Independent MROs Investing In Capabilities, Growing Profits

By Henry Canaday
Source: Aviation Week & Space Technology

Rookey might consider selling his two companies at some point. “I don't want to do this forever,” he says. “I'd like to just ride my motorbike someday.” Meanwhile, he adds capabilities based on equipment requirements and expected revenue streams. The big hurdle is not money, but time. “We do not have the people to do all we want to do.”

Texas Pneumatics already has capabilities for the Airbus A380 and is looking at the A320neo and Boeing 737 MAX. “We want to do new aircraft, but they are in warranty for three to five years and at best, it is eight years before they generate significant business,” Rookey explains. Boeing 777s and 737NGs are his biggest models for MRO business.

Test equipment for new models is expensive, but Rookey's shops work mostly on pneumatic and fuel components that use mechanical tests. A few fuel parts require electronic testing. “If you go to the OEM, you pay $2 million,” Rookey observes. “But there are ways to get equipment that generates test signals at much lower cost. You have to be innovative. Test equipment is not a barrier.”

That is certainly what AAR has found. The 30-year-old company began expanding rapidly after its acquisition of United Airlines' overhaul facilities in Indianapolis seven years ago, notes Jack Arehart, co-chief commercial officer. “That was a giant step in maintenance services, and since then, we have expanded our footprint,” he says. The ambitious independent did 5 million man-hours of airframe maintenance alone in fiscal 2013 with an average of 55 aircraft in its hangars, not including its newest facility in Lake Charles, La.

And airframes are just a part of AAR's spreading footprint. “We think aircraft maintenance is an excellent window for seeing the other needs of customers,” Arehart explains. Through that window, the company has perceived needs for engineering services, landing-gear overhaul, surplus parts, component repair and repair management, cost-per-hour (CPH) programs and other ancillary services.

Indeed, airframes constitute only one-third of AAR's commercial business, which provides 40-60% of company revenue, the rest being from government and defense. “We like being hedged in those two sectors,” Arehart says.

Despite steady expansion, AAR does not have fixed rules on how much it will invest each year, making each decision on a stand-alone basis. “When is the right time to move into a new technology or new aircraft like the 787, versus the entry costs?” Arehart asks. “When there is a sufficient number of that model in the regions we serve that need their first heavy checks or have components out of warranty.” In other words, AAR will launch new capabilities when its metrics of scale, need and entry costs are met.

Repair management and CPH support are now a third of AAR's commercial business, supported by another important capability—teardowns to supply its CPH contracts or sell into parts markets.

What AAR does not do is compete with OEMs on engine overhauls, but it does commit to supplying engine parts for five years at predictable prices. So AAR buys 50-75 engines a year to tear down for parts. And the company collaborates with many OEMs, distributing their products, managing warranty or other repairs, and generally helping OEMs meet their own commitments.

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