The lands south of the US-Mexico border. INDUSTRY FOCUS Maintenance in Latin America

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1 Maintenance in Latin America Latin America s maintenance market is in need of an overhaul. There is a shortage of technicians, the biggest airlines are adding aircraft faster than they can repair them, and big gaps exist in the widebody and engine segments. On the other hand, narrowbody maintenance lines are being added, new facilities are springing up and international MRO providers are circling the region. Alex Derber investigates. The lands south of the US-Mexico border used to be a pretty homogenous place for aircraft maintenance. As recently as 2000, Airbus only accounted for one in 10 aircraft in Latin America and MRO shops invariably focused on Boeing narrowbodies such as the 727 and 737. Just 14 years later, Airbus and Boeing have equal market share and Brazilian manufacturer Embraer is making inroads with new carriers such as Azul. Consultancy ICF International estimates that the Latin American MRO market is currently worth $3.2bn, and that this will rise to $6bn by This puts the region s growth on a par with Asia s, a fact that hasn t escaped the attention of some of the world s largest MRO providers. The past six months alone have seen Lufthansa Technik announce plans to build an airframe MRO facility in Puerto Rico; the opening of a nine-bay facility in Queretaro, Mexico by Aeromexico and Delta TechOps; and the purchase of Barfield, a Miami-based component shop, by Air France KLM Engineering & Maintenance. Although situated in the US, Barfield s extensive reach into the Central and South American markets was thought to be a key driver for the acquisition. Other US suppliers have benefited from gaps in the portfolio of Latin American 16 Aircraft Technology - Issue 131

2 El Salvador-based Aeroman has invested heavily in building a domestic labour force. The bad news in South America is that the fleet is not as old as it used to be, especially in Brazil. Those old 737 classics and 727s are almost all gone. Valter Fernandes, VP of operations, TAP M&E Brazil LATAM's newly merged MRO functions are considering expanding services to third parties. providers; AAR, for instance, scooped a heavy check contract for three Aeromexico 767s. Even so, the balance of trade for airframe maintenance is heavily skewed in Latin America s favour, with its providers winning almost five per cent of the total business originating from North American operators. Local versus foreign custom The importance of a juicy contract from a big US or Canadian operator is best demonstrated by El Salvador-based Aeroman. In 2004, the company began receiving America West A320s for heavy checks, and this led to other deals with operators such as JetBlue. We were able to fill a full year s backlog of nose-to-tail maintenance and the excellent results of those checks were our best publicity, says Aeroman chairman Ernesto Ruiz. As more customers followed, Aeroman was able to expand its facilities from four bays in 2004 to its present total of 12 lines for 737 and A320 overhauls. Such an expansion would have proved almost impossible without North American custom, as Ruiz explains: The problem for an MRO in Latin America is that the big airlines have their own maintenance departments. Gol, LATAM and Avianca will only outsource if there s an overflow and then the rest are small airlines that can t give you a full nose-to-tail line for the whole year. Aeroman is now deciding whether to extend its capabilities into widebody maintenance. Narrowing labour cost differentials have seen several North American carriers question the economics of their contracts with Asian providers, leaving a door open for shops like Aeroman, which has the hangar space, if not yet the tooling or training, to cope with large aircraft. It could be an opportunity for us. Labour costs in Latin America are increasing, but at a slower pace than in Asia, and not in a way that forces us to adjust the price of maintenance, says Ruiz. Nonetheless, he acknowledges that cost is only one part of the sales equation and that his company would face a renewed task in proving its quality and responsiveness on widebody platforms. One provider now journeying down that road is QET Tech Aerospace in Mexico, a relatively new MRO that recently opened a widebody hangar (though its first customer was for regional jet MRO) with the aim of providing ultra-lowcost maintenance. Others, however, remain unconvinced by the widebody proposition, and argue that Latin America s relative unfamiliarity with large aircraft 18 Aircraft Technology - Issue 131

3 will see the region struggle to compete with foreign widebody maintenance providers. In the whole of Brazil there are just 30 widebodies for 200 million people; I m from Portugal and even there we have more than that, comments TAP M&E Brazil s VP of operations, Valter Fernandes. He adds: Because of that, the facilities that can cope with a big operator are very limited. TAM MRO in Brazil and Colombia s Avianca both possess heavy maintenance capabilities on the 767, while Avianca Services can also perform C1 checks for the A330. Following the merger of LAN and TAM, an expansion of LATAM MRO s third-party services was identified as a key opportunity, and last year the company s facilities in Sao Carlos, Brazil and Santiago, Chile performed 10 per cent more work in man hours than the previous year. Although LATAM MRO just about managed to cover all of TAM s heavy maintenance requirements in 2013, most of the big operators struggle to meet all of their own needs in-house. One of the main demands of the aviation industry in Latin America is for aircraft heavy maintenance, as the capability of the airlines for their own fleet maintenance is insufficient, confirms Carlos Barrero, a member of the technical advisory committee at the Latin American and Caribbean Air Transport Association (ALTA). And, despite temptations from the large North American market about four times the size of Latin America s by number of aircraft this relative lack of third-party capacity has created opportunities in certain regions. Mexicana MRO, for instance, survived the collapse of its parent airline in 2010 and is now well placed to service the rapidly expanding A320 fleets of Mexican budget carriers. It also offers 737 overhauls. Back in 2005, meanwhile, TAP M&E the maintenance arm of Portugal s flag carrier acquired the MRO division of bankrupt Varig, renaming it TAP M&E Brazil. Along with TAM MRO, it is one of the only shops offering thirdparty widebody services in the region. TAP M&E s regional operation has also benefited from Azul s enthusiasm for Embraer s E-Jet line the Brazilian carrier is the world s largest operator. Azul s recent purchase of Trip expanded that fleet to 85 Embraer 190s and 195s, and also connected it to Trip s maintenance arm, although that doesn t concern TAP M&E Brazil s Fernandes. We are getting more overflow from their facilities and that will definitely continue into the future because these companies don t want to build larger hangars and insource work, he comments. Training Perhaps the biggest challenge for any MRO in the world is ensuring an adequate supply of welltrained staff. Difficult even in North America and Europe where there is an abundance of technical colleges and aerospace institutes, this becomes a herculean task for companies in poorer countries. In the next 20 years Boeing estimates that Latin America will need 44,000 new technicians, about half North America s requirement. Latin America is not prepared to meet the demand for aviation technicians which exists today and in the future, is the stark assessment of Barrero. To rectify matters ALTA wants airlines and governments to promote aerospace training and education among young people, and invest in the infrastructure to provide it. Visiting Europe, covering the world. Meet us at MRO Europe 2014 Madrid Spain 7-9 Oct 2014 STAND 534 Barfield in Miami has a solid book of Latin American clients. LONDON DUBAI SINGAPORE MOSCOW MIAMI CONTACT@AVTRADE.COM WEB Aircraft Technology - Issue

4 TAP M&E Brazil expects to benefit from overflow work from Latin America's consolidated airline groups. Latin America is not prepared to meet the demand for aviation technicians which exists today and in the future. Carlos Barrero, a member of the technical advisory committee at ALTA Aeroman is considering expanding into the widebody market. Importing foreign technicians is another option, but one that should only be used to launch operations, as their expense negates the very cost advantages that make MRO shops in developing nations attractive. For this reason Aeroman chose to set up its own training facilities, reasoning that only skilled local staff could ensure the triumvirate of quality, fast turnaround times and lower costs needed to attract airline customers. Key to our success has been training our own labour force. It s a huge investment but you really need to do it, comments Ruiz. Nor is this a one-off expense. Training remains an ongoing challenge that requires continuous investment, especially in Latin America where there has been a rapid shift towards Airbus aircraft in the past decade. Brazil used to be a Boeing country so all the training for mechanics and all the tooling was based on Boeing equipment, says Fernandes. Old mechanics who have worked on Boeing aircraft for 20 years, and know them inside out, have to be trained in a completely different philosophy. You can t risk mistakes so that requires extra training, extra supervision and it s not easy. The pay-off for Fernandes and TAP M&E Brazil could be a growing order book from South America s consolidated airline groups, LATAM and Avianca-TACA. Their fleets are expanding at a pace that they are not training enough new mechanics or building new hangars to cope with. That s good news for us and independent MROs, observes Fernandes. Another beneficiary will be San Jose, Costa Rica-based COOPESA, a workers cooperative that provides airframe checks for the 737NG, A320 family and Embraer 190. Currently harbouring six narrowbody lines, the MRO is undergoing an expansion project that will see its hangar space grow from 86,000sq-ft to 120,000sq-ft by 2016, and give it the capability to offer 757 checks as well. We have to provide as integral a service as possible to shorten redelivery time, says Gabriel Gonzalez, general manager of COOPESA, which at present has to outsource engine and component work to other maintenance providers. To achieve this, Gonzalez would consider joint ventures with other MROs, airlines or OEMs. We also see an opportunity in providing additional services like logistics and warehousing for our customers, he says. Adapting to a changing fleet While new aircraft and engine technologies are a boon to operators, they are less welcome to 20 Aircraft Technology - Issue 131

5 Relative newcomer QET Tech Aerospace has recently opened this widebody hangar in Ciudad Obregon, Sonora, Mexico. Labour costs in Latin America are increasing, but at a slower pace than in Asia, and not in a way that forces us to adjust the price of maintenance. Ernesto Ruiz, chairman of Aeroman Mexico-based MRO ITR provides services on JT8 engines. maintenance providers. Firstly, they require expensive retooling and retraining to cater for. Secondly, new equipment requires less maintenance in its early years, and also tends to have better long-term reliability built into it than previousgeneration technology. Thirdly, new equipment especially engines increasingly comes attached to aftermarket contracts that funnel off big chunks of repair revenue to the manufacturers. The bad news in South America is that the fleet is not as old as it used to be, especially in Brazil. Those old 737 classics and 727s that require a lot of structural work are almost all gone, says Fernandes. The driving force behind Latin America s rejuvenated fleet has been the rise of low-cost carriers such as Gol and Azul in Brazil, and Interjet and Volaris in Mexico which now account for 40 per cent of traffic in the region. As competition has intensified, so has the demand for the most efficient narrowbodies, leading to the replacement of gas-guzzling 737 classics and 727s with 737NGs and A320s. The overall effect has been to reduce the region s average fleet age by more than 40 per cent over the last 13 years. It now stands at 9.5 years and compares well with a global average of 10.7 years. As stated above, A320s have comprised the biggest chunk of new deliveries, forcing many MROs to incorporate the model in their capability rosters. Those that haven t will find it increasingly difficult to source work in the next 15 years, as the A320neo is well ahead of the 737MAX in Latin American orders, and those shops already capable on the A320 will find it easier to adapt to its successor. Engine maintenance An even bigger transformation is needed among Latin America s engine maintenance providers, which are spread extremely thinly. There is also almost no overhaul capability for modern or even mid-age engines outside OEM engine shops. In Mexico, ITR is a long-established provider of overhauls for the JT8. Few airlines still use the type, though, meaning that most operators in the region must either ship their engines north of the border for overhauls or, in the case of the CFM56, use Snecma s shop in Queretaro. Brazil s largest third-party maintenance provider, TAP M&E Brazil, offers overhauls on Pratt & Whitney Canada s line of regional engines the PW120 and PT6 and also on the 22 Aircraft Technology - Issue 131

6 GE Celma in Brazil (above and below) is one of the very few engine overhaul facilities in Latin America and last year celebrated its 60th year in operation. almost obsolete JT8. More comprehensive support can be found at GE Celma, GE s long-running Brazilian operation, which maintains the CF34, CF6 and CFM56 out of its facilities in Petropolis and Rio de Janeiro. In Sao Paulo, meanwhile, Rolls-Royce offers services for the AE3007 model that powers Embraer s ERJ line, but nothing for its large turbofans. Pratt & Whitney s Latin American presence is similarly tiny, boasting just a small facility in Soracaba, Brazil, covering turboprop, helicopter and general aviation engines. The companies sparse commitment is, of course, partly determined by the lack of widebody aircraft in the region. For Pratt & Whitney, however, a change in strategy will be needed once PW1000-equipped A320neos start being delivered to the region in numbers. VivaAerobus and Volaris, for instance, have both chosen the geared turbofan. Joint developments If Pratt or other OEMs do opt to pursue maintenance strategies in Latin America, there is a strong possibility that it will be through joint ventures with local operators, as companies such as GE and Rolls-Royce have done to great effect in other parts of the world. If you sign a global maintenance agreement with a manufacturer you don t want to remove your components and ship them to Europe or the US and then wait to get them back. It takes too long and customs becomes an issue, so there will be pressure for MROs and airlines to have their components overhauled and repaired in country, observes Fernandes. From ALTA s perspective, dedicated component support within Latin America is only likely to arrive with heavy investment from the OEMs, as local operators will not be willing gamble on the considerable upfront investment costs and the high volume of production required to produce a profit in component repair. The need for specialised, skilled staff is another limiting factor. For now, therefore, it seems that elements of Latin America s component repair work will continue to be serviced in the US at shops like Barfield s. The facility, which was sold by Sabena Technics to AFI KLM E&M, currently has a 10- year full-support contract covering components on Avianca-TACA s A320 fleet. At the same time, though, Latin American MROs will hope to see a growing stream of North American airframes flying south for their heavy checks. Looking ahead, one thing is certain; there will be some interesting decisions to be made as OEMs and MROs, both local and global, try to find the best way to capitalise on the region s growing fleet and its potential presence on the international MRO stage. Aircraft Technology - Issue