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The landscape is changing in the MRO marketplace

Competition is eating into profits from sales of new engines and aircraft, though few airlines cry for the manufacturers. Many carriers have dropped or want to drop high-cost, capital-consuming servicing functions. Solution: OEMs are creating both in-house maintenance and repair capacity and joint servicing organizations with carriers, other suppliers and independents.

The company serving as business model for this activity is GE. Like other GE units, GE Aircraft Engines is under orders to capitalize on the worldwide demand for services, otherwise known as outsourcing. Observers say aviation-service consortia eventually will dominate the estimated $50 billion business.

GEAE's first big splash came in 1991 when it took over British Airways' Welsh engine facility as part of winning BA's launch of the GE90. A manager recalls, "Nobody at the time talked about the service shop deal [other than to cluck at GE's desperation to nab the order]. Yet it proved to be the part that made economic sense, Until then, the idea of our overhauling a Rolls-Royce engine was unthinkable."

BA's disposal of a major technical function spurred other we-can-do-everything airlines to consider the same thing. But Aer Lingus's experience was traumatic (ATW, 11/99, p. 97). KLM's search for a partner for its maintenance division has made employees unhappy. Qantas's maintenance staff members have sued it for initial outsourcing that may be a precursor to bigger things. An observer sees United Airlines' San Francisco engine shop "as one of the highest-cost facilities in the world, but they're stuck because the employees own the airline."

United Services, with $250 million in sales, is trying to make the best of it, taking on some new airline business but also investing in joint ventures, including the AirLiance materials JV with Star partners Lufthansa and Air Canada. AMR/American Airlines once did major third-party business, exited, then returned to keep a new hangar working. AA has partial deals with the major engine-makers but its strong mechanics' union is unlikely to let it dispose of maintenance outright.

Carriers look enviously at Southwest Airlines, which never has performed heavy engine work, US Airways is headed in the same direction, with progress linked to elimination of its JT8-powered fleet. It already has dumped three of six maintenance bases. An OEM marketer says, "[Chairman Stephen] Wolf and [CEO Rakesh] Gangwal don't believe in putting shareholder money into something the customer can't taste, touch or feel."

Carriers also are starting their own maintenance joint ventures. …

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