Podcast: Is A Shift Happening In MRO Insourcing?

Listen in as James Pozzi, Lindsay Bjerregaard and Kurt Hofmann discuss recent maintenance insourcing announcements by Ryanair, British Airways and other global carriers and ask if there is a shifting dynamic in the aftermarket.

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Transcript:

James Pozzi:

Hello, and welcome to the MRO Podcast. I'm James Pozzi, MRO Editor for the EMEA region. Today we are going to be discussing airline maintenance insourcing, and how the landscape may be shifting in terms of airline strategies and the dynamics of the aftermarket.

Joining me today to discuss this topic are Lindsay Bjerregaard, who is managing editor for MRO at Aviation Week, and Kurt Hoffman, who of course is a frequent contributor to Aviation Week, covering a lot of the global airline news. I'm sure it's a name everyone knows very well, and not the first time joining us on the podcast either. Lindsay and Kurt, thank you for joining me today.

Lindsay Bjerregaard:

Hey.

Kurt Hofmann:

Thank you for the invitation.

James Pozzi:

Brilliant. Just typically I'll just set the scene, really. Certainly in my time in the aviation industry, which goes back now just over a decade, the trend has always been for airlines to outsource maintenance, of course, to various partners. However, there has also been a desire that pre-existed COVID, for more insourcing from certain carriers if it's advantageous to them. There's several factors really that contribute to this. There's commercial reasons, of course. Airline MROs are maybe looking to grow their in-house maintenance capabilities. And I guess to assure the availability of adequate capacity in their network.

However, of course, as I mentioned COVID, in recent years, the supply chain challenges that we all know so well, there are different motivations perhaps for these insourcing strategies. More visibility, perhaps, over their network, and control over suppliers. This has led of course to some airlines bringing certain services in-house by pursuing more capability and building more capacity in order to achieve this. Other factors as well, I guess, to consider are fleet expansions, which we're seeing a lot of, and diversification of fleets as well. Mixed fleets maybe spanning several aircraft types by different manufacturers, of course. Yeah, a lot of consideration.

Let's start with Kurt then. A major piece of news really on this topic that you reported on for Aviation Week around a month ago, of course, is Ryanair, one of the largest airlines. Low-cost carrier. Obviously, it's been growing a lot of its base maintenance capacity in recent years across Europe and its pretty substantial network. But recently, it was quite an eye-catching headline where it's looking to bring some engine maintenance work in-house over the next five to 10 years. So, longterm plans for that. Now my immediate thoughts were, "This is quite uncommon for engine maintenance." Also, given how it's a low-cost carrier, and of course major engine is usually outsourced by airlines.

Maybe you could just give us an insight to what is Ryanair looking at, and what were some of the drivers behind some of its recent plans that Michael O'Leary spoke to you about?

Kurt Hofmann:

Yeah. Well, thanks, James, again for the invitation. Well, there's a few points, maybe. There's a kind of frustration in terms of supply chain. And then the other thing O'Leary told me is also there are just two big engine manufacturers that are dominating the scene, Pratt & Whitney, for example, and General Electric.

But the fact is also, as Ryanair is growing up to 800 aircraft in the next decade, Michael told me, Michael O'Leary, that he will soon have 2,000 engines. And as of today, he has already 220 engines every day under maintenance. So, it makes sense, getting bigger and bigger, to bring this in-house. This will be an investment for two such facilities, around $600 million. One facility in Eastern Europe and one in Western Europe. And Michael will announce soon where they will build it.

But we see he likes to do this on his own, like he did the older major MRO work for his fleet itself. So actually, it is a logical step, quite an investment, but he likes to be also more independent from the big engine manufacturers.

James Pozzi:

I mean, yeah, Ryanair, I guess they're in a bit of a fortunate position in some ways. I mean, they certainly have the financial capability and capacity to do this. They're in a nice position. But you said they're going to take a more independent approach. So, that will be kind of free from, I guess, working more directly or closely with, I guess, some of the engine OEMs mentioned.

Kurt Hofmann:

Yes. The point is, he said, it's not a big deal to build the infrastructure, but the deal is of course to train the people to really have the man power, the knowledge. So, he talks about an investment for the next five to 10 years, but it brings in more flexibility, it looks like. And this will be all for Ryanair itself. So, for no third-party customer. He have around 27 to 30 MRO centers already, and he's expanding hangers everywhere in Europe as the fleet grows.

But as you mentioned before, for low-cost carrier is quite an interesting move, and I think this is one of the most interesting in-source projects in MRO we see at the moment, at least here in Europe.

James Pozzi:

Yeah, absolutely. And Ryanair, in this sense, as we mentioned, can be known as an LCC. They're a bit of an outlier here rather than signaling the start of kind of a new trend of outsourcing... Sorry, insourcing related to engines. Do you think that's fair to say?

Kurt Hofmann:

Yeah, absolutely. And he's always explaining how frustrated it is with the aircraft a little bit. He said this is also the same thing when it comes in terms of MRO. He's doing the most MRO in-house, but he has to also bring aircrafts to other companies, like Lufthansa Technic. So, even as a low-cost carrier, he's spending a lot of money for good MRO, as he have to utilize the aircraft a lot, as we all know how the LCCs work.

So, I'm quite looking forward what else he will announce soon. In a few weeks, a few months, we will see where the engine and MRO facilities will be built. And this brings a lot of new job positions as well.

James Pozzi:

Yeah, absolutely. And some of their recruitment figures, they've mentioned over the last year, for specifically the maintenance side as well, have been pretty ambitious too. There's kind of a lot of work to be done on all the sides there, building this up and adding to that network. But as I mentioned earlier, they seem like they're in a good position to do so, given their existing infrastructure and, I guess, their financial clout as well, you could call it.

And Kurt, you also report a lot on airlines for Aviation Week. What else are you seeing kind of around on your global travels related to airline maintenance and some of the maybe the insourcing strategies that are happening right now?

Kurt Hofmann:

What I learned when I talked to several airline CEOs, and here again, we are with the supply chain thing, the frustration about this. My recent visit in Doha, it cut there with Technic, which is quite an amazing facility, to be honest, state of the art.

The next topic there is as well, the Incheon MRO. They will build... I think they're building already, the infrastructure, but I think it's not decided now which Incheon manufacturer they will do a joint venture or cooperate. But also here, the chief technical officer told me that they like to do more in-house, not only to be flexible and independent, because also they believe they can do it. They are growing, their knowledge is getting more and more in this part of the world, especially as you know, in the Middle East, you have a lot of maintenance issues for engines, with the desert sand and so on, engine-

James Pozzi:

Corrosion…

Kurt Hofmann:

Big thing there. So, they like to be more and more... Also, their knowledge. They like to build up knowledge and to have a bit more independency as well, and I'm sure they will do an amazing job there.

James Pozzi:

Sure. I was recently in the Middle East myself, and of course you will marvel at some of the growth plans and just the building that's taking place there, and certainly there's a few other airlines there that have kind of similar plans, although maybe different in scale.

One of them of course was Gulf Air, who were building a big new facility in Bahrain, and they plan to insource more checks and have a better control of their fleet too. So, yeah it's certainly something that's happening, I'm sure, and there's plenty of other airlines as well that are kind of playing that as well.

Lindsay, different part of the world, but of course you're based in the USA, you've recently been to Panama to MRO Latin. Maybe focusing on the Americas, to start with, what are some of the insourcing plans you're seeing in that part of the world, given the, I guess, the different dynamics it would have from Europe and the Middle East?

Lindsay Bjerregaard:

Thanks, James. Yeah, it's interesting. Kurt talked a lot about engine MRO capacity, and when we talk about the Latin America region, that is a particularly interesting case when it comes to offshoring, inshoring, insourcing, outsourcing, specifically as it relates to engines.

So, at the last couple of MRO Latin America events, there's been a lot of talk with stakeholders about how the region really wants to build up its own engine MRO capability, because right now a lot of that work gets outsourced, because there just aren't that many shops to do it.

And actually, Aviation Week's latest commercial fleet and MRO forecast shows that only two of the top 10 engine MRO contracts in the world are located in Latin America. And so most of that market is being exported to North America, Europe, and a little bit going to the Middle East and Asia Pacific.

Also for heavy airframe MRO, the forecast shows that about 2.4 billion of Latin America's heavy airframe and engine overhaul is currently being outsourced. And there was actually a panel at that event about offshoring U.S. maintenance to Latin America. I don't want to scoop my upcoming coverage on that, so stay tuned to the April issue of Inside MRO to find out a bit more about that.

But one example of an airline in Latin America that's working on doing a lot more insourcing is LATAM Airlines. And James, I know last year you spoke to them about their breakdown of insourced versus outsourced maintenance. So, kind of the breakdown of that for aircraft heavy maintenance at the time when you talked to them it was around 81% insourced, 19% outsourced. Component maintenance was about 50-50 split. And then line maintenance was mainly performed in-house.

But they are working on building up their in-house maintenance capabilities even more. So up until now, they've offshored most of that work. Last year, they signed a deal with Joramco for a Boeing 787 CTEx. But in November of last year, LATAM invested around $7 million in a new hangar in their São Carlos Maintenance Base that's going to specifically focus on 787 MRO. And that is expected to begin operations in September this year.

LATAM says that's the largest MRO investment they've made in the last decade. So, they're hoping that that's going to reduce costs, bring greater flexibility, shorten turnaround times. That's just one example in Latin America.

If we're talking about the U.S., we've definitely seen some airlines adding some more in-house capabilities. One example of an airline that's doing a lot right now is American Airlines. So, they're working on adding CFM 56 engine maintenance capacity in Tulsa. And also in Tulsa, they're adding some additional lines for 737 overhaul, 787 heavy maintenance checks. And they're also doing a lot of hiring of new technicians to help with that work, both in Tulsa, but also in Charlotte and Pittsburgh.

That said, in the U.S., there's still a lot of third-party maintenance work happening. For instance, AAR, which is one of the big third-party MROs here, they've got airframe MRO contracts in place through 2030 with both Alaska Airlines and United Airlines. And from what I've heard from a lot of companies, it just seems like there's really tight capacity, specifically for heavy maintenance here.

So, for example, companies like Aspire MRO, which primarily focuses on passenger-to-freighter conversions, and then Feam, which primarily focuses on line maintenance, they have both told me that they've been receiving a lot of interest from companies, from airlines that want them to add heavy maintenance capacity for checks. It will be interesting to see if that keeps up or if that work continues to be outsourced a little bit more.

James Pozzi:

Yeah, absolutely. It really paints a good picture of how constrained the market is in most areas. Base maintenance, I mean, I think every shop I've visited over the last few years has said, you know, "We're at full capacity for this year and also into next year's winter maintenance slots." I mean, it's competitive and they're such a premium. And finding that space and capacity for those aircraft is... I guess, we've set it off in a nice position to be in, but that obviously comes with a lot of challenges and a lot of problems as well.

Interestingly, actually, I think it's worth mentioning another recent development on my doorstep is British Airways, of course. And last month, they acquired the Boeing site at London Gatwick Airport, which was set up and which is part of the Gold Care program, which, of course, Boeing sunsetted during COVID, part of their aftercare program. And, of course, that has kind of had a dual use in recent years. Obviously, maintenance checks and, of course, custom-to-freighter lines too, which Boeing has also been building up capacity for.

But, yeah, now British Airways will have control of that. They'll be doing minor checks on 777 aircraft there. And they're also increasing the capacity, which they said specifically was to insource more heavy checks on Airbus A320 and A321 aircrafts. Obviously, bringing more aircraft to Gatwick, away from other parts of the network. So, again, it goes back to that better visibility and control there, on that. So, very interesting times as well when a flight carrier like BA is kind of ramping up its in-house capacity too and doing more on the check side.

Because they've also, in an interview recently, said that they've had to get that balance right with the in-house and outsourcing of that because of the existing constraints that are happening. So, very interesting times indeed.

Just brought it out again to Kurt or Lindsay. The NDLs across the world you're seeing right now, specific examples with some of these other insourcing. Before I mention maybe Turkey and parts of India, but any other examples you can mention to our listeners?

Kurt Hofmann:

If I may, as you mentioned, Turkey. Turkish Airlines, for example, as you know, they have a huge maintenance facility anyway. But also here we have the challenge regarding the supply chain thing. And now they're paying more things also in-house, also building their own seats, building their own business class seats.

And another fact that really challenged them is, as we all know, the aircraft delivery delays. The fleet's staying longer. They have an extra load of third-party business, which they lose a kind of third-party business as they have to extend the old fleet longer in their own maintenance program. So, there's a lot of things going on here.

And I think 2026, what I learned, will be... Until 2026, this year and next year, remains challenging in many parts in the MRO business in terms of engine MRO and things like that. So, I guess we will see more and more in-house maintenance, if the companies have the availability and the money, for example. I think also SunExpress extending hangar facilities in Antalya as they're getting bigger. And it makes sense, if you reach a certain size, to have your own MRO.

Let's see, also Air Serbia is a small airline with around 27 aircrafts. But when you reach Serbia aircraft, you have to think about their own maintenance to bring it in, then it makes sense. So, it remains quite interesting to see what's going on.

James Pozzi:

Yeah, absolutely. And the smaller airline thing is interesting. We've just talked about big airlines, but you mentioned some of the smaller ones. Yeah. Going back to the Middle East, Jazeera Airways, last year they were mentioning having their own battery shop and wheels and brakes shop in-house, bringing that capability in-house, and they're a pretty moderately-sized fleet. And of course, Texel Air in Bahrain, of course. A very small fleet. They're a cargo airline, but they are doing the same, and bringing more of their maintenance in-house, they said recently, too.

Yeah, it is on the radar of the airlines, I guess big and small, and I guess the factors, as you mentioned the supply chain, that's... We're still maybe even a couple of years out from that really showing market improvements. That seems to be a bit of a consensus from the various trade shows I've attended over the last year. Third-party markups, of course, the price being passed on to the customer, down from the OEM to the airlines, the MROs. It's a cycle of rising costs, and that doesn't seem like that's going to flatten anytime soon.

And of course, as I mentioned earlier, the fleet growth. We're seeing a lot of fleet growth, a lot of fleet diversity, new aircraft entering, and expanded fleets too. So, that's things to consider as well. And I would agree with you, Kurt, I think that there will be more of this to come, certainly. Lindsay, any kind of closing thoughts, anything else to add on this topic?

Lindsay Bjerregaard:

Sure. Well, if you mention growing fleets, and you mentioned India earlier, I would be remiss not to mention Air India. It seems like every other week, we're seeing headlines about how they are building up their in-house MRO capabilities, and that's a trend that's been going on since they were privatized in 2022.

But right now, I'm just looking through my list here, they're in the process of building a new wide-body hangar in Delhi, that's expected to be operational in 2026. They recently refurbished their wide-body line maintenance hangar in Mumbai. They're building an MRO facility and an aviation maintenance training school in Bengaluru. Those are expected to be open sometime this year. And then they are finishing up the process of bringing all their line maintenance operations in-house, too.

So, I think they're supposed to be on track to start doing all of that in-house by the start of the second quarter. Certainly seeing a lot of work happening there, especially as they grow their fleet, and I expect that to continue as well.

James Pozzi:

And that's very interesting how that will develop, too. I think it's probably its own podcast.

Lindsay Bjerregaard:

Yeah.

James Pozzi:

Air India of course, who are now a separate entity from AI engineering. I find that dynamic quite fascinating. But yeah, that's obviously something I think we'll be covering probably at some point later in this year. Of course, now the MRO Podcast, of course, is weekly.

So, that brings us to the end of today's episode. Kurt and Lindsay, thank you so much for joining us today and giving us some really interesting insights on this really fascinating topic. And thank you very much.

Kurt Hofmann:

Thank you very much. Thanks for the invite.

Lindsay Bjerregaard:

Thanks, James.

James Pozzi:

Thank you. And don't miss the next episode by subscribing to the MRO Podcast wherever you listen to podcasts. And one last request. If you're listening in Apple Podcasts and want to support this podcast, please give us a star rating or write a review. Thank you.