work and whether Varig would eventually be reorganized or dismantled. Part of the carrier's money problems stem from the decline experienced during the 2001 travel season and a concurrent drop in the value of Brazil's currency--the real--which made it difficult for Varig to pay costs linked to dollars, including jet fuel and aircraft lease payments. In December, Varig won a court decision giving it 2 billion reals ($740 million) in damages for losses from government-imposed price controls on airline ticket prices in the late 1980s and early 1990s. The government said it would appeal to Brazil's Supreme Court. A ruling is expected sometime this year.

While Varig has undergone some financial difficulties in recent times, Alberto said VEM's independent operation is a key to its future success. "That is one of the reasons we created VEM," he said. "Varig has its focus. It maintains a 77-year tradition of transporting people safely, on time, and comfortably. VEM's creation has allowed us, as a separate company, to manage our own cash flow and to have focus on our side of the business."

So, what lies ahead for VEM? While Varig struggles for stability, Alberto said the company will continue to solidify key partnerships with major OEMs. As previously mentioned, VEM has clinched partnerships with Honeywell for avionics and APUs, Goodrich for wheels and brakes, and Northrop Grumman (Litton) for work on navigation units.

"I believe that partnerships are a key factor for the success of any company," Alberto said. "By sharing efforts, VEM and the OEMs can provide better services to the operators in the region. This may be a key factor when an airline has an option to choose X or Y brand to equip their new aircraft. It is always good to count on an extension of the OEM close by and benefiting--but getting support in warranties--in AOG situations, in a shorter TAT."

Aside from the expansion of partnerships, VEM is pondering the possibility of building at least two more hangars, which might come in handy when it reaches another milestone: to enter the A320, B757, and B777 MRO markets. -- By Arturo Weiss

Avborne Balances Mix of Modern, Aging Aircraft

Aging aircraft remain prevalent in many regions of the world, including the growing Latin American market. While new fly-by-wire jets soar over the southern skies, many older counterparts still operate throughout the region. In fact, it's not uncommon to see a Boeing 737-200 or 727 parked next to an A320 at a major Latin American airport. While it makes for great diversity in the region's fleet, the numbers of aging aircraft are posing some maintenance nightmares for their operators.

Because Miami is considered the gateway to Latin America, it makes sense that a large maintenance presence, such as Avborne, would expand near Miami International Airport (MIA), one of the busiest cargo fields in the world. Ranked first for international freight and third for international passengers to the United States, MIA serves as one of the nation's largest passenger hubs, serving U.S. domestic and international traffic from Europe, Africa, Asia, the Middle East, and the Americas. Situated on the airport's perimeter, Avborne has been a leader in heavy maintenance and component overhaul for a number of years and has expanded its Miami base to meet the growing demand from its customers.

Avborne is divided into two divisions, Heavy Maintenance and the Accessory Group, which are located about a five-mile drive from each other. Both units work heavily on older aircraft with 85 percent of the Accessory Group's business stemming from aging aircraft issues. About 65 percent of the group's business is with mid-age aircraft, while 35 percent on new-generation Boeing and Airbus jets. Avborne Heavy Maintenance has a full maintenance facility to support a wide variety of aircraft types. These services include:

�Daily inspections, A-, B-, C-, D-checks

�Corrosion prevention

�Avionics upgrades

�Aging aircraft programs

�Aircraft painting

We discussed the issue of aging aircraft with Eduardo Montalvo, Avborne Accessory Group's president, whose business benefits from this ever-present aircraft market. "One of the challenges we face," he explained, "is working on a variety of aircraft, each with its own set of issues, and on occasion, suffering from design work." Montalvo added that the research and development on these older aircraft was a world apart from what is now a standard in manufacturing.

When asked if Avborne technicians working on older aircraft employed a different approach to their tasks, Montalvo said that some older components cannot be tested on the high-tech computer-based platforms used for new-generation aircraft. "This requires the technician," he said, "to tap into his experience to investigate the source of the problem and determine what is the best way to handle it."

It's no secret the aviation industry is enduring one of the most devastating periods in history. While many companies have closed their doors to due lack of business, the Avborne team reports that business is better than ever during these turbulent financial times. Montalvo said the boom in business is attributable to the cost-cutting measures many airlines have undertaken in light of record losses. "Airline MROs have traditionally been one of our major competitors," he said," but these companies have realized that funding their support operations is a major expense."

"Major carriers have opted to outsource overhaul work to cut costs," agreed Sean Beaubien, Avborne's vice president of sales. "This in turn has funneled increased business to Avborne."

In fact, despite the state of the industry, it seems that business is better than ever for Avborne. This year, The Accessory Group brought in about $60 million of revenue and forecasts to more than triple that amount, to about $200 million annually by the end of 2009. At that point, Avborne would rank within the top three such facilities in the world.

With its airline-based business doing well, Avborne management has set its eye on diversification and has already entered the regional jet market. The company plans to enter other valuable segments of the aviation industry, notably the military in 2005 and also the business aviation market. Beaubien noted that military budgets have swelled in the post-9/11 era and older aircraft still remain a significant part of many military fleets and, he added, the military segment is 60 percent subcontracted. On the business aviation side, the company plans to service the entire spectrum of the bizjet market. Montalvo forecasts a continuing trend with the growth of the business aviation segment. "The market indicators all show a continued expansion of business aviation and we have the facilities that can well handle the additional work."

Avborne's Accessory Group's diversification plan includes expanding its already large international reach. With 65 percent of its business originating within the U.S., the company has already clinched 15 percent from Latin American clients and approximately 6 percent from its most recent market entry, the Asia-Pacific region.

The facilities that Montalvo spoke of include a 205,000 square foot facility, located one mile west of MIA. Carolina Jones, Avborne's vice-president of marketing and head of Asia-Pacific sales, said the company opened its specialized composite and bond shop in September 2004. The growth of this location can be attributed to Avborne's strategic acquisition of Nortek Repair Center and Professional Modification, located on one of the original Eastern Airlines maintenance facilities. By the time this issue of Aviation Maintenance is delivered, Avborne will have entered a second stage of expansion, which includes wide-body aircraft capabilities and full utilization of the 45,000 square foot shop. The facility handles narrow-body composite, bondment, and sheet metal work related to ATA Chapters 27, 57, 71, and 78.

The expansion Avborne has undertaken demonstrates the company's faith in the market and unique approach to succeeding in a perceived troubled industry. While things may look bad for some airlines, aging aircraft and increased outsourcing are helping companies like Avborne turn the proverbial lemon into lemonade. -- By Arturo Weiss

Customer Service, a Critical Function

Aircraft maintenance used to be all about following maintenance manual guidelines to replace and repair parts and carefully documenting the work while keeping an eye on profit potentials.

Although these are still the nuts and bolts of the aviation maintenance business, airlines and aircraft operators alike are beginning to expect more from the companies that service their aircraft. And with the aviation economic doldrums of the past couple of years, aircraft operators can afford to demand more. Many aviation maintenance service businesses are beginning to develop a larger commitment to customer service.

"In our economy, more companies have become aware of their fragile relationship with customers and we have noticed a slight improvement in customer service," said Roger Herman, principal of management consulting firm The Herman Group. "Some people are taking that extra moment to be courteous, recognizing the importance of those customers who choose to do business with them, a wise strategy in today's competitive world."

Indeed, aviation maintenance companies are realizing that customer loyalty and customer retention is driven by customer service. Customer service, then, becomes a key competitive advantage that is critical to success. So what do companies want from their aircraft service providers? They want mechanics and service managers who understand the emotional drivers of the aviation business. They want a partnership mentality instead of a fix-it-only mentality. They want a long-term, dependable, above-and-beyond relationship.

Eric Schulz, president of Goodrich's Everett, Washington-based Aviation Technical Services division, has watched the evolution of the aviation maintenance industry over the past 25 years and reports a definite shift in how service providers do business. He remembers the days when airlines once performed maintenance functions internally. He also remembers when aviation maintenance, repair, and overhaul (MRO) providers sprang up to offer outsourced service options with attractive cost benefits. Schulz said cost savings alone, however, are no longer enough for service providers to survive and thrive in today's aviation industry climate.

"The next generation of service providers will build their businesses on very close relationships with their customers," said Schulz. "Those relationships will guarantee the customer both access to good prices and long-term quality requirements. We believe only the MROs with long-term customer relationships will stay in business."

What does Schulz mean by relationships? He's talking about an emotional investment in the customer's anxieties. Call it 21st century customer service. It requires MROs to take on the burdens of the companies they serve. So if an airline's jet is torn apart in a maintenance hangar and scheduled for takeoff in three days, then there is a stressed customer anxiously awaiting good news. After all, passengers have expectations of on-time arrival and they can get emotional about unexpected delays.

"Our customers have to deal with the emotion of getting the aircraft where it should be on time day-in and day-out," said Schulz. "Sometimes there are weather problems. Sometimes there are technical problems. Sometimes there are passenger problems. It's a day-to-day pressure that never lets up. Their maintenance problems have to become our maintenance problems."

Sometimes airline management needs someone to hold their hands and walk them through these stressful situations. So if a customer has a glitch with an aircraft at an airport across the country, they may call the MRO to send a team out to repair it or ferry it to the maintenance hanger for an emergency repair. In the relationship-based approach to maintenance, the MRO becomes part of the aircraft operator's day-to-day operation, and Aviation Technical Services's focus on long-term relationships is a key to success.

It's easier to keep a customer than to gain a customer, and modern MROs understand this. There is plenty of competition in this industry, but if a company can keep customers happy, this benefits both the MRO and the customer and helps bring new business in the door.

Schulz is always looking for the long-term relationships. His company has been successful in keeping key customers, like Southwest Airlines, FedEx, and UPS for more than 20 years. "When I go to Southwest, they treat me like part of their family," he said. "We walk with them every day. That's the way we look at our business." -- By Jennifer LeClaire

Fokker: Old Name, New Strategy

With more than 1,000 Fokker-built airplanes in service still all over the world flown by some 240 operators, the maintenance and overall support of this fleet is still in the hands of a Dutch company, only now it is Fokker Services of Hoogerheide, Netherlands, and the company has almost more work than it can handle.

The reason for this satisfactory state is the strategy the company is adopting as it looks to the future. With the demise of the Fokker manufacturing company in 1996, the spares provisioning and aftermarket support role was taken on by the Stork organization, a large Dutch industrial firm. Stork created Stork Aerospace Group, of which Fokker Services is a part, with offices in Atlanta, Georgia and Singapore.

While support of the existing fleet of commercial aircraft is a substantial task, a strategy for the future had to be defined. This has been gradually put in place and is the subject of ongoing planning, explained Koos Huurdeman, spokesman for Fokker Services. The company is targeting military aircraft MRO work as well as civil.

The first step was continuance of maintenance, repair, and overhaul of the commercial fleet, which includes spares provisioning and acquisition, and replacing of retired aircraft, this covering all Fokker models from the F-27 to F-28 to the Fokker 50, 70, and 100. The company will make some minor structural parts but will otherwise provide spares from its stock and secure branded components from avionics and other vendors. For operators who want to operate used (sometimes little-used) Fokker airplanes, Fokker Services tapped into a supply of former US Airways and American Airlines jets mothballed in the desert. Some 115 of these have now been acquired by clients, and Fokker Services is overhauling and restoring these to service. As of mid-October, 180 Fokkers had been completely restored since 1996.

On the commercial front, the company has turned to Embraer as another range on which it can perform MRO work for clients, and this business is expanding steadily. Fokker Services has also been working on Gulfstream models with similarly satisfactory results.

On the military front, however, the old Fokker company had a long association with General Dynamics, Lockheed, and the U.S. military generally, building under license Starfighters and F-16s. Now military MRO work has become the province of Fokker Services in a major role that has been extended to Boeing Chinook helicopters operating in Europe. The Papendrecht military air base is still active, and NATO and other European air force F-16s fly in directly to this base for servicing and other work. Commercial and military aircraft are also overhauled at Woensdrecht, the location also for the adjoining company headquarters at Hoogerheide.

With a full-time workforce of 900 and profits being realized annually, Fokker Services believes it has its strategy for the future in place as a developing European MRO center. -- By Roy Allen