Commercial: Scoping Out Large Turbine Engine Service Programs

Think about it: Whether you are buying a new car, big screen TV, computer, lawn mower or whatever, it’s literally a retail transactional impossibility to complete the deal without the salesperson asking if you’d like to buy some kind of additional coverage on your purchase.

And whether you call them "extended warranties" or "protection plans" or "a supreme [pizza] with double cheese" — as they do in the consumer electronics business — these programs have become as much a part of our retail vocabulary as, "paper or plastic?"

And that’s not such a bad thing. When it comes to many purchases, especially the very expensive, very technically advanced stuff, the "double cheese" can be an economic lifesaver in the event that Murphy’s Law comes into play. Personally, my big screen TV is a textbook example of how these warranties can literally pay for themselves with the first service call.

So what does this have to do with large turbine engines you ask? If an extended service plan can be a good investment when buying a TV or computer, imagine how beneficial it can be when you are covering something that mixes extremely high temperatures with hundreds of parts spinning at thousands of RPM and that costs millions of dollars.

In fact, with the current economic pressures facing large and small air carriers alike, extended service programs are an economic necessity. So much so that today these programs for large turbine engines have literally grown into a significant side business for the "big three" engine manufacturers and at least one large MRO.

Of Sandwiches and Service Programs...

What makes these extended service programs so appealing to today’s airlines? "I think that they are more willing to outsource things to people who can manage the risk better than they can," explained Mark Kerr, market development manager, services for Rolls-Royce. "Like airlines don’t do their own sandwiches now, they hire someone to provide them. They also may have outsourced ticketing or baggage handling.

"It’s all done by a provider because the airlines don’t want to invest in the infrastructure that goes with these services," he continued. "So they are starting to look at certain parts of their business in terms of how do they predict cash flow around their maintenance activities."

Getting a handle on predicting and controlling those cash flows is more important to airlines today than ever. According to an April 2007 presentation given by AeroStrategy on the global MRO market, air carriers spent $40.8 billion on aircraft maintenance, refurbishing and overhaul in 2006 with 35 percent going to engine maintenance. By 2016, that total MRO number is predicted to rise to $58 billion with 40 percent going to engine work. Cha ching!

And while the expenditures are mind-boggling, what is also very important and key to why airlines and engine OEMs are proactively developing new extended service programs, is that nearly 80 percent of all that engine work will be outsourced.

In fact the engine service and maintenance opportunity is so attractive, that a few years ago Delta Air Lines formed Delta TechOps, a division of the company that is charged with marketing their extensive in-house maintenance capabilities to other airlines and MROs around the world. (See AM cover story, commercial edition, April 2007)

"We work more as an independent MRO provider than an airline maintenance shop," explained Jack Turnbill, Delta TechOps’s, director of technical sales and marketing. "We’re not just the user of service agreements for Delta’s fleet, but also a provider of them too for our MRO customers. Our customers get the best of both worlds and for Delta, it’s a 300-plus million dollar business that is continuing to grow.

"To give you a feel for the overall scope of the work we’re doing on the engine side, in any given year we do in the neighborhood of 600-plus engines," he said. "Nearly 50 percent of these are now external customers’ engines. It’s not only important for Delta, but also for our key suppliers. They want to be part of that opportunity to sell their parts and services to all these customers."

Covering Your Assets

"Today, it’s about engine maintenance or, as we say it, engine asset condition management," Kerr said. "Operators and service providers need to recognize that it is more than just bits of metal spinning around. That’s been a fundamental change over the past five years — from maintaining engines to helping our customers keep their assets viable and affordable."

Kerr explained that it’s "asset management" because an airline’s aircraft and engines are literally all it has to "sell" its passengers. If the engine doesn’t run, the airplane doesn’t fly and the airline has nothing to sell. Elementary? Yes, but that’s the drill down.

And key to the mix is the engine OEMs being able to help airlines protect and optimize these assets by offering extended service programs that can be easily tailored to each operator’s specific needs and budget. "If you look back a couple of years ago our approach was to go and offer ‘off the shelf’ products to everyone," explained Jacques Chausse, general manager of services marketing, GE Aviation. "We were pushing a lot of dollar-per-hour type programs."

But on September 11, 2001 that all changed. Suddenly legacy and start-up airlines were tossed together struggling for their very survival by making every dollar count as two. Oftentimes those efforts to save money have forced airlines to dramatically alter the way they do their maintenance. Outsourcing is the order of the day and that change pushed the engine service providers to rethink their strategies.

"I think some of the larger legacy carriers who have been used to doing full-service maintenance themselves are looking for the same full-service type service products," Bob Merrill, director, service programs for Pratt & Whitney Global Service Partners stated. "Some of our start-up type customers may look for a little less than full-service because of the nature of their business — it seems more transitional in terms of the time they keep the equipment around and the fluency by which they are growing their businesses.

"But we see both flavors by both types or markets," he continued. "We have a European carrier who is very low-cost oriented jump into the full-service management type program. We’ve had discussions with a major U.S.-based carrier about basically dropping [full service] work with some fleet management type services added like water washing and fleet monitoring.

"Our mantra here is to basically provide the customer with whatever he wants," Merrill said.

"What we do today, before we offer any product solution, is to talk with the airline and ask what it is they are trying to find." Chausse said. "What are your needs? Long-term? Short-term? How do you want to pay? Do you want technology upgrades or no technology? Do you want data, diagnostics or training? Once we understand their needs we can start to craft a solution."

One from Column A, One from Column B

Whether you are talking about GE, Pratt & Whitney, Rolls-Royce or Delta TechOps the "support word of the day" is pretty much the same, customization. You pick and choose from a list of services and capabilities to tailor an engine service program that fits your needs and budget. And that customization of support programs doesn’t stop with basic maintenance services. It has grown to provide services beyond engine inspections and shop visits.

"Delta TechOps provides the same services to our customers that we provide for Delta’s fleet," Turnbill said. "Components, base maintenance services, inventory support programs, line maintenance services and so forth."

One of the more popular a la carte engine services being offered today is some type of real-time engine monitoring like Pratt & Whitney’s Advanced Diagnostics and Engine Management (ADEM) program. "We have some customers who monitor their own fleet and we provide secondary monitoring for them," Merrill said. "Other customers want us to monitor their entire fleet for them. Some customers want to be active in terms of managing their records — other ones want us to take over full responsibility for maintaining their records.

"We have a couple of legacy carriers in the U.S. that basically have turned it [engine maintenance] over to us and said, ‘It’s up to you to decide when and how the engine should come off. Just make sure they don’t go AOG,’" he added.

Another emerging service that is attracting a lot of attention from airlines is what’s called "pylon down" support. "There are some customers that are coming to GE and asking us to take care of not only our engines, but all the different vendors from the wing down," Chausse said. "They don’t want to deal with multiple vendors. We’re offering that on our new GEnx engines on the Boeing 787."

And GE isn’t alone. "Going forward, we are going to be looking toward pylon down services — for the whole propulsion system," Merrill said. "We are developing capabilities to provide some of the composite activities through our composite business unit so we are able to provide more capabilities to deal with repairs to nacelle items, cowls and inlets.

"Working with our sister company, Hamilton Sundstrand, we are also able to provide accessory management to support both field maintenance and component maintenance while the engine is in the shop," he added. "These accessories include such items as the starter motor, integrated drive generator, and EEC unit."

Airlines want to evolve into a world where they can make one call to one service provider to take care of anything and everything connected to their engines. The engine service providers want to make sure that they are ready when that call comes.

On the Road Again

Just how far are the major engine service providers willing to go to provide their airline customers with the support they need? Pretty much wherever the airlines go.

What that means is the engine manufacturers and third-party service providers are ready, willing and able to provide engine and aircraft support services virtually anywhere their airline customers travel. "Rolls-Royce’s ‘On Wing Care’ guys are basically like your Triple-A over in the U.S. — they have the skills, they have the toolboxes and they have the bits that can go on your plane and if it has a problem line-side, they can fix it," Kerr said. "An airline customer looks at the value of these programs and goes, ‘Well I’d have to be daft not to take advantage of that....’ so it starts to make a lot of sense to them."

Especially when you take a look at what the new generation of airplanes offer in the way of range and efficiency. Knowing that engine support is not far away takes an added financial and operational burden off of an airline’s growth plans.

"Nobody wants something like an A380 breaking down at an airport because the engine won’t work," he continued. "You’re stuck with finding lodging or transportation for up to 555 people. Then you have the 787 model where people are going to now fly to new locations and open new routes. Well the airlines may have support at one end and not at the other. What happens if they have a problem?

"We’re saying to the airlines, ‘Look, we’re in the business of putting the infrastructure in the right place to help you, so we can get an engineer to your plane in a location within two hours. So subcontract that service out to us," Kerr said.

"These new airframes are kind of ‘game changers’ — they really are making airlines refocus on what their operating model really is," he added. "They are looking for OEMs like Rolls-Royce, to develop services to support them. We are embracing that wholeheartedly. It matches with what our mission statement and vision for our business is."

"We have become more comprehensive in terms of what we are offering the industry," Turnbill said. "We are not only doing drop-in type activities, but we have large ongoing relationships with many airlines that rely on us every day to provide their complete engine support services. This includes on-wing services, engine condition monitoring and reporting and reliability tracking of engine performance.

"But it’s not only on the engine side," he added. "Seems like our customers are looking for more comprehensive support of their entire aircraft. We have well in excess of 100 customers worldwide that depend on us in Europe, Asia, South America and North America and hardly any two of them are exactly the same in terms of what their needs and requirements are. But cost, quality and turn-time are the three big areas of concern with pretty much all our customers."