In yet another indication of rising demand for widebody maintenance in North America, AAR’s newest facility, operating at a deficit since it opened, is expected to swing to profit soon on the strength of several new contracts, company CEO David Storch said.
The company this week announced “several” new contracts for its Lake Charles, Louisiana, facility, including a mix of routine work for two U.S. legacy majors and drop-in work. The contracts include at least one new customer, but AAR declined to provide details.
“[Lake Charles] has been operating at a deficit, and we expect with some of the new wins that that business will start operating profitably very soon,” Storch told analysts on a Sept. 23 earnings call.
Opened last fall, Lake Charles joined Indianapolis and Miami in AAR’s widebody MRO portfolio. Lake Charles recently opened a sixth hangar, a 118,000-sq. ft. facility that can accommodate new-generation widebodies, including A380s and 747-8s. The hangar’s two widebody bays are filled through mid-2015, AAR said. Lake Charles is handling Boeing 767s and 777s as well as A330s and A340s, with plans to add 757s.
AAR’s Lake Charles expansion and a recently announced deal to open a new widebody facility at Chicago Rockford International suggest the company is among those bullish on more widebody MRO work either staying in the U.S. or coming here. Earlier this year, AAR struck its first deal with Aeromexico, bringing Boeing 767s and 777s to Indianapolis for C checks.
Several factors are combining to create a stronger financial argument for keeping widebody checks stateside, industry observers say (Aviation DAILY, Oct. 2, 2013). Among them: rising labor rates in traditional widebody MRO hotbeds like China, which—combined with high fuel prices—changes the calculation that operators use when deciding whether to ferry aircraft far out of their networks for labor-intensive heavy checks.
U.S. MRO providers are warming to the opportunity to meet rising demand. ST Aerospace and Aviation Technical Services (ATS) have joined AAR in adding widebody MRO capacity in the last two years.
ATS’s moves to add widebody hangars in Moses Lake, Washington, in 2013 and Kansas City, Missouri this year underscore how quickly demand is shifting. A dip in widebody work following the 2007-2008 global economic slump led the company to get rid of its largest hangar in 2011 (Aviation DAILY, Apr. 19, 2013). Three years later, it has grown from one facility, its Everett home, to three—all with widebody capabilities.
Another factor that is changing airline strategies is technical advances that are reducing labor requirements. Air France, which has the benefit of a major in-house MRO facility, farmed out much of its widebody heavy maintenance, but kept its 777s in house. The reason? Workscopes are not extensive enough to justify sending them out (Aviation DAILY, Sept. 17). The labor in 787 heavy check workscopes is expected to about 10% of a 747-400, further reducing the benefits of lower labor costs.
AAR’s Rockford facility, set to open in 2016, will target the 787 and other new-generation widebodies, which AAR believes would be under-served if North American widebody capacity stayed flat.
“When we looked at the global market and zeroed in on the U.S. market, we see a need for maintenance hangars that are capable of managing these new generation aircraft, where the tails are a little bit higher and the wings are a little bit longer,” Storch said. “There aren’t many facilities in North America capable of handling these aircraft.”