A few years ago, anyone with a sharp pencil had to wonder how long China could remain a big player in heavy airframe maintenance. For years, wages had been rising 10% annually. As that rate continued, labor costs doubled every seven years. Even the greatest MRO managers in the world could not deliver equivalent efficiency gains year after year. Inevitably, competitiveness would decline.
The day of reckoning now looks a lot farther off. The economy is slower, competition from other industries is lower, the training system—finally—is more or less meeting the demand for airframe technicians, and wage increases are now probably much less than 10% a year.
Some managers say finding and keeping people with the right skills is now easier. That is consistent with the airlines’ view of the situation. For as long as anyone could remember, airlines had been hard pressed to find technicians, but availability seems notably easier, if not exactly abundant.
On the other hand, China’s increasingly liberal attitude to licensing airlines is creating a new problem for MRO operators. Every new carrier needs a team of people with key skills—and will pay as much as necessary to get those employees, including in maintenance.
Exact figures for the current pace of wage hikes are unavailable, but Norbert Marx, general manager of Guangzhou-based MRO shop Gameco, estimates it is now only 5% and that it has dropped from 10% about three years ago. Other senior managers in the industry think 5% is plausible, while others place the rate a little higher.
That 5% is an interesting number for a special reason. It corresponds to a common estimate of the rate at which efficiency can be raised—not for decades, but for at least a few years. Output per worker hour in China has never ceased to rise, but there is still considerable room for improvement. Plenty can be learned from high-wage Western Europe, where best practices are essential for survival. If Chinese efficiency gains match wage increases for the rest of this decade, industry profitability will be quite stable.
Two factors may be most responsible for the unaccustomed restraint in Chinese wages. One is that GDP growth—and therefore, roughly parallel, the rate of income rising across the economy—has dropped to, at best, 7%. Historically, it was about 10% a year (in real, inflation-adjusted terms; the amount of yuan deposited in the bank each month for the average Chinese was actually increasing a little faster than that, and thus faster than what the MRO sector was struggling with).
The silver lining from slower GDP growth is less disruption for businesses reliant on moderate labor rates. Chinese MRO employees’ expectations are no longer advancing as fast. Moreover, other industries, such as manufacturing, are not well placed to throw around cash to lure airframe repairers into, for example, automotive assembly.
A second factor is that the MRO industry is training more people. Demand begets supply, which for skilled labor means schools, especially company training systems. The larger MRO shops in China are each turning out hundreds of graduates a year, fed by universities and technical schools that supply young people who already know a thing or two about, for instance, working with sheet metal.
Aviation remains an appealing industry in China, says Marx. And, although living in Singapore as a mechanic is hard, it can be done in China. “In Guangzhou we can find enough people [who] are interested in the job,” he says. Gameco’s staff turnover is 4%; a few years ago it was 6-7%.
Location affects staff turnover, however. A senior manager with an MRO operation in well-developed eastern China complains that the appearance of each new airline results in demand for skilled maintenance people. MRO operators can hardly lift workforce-wide wages in response, so every so often a group of important people quits. The problem is not critical, says the manager, but it is more than a mere annoyance.
After several years of restraint, the Civil Aviation Administration of China resumed licensing airlines without government connections in 2013. The policy appears aligned with the liberalizing attitude of the administration of President Xi Jinping.
The senior manager estimates industry-wide wage growth at 5-10%, perhaps about the middle of that range. Less positive about the labor market than others, he does not see a trend improvement in the supply of skills.
Labor rates are far less of an issue in the capital-intensive engine maintenance business. In recent years, MTU Maintenance Zhuhai has been able to hire enough employees, says CEO Frank Bodenhage. The company has not needed to hire many people, he adds. “There are, of course, differences from skill to skill and position to position, with highly skilled and experienced people being the most difficult ones to find.”