Image via Wikipedia

The three leading corporations in the commercial aviation, maintenance, and repair industry are Goodrich Aviation Technical Services, Pemco Aviation, and Singapore Technologies. Although Goodrich is the largest third-party repair station in the world, all three corporations have their economic advantages and disadvantages, both internally and externally.

Over the last fifteen years, airlines have closed their own repair centers and laid off excess mechanics in favor of outsourcing their maintenance, repair, and overhaul work to third-party repair stations to reduce costs. The reason it is more cost effective to outsource maintenance is because their own workers are unionized, while third-party vendors have competitive pricing and are typically not union. The customers have no reason to worry if their planes will be left not serviceable due to a potential strike. Typically, this is incorporated into a contract agreement between the airline and the vendor. According to Lori Ranson, “Carriers are slowly embracing the idea of outsourced line maintenance, results of a recent maintenance, repair and overhaul market study by Mercer Management Consulting show with airlines noting they expect a 3% boost of line maintenance outsourced by 2009. Right now, airlines are using some third-party companies for selected line maintenance tasks at non-hub airports” (4).

The airlines also save on costs by not having to store their own spare parts. A basic check list of repairs is usually established before an aircraft touches ground at a repair center. With this basic checklist, the vendor usually has the parts already there or on order. With this trend for outside maintenance growing, commercial aviation maintenance, repair, and overhaul will continue to grow in the future at a rapid pace. According to Michael Zubovic, Vice President of Finance for Goodrich Aviation Technical Services, “The most difficult barrier to entry into this industry in the Pacific Northwest is location. Most of the airlines are based on the east and gulf coast and with the rising price of jet fuel, many airlines are opting to send their planes to repair centers closer to their main quarters.”

According to Frank Jackman, “The value of the $38.8 billion worldwide commercial jet transport maintenance, repair and overhaul market is expected to grow at 4.5% annually in the next 10 years as a recent decline in labor rates bottoms out and engine overhaul costs keep climbing…The worldwide MRO market will be worth $48.8 billion by 2011 and $60.6 billion by 2016, according to the annual MRO Forecast prepared for Overhaul & Maintenance by Team SAI and Back Aviation Solutions” (3). We should expect to see a few more repair centers entering this industry.

Image via Wikipedia

Unlike other industries where the company needs to invest in a new building and equipment, the largest barrier to entry into the aviation, maintenance, and repair industry is money. The government encourages the development of new aviation, maintenance, and repair stations through grants because of the many unoccupied facilities setting on government subsidized land with no “tenants.” Many of these empty repair centers come with serviceable ground support equipment, all other assets left behind by folded aviation and repair companies, along with the building. This includes any commercial aircraft acquired through an unpaid transaction.

To develop a new AMR station, the entrepreneur would first petition the Federal Aviation Administration for a right to the repair station license of the folded business. The requirement would be to change the name on the license and write a safety and business plan of how they plan to run their business. When an aircraft repair center has its own plane, the company has automatic ability to certify any repairs without petitioning to the Federal Aviation Administration.

Zubovic states, “Goodrich Corporation, a Fortune 500 company, is a leading global supplier of systems and services to the aerospace and defense industry. If there’s an aircraft in the sky – we’re on it. Goodrich technology is involved in making aircraft fly … helping them land… and keeping them safe. With annual revenues of over $4.7 billion, Goodrich is headquartered in Charlotte, North Carolina, and employs more than 21,000 people worldwide in over 100 facilities across 16 countries.”

Generally, when people think of Goodrich Corporation, they think of tires. Goodrich sold its last tire in 1983. Goodrich Aviation Technical Services is the aviation maintenance, repair, and overhaul division of the Goodrich Corporation. Goodrich Aviation Technical Servicesstarted in 1996 when the Goodrich Corporation purchased the Everett, Washington based TRAMCO from Ron Crockett, current owner of Emerald Downs.

I have worked for Goodrich Aviation Technical Services for the past eight years. It is from my previous work experience that this company provides line maintenance, airframe, electrical, avionics, hydraulics, pneumatics, minor engine repair, engineering, components repair and overhaul along with ground support services. Although Goodrich ATS provides all of these services, they claim that the real products are labor hours, efficiency, turn time, quality, and a safe reliable product.

The economic advantage that Goodrich ATS division has over its competitors is that the Goodrich Corporation that has deep pockets. It operates at a loss in the short run and break even in the long run. Goodrich ATS has downsized in the work force but never shut down during economic turmoil, unlike its competitors.

The internal economic advantages Goodrich ATS has over its competitors are the Goodrich Aviation Technical Services is located within three miles of Boeing. Goodrich ATS has onsite engineers who have been authorized by Boeing to approve minor engineering alterations on site with proper documentation. Boeing has a contractual agreement with the airlines that have bought planes from them to send their warranty claims to Goodrich ATS in Everett, Washington for evaluation and repair. The size of the facilities allows Goodrich ATS to perform component repairs in their own back shops, rather than outsourcing components to another facility. During my interview with Michael Zubovic, he stated, “The advantage to this is one stop shopping. Why take your planes anywhere else, when we can provide all your servicing needs right here including minor engine repairs to engine replacements? Our relationship with Boeing has given Goodrich ATS added value to its core customers.”

Goodrich Aviation Technical Services has its economic advantages and disadvantages both internally and externally. The rising costs of jet fuel and the location of Goodrich ATS has caused some customers to look for repair centers closer to their home base especially when aircraft are supposed to stop for an overnight stay for a turnaround inspection after four to seven days of flying. According to Kalyan Talluri:

Federal aviation regulations require that all aircraft undergo maintenance after flying a certain number of hours. Most major U.S. airlines observe the maintenance regulations by requiring that aircraft spend a night at a maintenance station after at most three or four days of flying. The maintenance routing problem is to find a routing of the aircraft that satisfies the short-term routine maintenance requirements. (1)

The longer the aircraft is on the ground, the more money airlines lose. Goodrich attempts to compensate for their geographical location by providing the highest quality available, extend credit to credit worthy customers, and to work closely with their own core customers.

When airlines pick repair centers, they not only look at quality and safety, they also look at aircraft turnaround time. Goodrich can only operate at full employment for short periods of time due to the unstable cycle of incoming work is unstable. Zubovic also stated, “The Everett, Washington plant employs 2,600 to 2,800 during the peak seasons with full benefits. This is usually around February to June. During these months, a typical mechanic can make almost $20,000 because of the overtime requirements.” It has been my experience that during the slow times, Goodrich typically does not layoff but encourages their employees to take their vacations during the down times and operate on a skeleton crew. If they have to layoff workers, it starts from the top management down to supervisors. Mechanics have a better chance of keeping their jobs because they are the ones that make the company money. To operate at maximum efficiency, the company went to a “lean process model.” This means that there is no wasted material, hanger space, or excessive walking to the parts and tool room. Everything is pre-organized at your work station to avoid waste. The company went to the extent of reevaluating each worker’s talents and reassigned them accordingly.

Singapore Technologies Aerospace is one of the leading competitors of Goodrich ATS. This company also claims to be the world’s largest third-party repair station. According to the home page for Singapore Technologies Aerospace:

Singapore Technologies Aerospace (ST Aerospace) is a global company with more than 5,000 employees around the world and a global customer base that includes many advanced military forces, seven of the world’s largest airlines and the world’s three leading freight carriers. As the largest, independent, third-party aviation Maintenance, Repair and Overhaul (MRO) with an annual capacity of more than six million man-hours, and extensive capabilities in engineering and development, engines, aircraft components spares, we assure our customers consistency in quality standards for all your maintenance and engineering services. (1)

Singapore Technologies Aerospace has similar products and services to Goodrich ATS, and they are both global companies. However, Singapore Technologies Aerospace has more engine repair and overhaul capabilities than Goodrich ATS. They can perform engine repairs and overhauls onsite rather than outsourcing, while Goodrich ATS mainly replaces engines with serviceable stock when repairs maybe too costly or beyond their capabilities. Both companies are global, but Singapore Aerospace Technologies caters to a more international customer base while Goodrich has a more domestic core customer base.

PEMCO Aviation Group is another highly competitive corporation that has a domestic and international customer base. The company has military contracts to provide maintenance, repair, and overhaul services. The company recently signed a contract with Alaska Airlines to provide a conversion modification from passenger to freighter aircraft. From my previous experience in working on passenger to freighter conversions, the process entails removing eighty percent of the passenger seats and installing non-slip floor panels, cargo tie down harnesses, installing a reinforced bulk head behind the cockpit wall (commonly known as a Nine G wall). A Nine G wall is designed to protect the pilot and crew from being killed from the cargo plowing through the wall if the aircraft is in a nose down configuration. According to Conway from the company online news article:

US-Based PEMCO Aviation last month announced the world’s first ever B737-400 conversion deal, with Alaska Airlines placing five firm orders and two options for the type, with some being converted to freighters and others to Combis. The deal is a coup for Pemco, which otherwise has been finding high residual values are holding back expected demand for its 737 conversions and program. However, longer term, he predicts no shortage of conversion candidates for the 20-tonne freighter, with more than 1,000 737-300s and more than 400 737-400s now in passenger service, many approaching the 15 years service level that makes conversion to freighters attractive. (1)

PEMCO Aviation Group faces economic disadvantages also. The contracts with the Air Force and the Coast Guard are becoming increasing difficult as the military upgrades its aircraft. Each type of aircraft has different maintenance procedures. In an online published interview, O&M editors asked Ronald Aramini, President of Pemco Aviation Group, “How did 2004 go for Pemco?” Aramini replied, “We’ve had some issues with restructuring the facility so that we could produce the product quicker to support the Air Force and Coast Guard needs, and we’ve put a lot of money into the facilities to prepare for the future” (1). O&M goes on to ask Aramini, “How did you change its processes? Aramini states, “The majority of those changes are part of our effort to reduce flow days. Instead of a moving line concept where the aircraft moved 12 to 15 times over nine months to a year, we isolated it down to about five movements inside our hanger and two or three movements outside the facility, and we were able to create workstations that are more efficient. We were able to reduce the size of the footprint in the hanger so we could do the same amount of work in less space and sell extra space to other customers” (1).

One major external economic disadvantage that all three corporations have in common is aging aircraft. Typically, the Boeing 727-200 is a thirty to forty year old aircraft that was far advanced when it first was built in the 1960’s. Today, they are considered inefficient due to fuel consumption and the parts are obsolete. Although the article written by Roberto Suro is geared towards military aviation and repair, the parts shortages also extend to the commercial aviation maintenance and repair industry. Suro states:

Aviators in all the armed services increasingly face similar problems and are obligated to cancel or delay missions at an alarming rate, according to senior military officials. The trouble lies in shortage – both of spare parts and of skilled mechanics-that developed during a decade long reduction in military forces following the end of the Cold War. (1, 2)

From my experience, it becomes increasingly difficult to procure parts the longer the aircraft is in service. Service bulletins for specific parts get handed down over the years to improve safety and reliability. After time, parts get modified to the point where they are not economically feasible for the airline or the repair center. Michael Zubovic states:

Aging aircraft is causing a financial hardship for airlines and they are now in the process of purchasing more fuel efficient airplanes. With the trend of purchasing newer aircraft, repair centers will not receive as many heavy checks as in the past. Airlines now can elect in five year cycles of sectional repairs. The customer can direct maintenance personnel to inspect certain items on a task card. If a mechanic finds anything extra broken, he is required to document his findings and report this to the airline representative. If the airline representative determines that the finding does not hinder airworthiness, then it goes on a task card for the next scheduled visit.

This causes repair centers to be more creative in attracting customers or schedule the new checks in bulk to fill out the hanger spaces.

Goodrich Aviation Technical Services, PEMCO Aviation Group, Inc., and Singapore Technologies Aerospace are classified as an oligopolist because the industry they are in has just a few sellers. Slavin explains, “An oligopoly is an industry with just a few sellers. How few? So few that at least one firm is large enough to influence price” (255). None of these companies is large enough to influence price. The price that is set in this industry depends on market demand and outside influences such as fuel prices.

The economic advantages and disadvantages for each of the three corporations are remarkably similar. Of the three companies that I have mentioned, the one that will be the most successful in the long run will be the company that can be the most productive with the new passenger to freighter conversion project. Although each company has independent writers proclaiming that their company is the largest repair center in the world, the difference may very well lie in the actual physical size of the company, or the size of their customer base which is generally not disclosed to the public.

For motivation and inspiration with writing tips check out  Liane Schmidt

History of the Pacific Northwest and Land Rights   Aviation History and Technical Advancements

Renewable Green Power in The Pacific Northwest  Chris Stonecipher and Friends 

The Fight of Airbus   Pratt and Whitney Aircraft: A History 

Airline and Aviation Sector-Ouch   The Manfacturing Business