Commercial: Iberia Maintenance is Hungry For More

Madrid, Spain-based Iberia Maintenance is betting on its third-party maintenance, repair and overhaul (MRO) business to make the entire company grow. Iberia Airline’s maintenance organization is thus expanding its existing facilities. It is also looking for synergies with other firms.

The first evidence of Iberia Maintenance’s fast growth can be seen in its workforce. It is growing at an annual rate close to three percent. Now standing at almost 4,000, the number of employees has increased by 100 every year since 2004, according to Executive VP Manuel López Aguilar. He anticipates further growth during the next three years — 100-150 employees per year.

"We are finalizing our business plan for 2008-2010," López said. Iberia’s needs are thus reassessed. The additional maintenance technicians to be hired will be airframe, engine and component specialists.

Swiftly raising revenues can be seen, too. López anticipates a turnover of €670 million this year, after €610 million in 2006. Asked about the company’s net margin, López said it is "normal" for the industry. Internal invoicing between Iberia Airlines and Iberia Maintenance is now based on cost.

Third-party maintenance is becoming the main contributor to the total revenues. Third-party revenues have been growing at 30-40 percent annual rates since 2004. This year, third-party maintenance should account for €300 million.

At Barcelona airport alone, 150 more mechanics are to be hired. Iberia Maintenance is expanding its facilities there. "We expect Barcelona airport will grow fast," López said. Offered will be line maintenance and C-checks. The hangar will be able to house four A320s or two A340s. Only these aircraft types will be serviced initially. "We may also perform line maintenance on other aircraft, such as Boeing 737s," López explained. Customers in Barcelona so far include Iberia and low-cost carrier Clickair.

Other than the Madrid Barajas base, Iberia Maintenance has locations in Europe, the Americas and Africa. But it does not plan to add any in the growing Asian markets such as China. "We are late," López substantiated. Under evaluation is the possibility to have a maintenance center in Latin America. It would perform C- and D-checks eventually. Mexico, Colombia and Brazil are considered suitable because of their economic potential.

In Madrid, Iberia Maintenance has recently opened a new thrust reverser repair shop. "It started with an airworthiness directive on Airbus A340s," López explained. The shop will repair all Airbus aircraft thrust reversers. Separately, Iberia Maintenance is assessing the cargo conversion market, notably for Boeing 757s.

But growth should not be pursued at any cost, according to López. Iberia Maintenance puts its existing customers first, he said. Some peace of mind comes from "having a big company supporting us," he added. While the maintenance division is growing, Iberia can outsource some work on its 150-aircraft-strong fleet. In case of a downturn, it can insource again.

At Iberia Maintenance, outsourcing is seen as very useful. "Sometimes you just can’t say ‘no’ to a third-party customer," López noted. This also allows a focus on higher added-value jobs. Outsourced, for example, has been aircraft cleaning.

With neighboring executive air charter operator Gestair, Iberia Maintenance is planning to create a joint company this fall. It will offer to maintain, modify and refurbish business aircraft. Iberia shops and paint hangars will be used. Gestair will be the first customer, with its fleet of nearly 30 aircraft.

What about synergies with other airlines in the Oneworld airline alliance? Special groups for engineering and maintenance gather every six months. They share experience and best practices. "In future, we want to create joint line maintenance stations," López said. However, this could be far off. Fleet heterogeneity and differences in quality procedures are major challenges.

A common approach could be found to providers. In the future, Oneworld maintenance companies could have a single procurement team. Also, Oneworld partners are mulling the use of PMAs, rather than OEM parts, as a source of savings.

Iberia Maintenance claims it pays special attention to environmental issues. It thus holds an ISO14000 certificate. For example, after water use in polluting processes, liquids are either treated on-site or directed to the right plant, López told AM.

As for energy, "the idea is to use it rationally," López said. The use of electricity was evaluated at each facility. In some hangars, there is now less lighting at night, as fewer people work during this period. Sometimes, saving energy just takes common sense.

In addition, Iberia Maintenance has a co-generation plant that produces electricity and uses waste heat for building heating. So it is not wasted any more. Another source for water and building heating is the sun, through solar panels.

Asked about software integration, López acknowledged SAP implementation has been tough. It took four years to implement it throughout the entire organization. "After a long and painful process, we are starting to reap some benefits," López said.

For example, there is now only one source of information. So the quality of information has improved. "It is better for planning purposes. The possibilities of mistakes are reduced," López pointed out. SAP also helped in improving the workflow.

The company took this opportunity to review all its working processes. Every local system was replaced so training was needed. "All the job cards are new," López noted. A big challenge was loading the system with historical data.

The Enigma software program is still in the testing phase (see box page 18). It will connect documents from manufacturers, job cards and records. "Our target is to be operational by year-end," López said. Technicians will use Enigma via laptops on the ramp and in the plane. Updates are wireless to and from laptops. "It is useful for invoicing as well," López noted.

Aircraft are increasingly reliable and repairing equipment is more and more expensive. For example, López mentioned the CFM56-7 — the engine of the Boeing 737 — as one that seems to last on wing forever. So how is Iberia Maintenance addressing this challenge? "Visits are more and more expensive," López insisted. Therefore, the company’s management team needs to find a balance and have the right portfolio of customers to keep a constant flow. They try to forecast the demand and plan accordingly.

Last year, a major contract was signed with Continental Airlines. It covers 12 Boeing 757s. The Spanish company supplies all Rolls-Royce RB211 engine shop visits.

What a customer can do so far on Iberia’s Web is limited. A maintenance manager can enter a part number and learn about the capabilities at Iberia Maintenance. The company is working on an improved Web service as a new SAP application. The objective is to give slot availabilities and information about ongoing contracts. "In future, customers will be informed in real time," Morales said. The target is to have the service operational by year-end.

What does the EVP think his company is best at? He answered after some apparent reluctance to put one activity in the spotlight. But he finally expressed pride about RB211 and CFM56 engine capabilities as well as their aircraft modifications and heavy checks abilities.

So is Iberia Maintenance bustproof? "We want to grow, we are getting new customers, offering new products; we can still get some market share," López answered. The company’s hungry plans hinge on a seven-percent market growth.