Listen in as executive editor Lee Ann Shay and EMEA editor James Pozzi share what they heard at MRO Middle East 2022 in Dubai.
MROs in the region are facing ever more challenges in the supply chain and recruitment remains an issue but the mood was nevertheless buoyant as the COVID-19 crisis subsides.
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Rush Transcript
Lee Ann Shay:
Hi, this is Lee Ann Shay, Aviation Weeks executive editor of MRO and business aviation. I'm in Dubai and I'm here with my colleague, James Pozzi, who is the MRO editor of EMEA. And we just wrapped up the MRO Middle East conference and exhibition, which was great. James, what were some of your key takeaways as far as the state of the business?
James Pozzi:
Well, it seems quite buoyant from what I've gathered over the last couple of days, Lee Ann. The Middle East is a region I would characterize by a few traits. One of them is the fact it's never lacked ambition. So we set big goals; it wants to be the center of a lot of MRO. But there's no doubt that COVID-19 has heavily impacted the market over the last two years given the cross-border restrictions that have been in place up until really last year. Yet MRO's seemingly retaining their ambitious outlook after riding out the downturn. Shop visits are rising and are starting to get close to something like pre-crisis levels. So we're seeing a lot of deals being done this week.
Some of the notable ones were Saudi Arabia's Saudia Aerospace Engineering Industries. They started to build up capabilities, of course, at their kind of main facility in Jeddah, that supersize facility they opened a couple of years ago. And they are partnering up with companies. At the Dubai Airshow towards the end of last year, they had an alliance with Tarsus. And the show's where they signed an agreement with Thales one renewing an existing component MRO deal and the other one enter into a new corporation related to heat exchanger services.
Another interesting MRO in the region this week, who've been quite centreal to a lot of things, has been Etihad Engineering. Obviously, they're now under a new ownership structure where the engineering division was, of course, divested from the airline side of things. They've talked about the diversification of MRO services and kind of the role that took or that played in the recovery they did. So I think in January 2021, just over a year ago, they said they were getting back to pre-crisis levels or near abouts. And they were only just underneath their annual shop visits compared to pre-COVID times during the pandemic.
So kind of very impressive stuff, but they're obviously on the lookout for new capabilities and as well. They're looking at what they can add. Particularly interesting was their venture into the passenger to freighter markets with Israel Aerospace Industries for Boeing 777 PTF work. And over time, this could lead to more aircraft types being converted, perhaps if it kind of works out as well. In that space, in the PTF sphere so to speak, you've got Joramco as well, who are also kind of dipping their toes into that too with partnerships. So yeah, should be seeing a lot more partnerships to come as we have done over the last five years, I think.
Lee Ann Shay:
You've just mentioned a lot of things from recovery. I agree, a lot of the companies that are based here and I talked with, if they're not at pre-pandemic levels already, they're closing in on them. And depending on whether it's airframe or engine or landing gear components, of course, that all plays into it. But the mood definitely seemed to be pretty buoyant and optimistic.
James Pozzi:
Absolutely. Yeah. Yeah. I think they've definitely got over the worst of it. There's a few hurdles still to overcome no doubts, which will no doubt touch on today. But yeah, I mean the mood is optimistic and certainly people are looking ahead and new capabilities and partnerships are the kind of key takeaways from the last few days. No doubt.
Lee Ann Shay:
I would agree. From a capacity capability standpoint, you mentioned SAEI. I was talking with one of their execs who said that they are planning on a very ambitious transformation over the next two years, and that includes taking their business from 89% civil MRO work and 11% military to civil being about 60 to 65%, and the 45% being military. And they're expecting to do that in two years.
James Pozzi:
That's very ambitious as we kind of mentioned before, but also again, plays into the diversification of services thing. One thing that may change permanently in the industry is a greater split between commercial work and whatever services are offered in addition. As you mentioned, military, maybe business or private or kind of specialists charter services, or whatever else. Yeah. Certainly the only relying on just commercial airline work is shifting somewhat.
Lee Ann Shay:
Yeah. And you had mentioned partnerships a little bit earlier. And that was a word that came up in almost every conversation it seemed, especially for some of the bigger MROs, partly due to capital. People are not just going to start building new brick and mortar facilities, especially in this region. There's just been, even before the pandemic, there were several partnership announcements and it's more than lip service. It really feels like people and companies are forging better partnerships to maybe not be a one-stop-shop, but to leverage each other's capabilities. And in doing so here, to keep more work in the region.
James Pozzi:
Absolutely. Yeah. And that is on the mind of MROs still. It's not going to stop. I think yesterday in the panel I hosted with MRO companies: Etihad; SR Technics, who of course kind of operate mostly outside the region but do have a kind of presence here; and Turkish Technic are another. They all stated they'll be looking to add partners should the right opportunity arise. Companies are looking to find capability or add it where necessary, and if they can find the right partner that seemingly is a good fit for them, then that's the route they would prefer to go down by the looks of it.
Lee Ann Shay:
And I was talking with Fraser Currie, who is CEO of Joramco, today. And he said that partnerships are not necessarily just MRO to MRO, MRO to supplier. And he was also thinking about airlines as partners, especially as everybody gets through this. We're ramping up and trying to get aircraft back into service and get both airlines and MROs back into a very healthy state. He's starting to see more long-term airline contracts, just because there is, at least on the airframe side, a bit of a capacity crunch right now. So companies are willing to sign longer term deals. Whether this will be a new state of play, or this is just a blip to get us through this new normal that we're in, it'll be interesting to see.
James Pozzi:
And there's certainly a trend for more outsourcing, definitely. In another panel yesterday with airlines, I had representatives from Jazeera Airways, of course based in Kuwait and Ryanair of course, obviously based in Ireland. But they do some maintenance with Joramco, I believe, in Jordan. Some base maintenance annually. So yeah, there's certainly a willingness there from airlines to outsource more, and when we spoke to the audience and got their participation in a poll, it was overwhelmingly decided that more outsourcing from airlines in the Middle East is going to take place. So they will be trusting MROs with those long-term contracts.
Lee Ann Shay:
I think one thing that, it's not going to be a shocker to anybody is, there are supply chain issues and that's not unique to MRO or even aviation. But, in these long-term or these partnerships and longer term deals, everybody needs to be better at planning. Just-in-time inventory just isn't happening. So Fraser Currie had mentioned that they're holding a lot more inventory at Joramco. Not because it's great for their balance sheet, but you just need to be able to have these parts in stock so you can actually perform all the maintenance and have the parts when you need them. And even from a paint standpoint, like some chemicals, sealants, paint, things that have shelf life, you have to place those orders much more in advance.
James Pozzi:
Yeah, as you said, if you don't plan ahead, it's a real headache at the moment and we've been hearing a lot about that over the last few days. Some of the stories are staggering. Turnaround times are obviously one of the key things that MROs would all like to keep as short as possible. But that's been, I guess, a product of COVID. But some people would argue even before COVID, they were experiencing lengthy turnaround times. Again from Jazeera Airways yesterday, they detailed about how freight costs have soared in recent times. They mentioned about how their shipping an engine from Singapore to Kuwait and the cost was more than five times what they were paying pre-COVID. So, the numbers are quite staggering. So I believe that's in excess of a hundred thousand US dollars now compared to what it would've been beforehand. So yeah, the costs are rising for that. Obviously will hopefully be a relatively short-lived thing and won't factor in too long. But the times are increasing sadly, and that's something that the industry has to cope with and better plan and ultimately find a better solution to work for them.
Lee Ann Shay:
Yeah, and part of the planning too is workforce. Again, not going to be a surprise, that the world is struggling to get enough pilots, technicians and supply chain inspectors. It goes across the gamut, but especially here in Dubai where you have so many different nationalities. Lufthansa Technik Middle East CEO told me yesterday of their employee base, I think he said they had a couple dozen different nationalities. So when you're talking about, I think the number was 26, different nationalities, but a significant number of nationalities for a hundred employees, that's a high percentage. James, what have you been hearing on the workforce front the last couple days?
James Pozzi:
Well, there's been a lot of talk about the Great Resignation obviously across societies since the crisis started. But some of the workforce trends are pretty more unique to this Middle East region than say, you would see in Europe or North America. And as you mentioned, that's largely due to in places like the UAE, the large expatriate community. So it's quite common that obviously, to be with families or return to their own countries, a number of people at the beginning of the crisis returned home, away from places like the UAE and another area like Kuwait, is another country with a lot of expatriate workforce. And they haven't returned. So there's been kind of a bit of labor lost to the market. Demand will obviously increase over time as shop visits continue to pick up. But that could mean companies may have to offer better terms financially.
I was talking to someone actually randomly when I was getting coffee this morning. I was beginning to start up a conversation with a stranger who is from a recruitment company in the UK, and she was telling me that the job market is buoyant at the moment. Demand is really picking up, but sometimes they just can't supply the necessary workforce because they just don't have access to the people on the market. So it's a conundrum for the industry. There's many ways they can go about solving it, but there has been somewhat of a, I wouldn't go as far say a talent drain, but definitely a talent... A small kind of exodus from the industry due to COVID, whether that's through furloughs or obviously the resulting job losses. And they need to learn ways how to not just attract new people into the industry, which has been a longstanding problem, but also attracting people back to the industry, aircraft mechanics who might have gone and chosen other careers over the last two years as a result of the crisis. And the Middle East isn't immune from that. It is not a cheap labor market at all, and it could well get a bit more expensive as companies will want to really incentivize workers back into their shops.
Lee Ann Shay:
Part of that too is just making sure that you or companies efficiently use their resources, from people to parts. And that has led a lot of MROs during the pandemic to really accelerate digital efforts. I've talked to a few companies who are either implementing new ERP systems, or they're evaluating different systems right now and planning to make a decision on that. Otherwise, they are using digital efforts to improve processes, to automate stuff and just be a whole lot smarter at what they do. The pandemic has forced innovation and I think forcing the digitalization of MRO more so is a good thing.
James Pozzi:
Yeah. I mean those few positives to take from the crisis across so many parts of the industry. It had such a negative impact. But if you could get any positive from it was a good time to innovate, for companies to review their processes internally, looking to see what works for them. Not just through the crisis, but kind of factor it more into their long term strategies. I've spoken to several airlines this week and at least two or three of them had said they undertook ERP projects over the last two years. Sometimes these projects, I mean, they're not just financially expensive, but they can be, obviously they take up a lot of manpower and a lot of time. Sometimes they can take up to three years to complete a rollout. One airline actually said they completed it in just nine months in a project that would've taken three years normally. Due to the crisis shutting down a lot of these activities, they could just kind of focus on that project.
So there were positives to be taken in related technology. I think going forward, there's going to be a lot more of attention towards areas such as real-time analytics. Blockchain has also been mentioned, that got some attention today. And the paperless processes are continuing too. I don't think I've spoken to one company that has a totally paperless operation yet, but they're on their way there. They're on their way there and I think Etihad were again saying that they carried out a recent inspection entirely paperless for the first time recently. So that is happening and there are some positives certainly to be taken in the innovation going on.
Lee Ann Shay:
Exactly, and artificial intelligence, robotics, all sorts of things that companies are looking for. I agree. So it'll be fun to follow. There's so many things that we could be talking about, but I think we need to wrap this up. So James, thank you so much for chatting with me. And don't miss a single episode of The MRO podcast. It's available in Apple podcast, Google podcast, Stitcher and Spotify.
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