df-mralitaliaalitaliamaintenancesystemspromo.jpg Alitalia Maintenance Systems

Alitalia Maintenance Rebuilding Engine Business

CEO Giorgio Danilo Pietra and new majority shareholder PanMed Energy are implementing a plan to bring the MRO provider back from the brink of bankruptcy.

The last 12 months have not been easy for Alitalia Maintenance Systems (AMS). In late 2013, its primary customer, Alitalia, was suffering severe financial problems that caused it to slash the number of engines it sent to AMS for maintenance. This left the unit’s 17,000-sq.-meter (183,000-sq.-ft.) facility in Rome operating at less than 10% of its usual capacity. With revenues hitting bottom, AMS had to apply for Italy’s version of U.S. Chapter 11 bankruptcy protection.

Giorgio Danilo Pietra, the new CEO of AMS and former vice president of fleet maintenance at Alitalia, stepped in to pull the company back from the brink. The first step of his recovery plan focused on reassuring the market of AMS’ viability, he tells Aviation Week. That was helped by AMS’s three shareholders—Italian private equity firm Iniziativa Prima, European Advanced Technology (EAT) (a subsidiary of Israel’s IAI Bedek)  and Alitalia itself—all committing to Pietra’s plan.

In December 2014, that recovery plan was further boosted when the shareholders signed a deal that will allow Jordanian company PanMed Energy to become the majority shareholder of AMS. Beginning in June, PanMed will own 60% of the Italian company, while the original shareholders will retain 40%.

The deal is understood to be part of PanMed’s €250 million ($290 million) plan to invest in a group of Italian companies that will help it serve the energy industry. Part of that investment will be to increase AMS’s in-house capabilities, a recovery plan backed financially by Alitalia and EAT—and supported by all the shareholders.

AMS expects to receive full court approval of PanMed’s investment within the first half of 2015. That will allow it to pursue its recovery and conduct business with more confidence.

“Our shareholders were very supportive, but even so, there was no doubt that we had to make sure we increased our appeal to the market by being more competitive while maintaining our service-level quality,” Pietra says. “That has meant a big part of [2014] was simply presenting our plan to all of our suppliers, partners and customers. Their replies have been very positive.”

Rather than cutting staff and budgets, or simply throwing money at the problem, the plan involves maintaining and regaining business by using the slowdown to train staff and look at areas where AMS can improve quality and efficiency.

Intense improvement of efficiency was not new to AMS. In the 1970s, as the Alitalia Engine Workshop, the industry knew AMS for its skill with auxiliary power units (APU) for Airbus A300s, Boeing 747s and McDonnell Douglas DC-10s, as well as General Electric CF6-50 engine work. Then, in 2003, Lufthansa Technik became a 40% shareholder, along with Alitalia itself, and introduced the unit (renamed as AMS) to Lean methodologies.

Lufthansa Technik sold its share in 2010, but AMS’s focus on Lean processes continues today and is the foundation of current improvements. For example, it has just launched a new system to test and then cut engine vibrations, to improve reliability and  engine life. Another project is investigating which tools and components are required at which stations and when, aiming to reduce the need for engineers and technicians to go to the stores for them.

AMS is also looking at how to save money by cutting the amount of work it outsources. “It is very important for us to reduce our costs from subcontractors,” Pietra says. “So in 2015 our main focus will be to develop our capacity to undertake more in-house repairs. Currently, they account for 30% of our volume, but we expect to reach 50% within three years, and more beyond that. That will give us a lot of added-value in costs and help us to build good contracts with providers.”

That requires training, another area in which the company has been willing to invest. “We have to increase our range of services and our internal training, but that offers opportunities, too, as it allows us to train externally,” he says. “So far, we have run [European Aviation Safety Agency] Part 145 training classes [for other companies]. For foreign countries trying to implement these activities at home, we provide the know-how to do so, such as we have done in Vietnam.” 

AMS also maintains strong ties with universities in Rome, where it finds most of its middle managers, and with which it works on research projects.

However, all of this is pointless without work. With AMS operating at such a low capacity in 2013, it was essential to bring in new business. “We can’t really be compared with the big players,” Pietra says. “We currently only have 300 employees and a capacity of 100 engines per year. In 2013, we were only running at about 10% of capacity, but that gave us room to grow. We have since recovered many contracts [that we lost in] 2013, and we are on target to reach 40-45 engines in 2015, the same in 2016, and then to increase that up to 50 in 2017. We predict we will break even in 2016 and have a very positive result.”

AMS’s customers include Alitalia (nearly two-thirds of its work), Kuwait Airways, the Kuwaiti Amiri (State VIP) flight services, Dubai’s Midex Airlines and Turkey’s MyTechnic. Its capabilities include overhauling CFM56-5B and -7B engines; General Electric CF6-80 and -50 C2 engines; Honeywell GTCP85, -660, -331-200ER and TSCP700 APUs; and installing and removing GTCP131-9A APUs.

Pietra wants the company to handle other types of engines and APUs. For example, it is investigating the possibility of MRO work on Pratt & Whitney Canada PT6 engines for Italian military and government aircraft and helicopters, PA300-31 APUs for turboprops and GE LM2500 gas-turbine engines for marine, industrial and oil/gas pumping. To that end, AMS has signed a memorandum of understanding on knowledge transfer with a repair specialist for industrial gas turbines based near Turin, Italy, and is aiming to learn about advanced brazing techniques for engine seals. 

“It’s important to diversify from just aircraft engines, such as military helicopter engines,” Pietra says. “Doing so opens up different markets. The competition is still high, but it is a little less so.”

The question remains whether all this effort will be enough to survive in an ever more difficult market. “The increasing strength of OEMs is [adversely] affecting the MRO industry,” Pietra says. “They have the strength and capacity to dominate.”

He remains optimistic, however: “It makes life difficult, but all it means is that it is all the more important for us to offer very good services at a very good price, and we can do that.”

 

TAGS: Europe
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