Aircraft maintenance firms bullish about their future

Demand Strong; Airlines are turning to more outsourcing as they search for cost-saving steps
ALLISON LAMPERT, The Gazette
A U.S. airline client might have put off an important heavy maintenance deal, but Chahram Bolouri says he's not worried about his firm getting stuck with empty hangars. As airlines struggle to cope with soaring oil prices, demand is strong for cost-saving options like the outsourcing of maintenance, repair and overhaul (MRO) work, said Bolouri of ACTS Aero Technical Support & Services Inc.

Facing internal pressures - including a $10.2 million fine from the U.S. Federal Aviation Administration for allegedly failing to inspect aircraft for structural cracks - Southwest Airlines Ltd. recently put off a deal to have some of its B737 aircraft serviced by ACTS's Latin American subsidiary, Aeroman.

In December 2006, Montreal-based ACTS bought 80 per cent of Aeroman, the narrowbody aircraft maintenance division of El Salvador's national carrier Grupo TACA. Despite Southwest's decision, a new hangar with two lines now under construction at Aeroman's San Salvador facility won't stay empty for long, Bolouri said.

"The reason we built a hangar was not for one given customer. It was because of demand," Bolouri said in a recent interview. "We haven't seen any slowdown of future clients into El Salvador. They have to reduce costs and (with Aeroman) they're not reducing quality with the cost," he said. "I will fill both of those (lines) by the end of the year."

Part of what makes Aeroman cost-competitive is its labour costs.

While ACTS won't disclose salaries, news media reports have said an entry-level mechanic at Aeroman earns about $4,500 a year. By contrast, the starting salary for a Canadian mechanic is $44,000 a year, said Carlos DaCosta, Toronto-based airline coordinator for the International Association of Machinists and Aerospace Workers.

Citing an industry analysis, DaCosta said U.S. main line carriers outsource about 68 per cent of their MRO work, with the proportion rising to 80 per cent among low-cost carriers. "I do think we are going to see more North American work being done in Asia, Eastern Europe and Latin America, particularly with the wide-body aircraft," said Derek Nice, CEO of ExelTech Aerospace Inc., a Montreal-based MRO which competes against ACTS for some engine and components work.

To remain competitive against MROs in low-cost countries, ExelTech focuses on providing quick and reliable service. "The pressure is on us to continuously deliver more efficiencies to our customers," he said. Canadian carriers appear to be bucking the trend in sending aircraft overseas for maintenance.

Air Canada planes, serviced almost exclusively by ACTS in Canada, won't be sent to El Salvador, Bolouri said. Still, unions continue to fear outsourcing because of the industry trends, DaCosta said. "The fear is that we cost $50,000, $60,000 and $70,000 a year each," he said. "At Aeroman, they cost significantly less."

In March 2007, ACTS - then owned by Air Canada's parent company, ACE Aviation Holdings Inc. - cut 700 jobs in Vancouver after Delta Airlines Inc. cancelled a maintenance contract and moved some of its aircraft to cheaper facilities in Asia.

A few months later, ACE sold off all but 23 per cent of its stake in ACTS to private companies, including Sageview Capital LLC and KKR Private Equity Investors LP. Aeroman, which has JetBlue Airways and U.S. Airways as clients, is in growth mode.

The company has 500 workers in training to expand its force to 1,300 in 2008, Aeroman director Ernesto Ruiz said. While ACTS refuses to divulge profit figures, the company said revenues have grown from $864 million in 2006 to $978 million in 2007.

In El Salvador, Aeroman is the anchor company for what the country is hoping to turn into a national aerospace cluster. "The government is behind us up to the president of the country," Ruiz said.

In 2005, El Salvador's Universidad Don Bosco launched a two-year mechanics course.

Quebec's École nationale d'aérotechnique at the Collège Édouard-Montpetit in Longueuil helped the university develop the course curriculum. While Aeroman also offers its own internal training courses, one of the biggest challenges, Ruiz said, is finding qualified workers to meet demand.

FMI: Montreal Gazette