MRO logistics face severe headwinds
Perhaps this pandemic may mark the beginning of more collaboration in the aviation industry. With the continuing technological need for problem-solving process across the segment, MRO segment will likely witness healthy cooperation soon.
The aviation industry is already facing the repercussions with the grounding of B737 MAX, which was originally expected to account for over a quarter of all global aircraft deliveries in 2020 and 2021. While the MAX will have sizeable regulatory hurdles to scale on its way back, the unpredicted Covid-19 pandemic has hit the roadblocks forcing most of the countries to close their borders and airlines to ground their aircraft, bringing adverse impacts on the maintenance, repair and overhaul (MRO) business.
Speaking on how logistics intermittency and unpredictability affected the steady flow of materials for aircraft maintenance, Erik Goedhart, global head of aerospace, Kuehne+Nagel comments, “However, the major impact was that there was significantly a reduced need for the flow of materials as more than 60 percent of the global fleet was grounded. As part of that, the cargo capacity was heavily down. As smaller parts usually go via the belly of passenger aircraft so indeed there was a huge gap. We focused on supply chain continuity with our customers and micromanaged the shipment. Besides the unpredictability and without a micromanaging approach, the cost was exploding. So on every shipment, we aligned with the customer to understand the required lead time and how we can manage it at a low cost. This approach resulted in a partnership and increased our market share. Overall, the parts market was down by more than 50 percent both in deliveries to the production lines as in the aftermarket.”
Just a month before the lockdown (February), Addis Ababa-based Ethiopian Airlines MRO has joined forces with Sanad Aerotech to create an MRO Center of Excellence in Africa. Noting the impact on MRO business during the crisis, Mesfin Tasew, chief operation officer, Ethiopian Airlines says, “Since the aircraft are grounded, the maintenance requirement has declined substantially. When airlines want to use the opportunity to induct their aircraft for maintenance, they often face one of the two problems: either they do not have the cash needed to cover the maintenance cost, or the travel restrictions of countries prohibit them from travelling to the selected MRO bases with the aircraft. Due to limited resources assigned at original equipment manufacturers (OEMs) and other suppliers, the availability of spare parts has been a challenge.”
Even though the shortage of aircraft materials was a challenge, Ethiopian MRO's close relationship with the OEMs and major suppliers has helped it a lot. Based on the OEMs recommended spare parts list (RSPL), Ethiopian MRO had enough spare parts in its warehouse to manage the fleets’ maintenance requirements at this challenging time. As a result, the impact was minimal on its MRO operations.
The digital push
‘Digital’ is a buzz word since a decade but has gained acceptance prominently during the pandemic. In February, SITA and key industry partners have launched the MRO Blockchain Alliance, the air transport’s first industry-wide investigation into the use of blockchain to track, trace and record aircraft parts. The use of blockchain to track aircraft parts could save the industry an estimated $3.5 billion.
Speaking on how the recently formed alliance helped during to the pandemic, Andrew O’Connor, vice president portfolio management at SITA states, “We have seen strong results from the proof of concept (PoC) and concurrently we are seeing increased demand for impactful cost-saving measures due to the Covid-19 and stress on the air transport industry. We look forward to sharing more details on the results of the PoC and the next steps in the coming months. The ambition of the alliance is to show tangible benefits for its members and move from PoC to full commercialisation. Blockchain technology is very disruptive by changing the silo relationship from MRO stakeholders to a fully collaborative approach and with this transition comes challenges. Sharing data and assets implies a fundamental review of the business models the industry is using today. To ease and speed-up the adoption, we are leveraging current MRO communication standards. We expect to see successful models sparking focused investment into Blockchain MRO, with the first commercial deployments arriving in the next few years.”
The alliance comprises of organisations covering every aspect of the MRO chain, from part manufacturer and repairs to logistics and smart contracts. Currently, Bollore Logistics, Cathay Pacific, FLYdocs, HAECO Group, Ramco Systems, SITA, and Willis Lease Finance Corporation, supported by Clyde & Co are the members. The alliance was first mooted in 2019 at a HAECO Group event.
Meanwhile, when the MRO logistics business struggled, there were many airlines which reconfigured its passenger aircraft to cargo-only freighters to match the crisis-related demand. Commenting on how reconfiguring of aircraft added business to MRO segment, Goedhart says, “Logistics is related to flight hours and any flight hour results in a logistic need. Cargo flight as such does not make a difference but of course, we saw cargo carriers having intense support requirements. This question is more related to the long term view. The impact on the sector will be massive for at least 2-3 years. In the long term, it will be back as passengers will fly and half of the world population is still not flying.”
Finding new opportunities
Even though the pandemic has a significant impact on the airline industry and the MRO business, in particular, the grounding has also created some opportunities. Tasew states, “We have been able to engage major customers like Saudia to work with us in having their B777-300s and B787-9s in our facility for C-check maintenance. Even we can provide aircraft preservation maintenance services to our customers like ASKY, RwandAir, JamboJet, Malawian and others. Furthermore, we were able to perform different light and heavy maintenance work on Ethiopian fleet and as a result, 298 aircraft have undergone light maintenance checks (A-checks), 7 aircraft have undergone different modification works and 33 aircraft have undergone heavy checks.”
Aerospace is not an industry well known for collaboration. However, one notable area that has seen lots of enthusiastic collaboration in the past few years is technology. From sharing data to sharing expertise that is revolutionising the MRO sector, the industry is seeing huge benefits from technological partnerships.
“The alliance will use blockchain to record and track two separate strands of information for each aircraft part - a digital thread and a digital passport. The digital thread provides the real-time status, chain of custody and back-to-birth track and trace of the part over time. The digital passport like a human passport provides the indisputable identity of a part and contains other vital data such as certification of airworthiness to prove ownership,” observes O’Connor.
SITA’s role as the air transport community’s IT provider is to manage governance for the global alliance, support the working groups, deliver all required blockchain technology components compliant with SPEC2000 and SPEC42 standards and ensure proper alignment and validation with regulators and international standardisation bodies.
On the other hand, Ethiopian MRO is working with the European Union Aviation Safety Agency (EASA) to become a design organisation and thus develop aircraft modifications in-house.It is also an approved maintenance organization (AMO) by FAA, EASA, General Civil Aviation Authority (GCAA) of UAE, General Authority of Civil Aviation (GACA) of Saudi, and more than 25 regulatory agencies in Africa and the Middle East. Tasew states, “Currently, we are working with EASA to have a Design Organization Approval (DOA). Furthermore, we are collaborating with several OEMs and MROs."
At present, Ethiopian MRO has authorisations from OEMs like Boeing, De Havilland Canada,CFMI, GE, Honeywell,Collins Aerospace,Dowty, and ongoing partnership discussions with Sanad Aerotech and Lufthansa Technik.
Planning crisis management for unforeseen scenarios is crucial. Adding that the Covid-19 is here to stay for a while, Goedhart points out, “We are prepared to facesuch events and have managed Covid crisis successfully. During this crisis, the roots of companies and their DNA proved the difference. In KN, we had more than 4,500 people working from home without any disruption. This is possible because of having one global IT backbone as long term differentiator. For the medical equipment and support, special capacity was arranged and for some major aerospace companies, we became the preferred PPE provider because of the ability to support well above market. Covid was and is worse than 911, SARS and financial crises, however, for logistic backbone the same principles apply.”
Ethiopian MRO which has six aircraft maintenance hangars, a fully-equipped engine maintenance shop and more than 15 component repair workshops, is developing new capabilities to repair over 200 additional components in-house before June 2021.Plans are underway to build a modern and state-of-the-art component maintenance complex. Tasew concludes, “We are now on an initial level of discussion to provide base maintenance services for several airlines like Oman Air, PassionAir, flydubai, Gulf Air, and Kuwait Airways.”
Goedhart states, “Currently, we are working on full digital integration with major aerospace MRO software packages and with some customers to become the logistic arm of the company instead of the logistic provider. In short, a tough market is expectedin 2-3 years. There are a lot of opportunities to increase market share in a different way of collaboration."
Analysing the future of the MRO industry post-Covid-19, Goedhart concludes, “The MRO industry was expected to have $90 billion revenue in 2020, initially. After Covid, it was expected to drop to $50 billion but the current estimates show $32 - 38 billion dip. So any historic data on volumes cannot be used as a basis for future and the industry will resettle at a much lower volume. Our strategy is to increase market share in a smaller market by new ways of collaboration and using data as a predictive backbone instead of supportive only."
Collaboration has always been an essential element in aerospace andthe positive vibes generated due to this is exciting, which has brought different stakeholders together within the industry.