When Aveos Fleet Performance filed for bankruptcy protection under Canada’s Companies’ Creditors Arrangement Act (CCAA) in March 2012, UK-based A J Walter (AJW) Aviation knew it had a problem on its hands.
Aveos was born in 2007 as a spin-off from Air Canada’s heavy maintenance operation, Air Canada Technical Services. Completely unionised and relying on its former parent for most of its airframe, engine and component maintenance, repair and overhaul (MRO) business, Aveos was blindsided when in early 2012 the new management of Air Canada pulled all of its MRO business from its old subsidiary.
As a sizeable Aveos customer for component repair, AJW Aviation had millions of dollars’ worth of components tied up inside the Canadian company. Additionally, AJW was a significant commercial partner of Aveos, often acting as its “back room” for component supply-chain functions.
AJW Aviation immediately sent senior executives to the Aveos headquarters in Montreal to try to negotiate the return of its assets. However, they soon reported back to Christopher Whiteside, AJW Aviation’s owner and president, that Aveos might represent more of an opportunity for his company than a potential problem.
Turning a problem into an opportunity
Although Aveos had laid off all its 2,600 employees when it entered bankruptcy, for the right owner the component repair division could potentially be a very good buy. In 2007, Aveos’ component repair business and its 300-strong workforce had moved to a brand-new building with 220,000ft2 of shop floor space and an associated office complex. More importantly, the new facility was kitted out with valuable top-quality equipment - much of it freshly purchased.
Meanwhile, some Aveos component repair technicians were still available for hiring, as few of these specialists had felt the need to accept a government offer to re-train; the aerospace industry in Quebec employs more than 42,000 individuals, has an unemployment rate of just 1.1 per cent and - according to Nicolas Marceau, minister for finance and the economy - added 5,300 new jobs in 2013.
For prospective purchasers, a potential bonus was also in prospect. The Quebec government and Fonds de Solidarité Québec (FTQ), a specialised investor with funds raised through union contributions, were prepared to back the new owner with grants and loans.
The buyer sought by the provincial government and the union representing Aveos’ component repair workers, the International Association of Machinists and Aerospace Workers (IAMAW), was one that: could recognise the purchase as a no-guarantees distress sale; knew the MRO business thoroughly; would tolerate unionised staff; and – importantly – did not require Air Canada’s business as a condition of purchase.
A meeting of minds
AJW Aviation reckoned that the opportunity to create its own, high quality MRO brand would be a major addition to its existing business. AJW Aviation already knew the Aveos management and at that very moment was bidding for several large Canadian contracts.
For its part, the Quebec government was impressed by AJW Aviation’s global reputation in the component supply and support business, its 860 clients in 160 countries and the fact that this would be AJW’s first and only MRO shop. Another plus was that AJW wanted the facility to stand on its own as an MRO business rather than relying on AJW’s repair work and clientele. AJW, meanwhile, was impressed by the Quebec government’s commitment to ensuring that key aerospace jobs and skills remained in the province.
Senior AJW executives toured the former Aveos component repair facility in May 2012 and held an initial meeting with union representatives and shop floor technicians that month which overran to two-and-a-half hours.
AJW Aviation made clear that it had no problem working with unionised staff and would not discriminate between unionised and non-unionised workers. However, workers would have to adopt its culture of excellence, understand that quality in workmanship was all-important and be prepared to work flexibly. If they did this, said AJW, the former Aveos workers would be rewarded well for performance. The IAMAW and AJW reached an initial agreement inside one week, allowing AJW to enter detailed negotiations with the bankruptcy court and Aveos Fleet Performance’s creditors. AJW also began talks with the Quebec government and FTQ over potential investment support.
With the support of the Quebec government, which provided a C$3 million grant and a C$4 million loan, and FTQ, which invested C$12 million, AJW’s bid progressed smoothly through the Canadian bankruptcy court.
The hard work begins
The acquisition closed on August 31, 2012. AJW immediately began transforming the facility into a hive of activity in order to begin accepting repair shipments by March 2013. From the outset, the parent company regarded AJW Technique as a full sister company of AJW Aviation and an entity which must stand independently as a profit centre with its own balance sheet.
The first employee AJW Technique hired was Allan Pennycuik to serve as quality manager. Pennycuik’s first job was to write the new company’s maintenance procedures manual from scratch to a standard that would ensure Transport Canada TCCA certification of AJW Technique as an Approved Maintenance Organization as soon as possible. AJW Technique achieved TCCA and simultaneous Federal Aviation Administration (FAA) certification on January 31, 2013, five months after the acquisition.
Appointing Gavin Simmonds from AJW’s own ranks to be general manager of AJW Technique, AJW initiated a six-sigma exercise in streamlining the shop to match the operational cost base to the expected structure of the business. This exercise soon demonstrated that AJW Technique required only 160,000ft2 of the 220,000ft2 of shop floor available and did not need the office complex. These could be let go.
While most of the required equipment assets were already in place, equipment had to be recalibrated and business management and quality assurance systems installed. Since AJW Aviation used Quantum, QMaps and QPulse from Component Control, AJW Technique also adopted them.
By March 2013 AJW Technique’s workforce had increased to 40 employees, all of them former Aveos staff. Meanwhile, the facility won AMO certification from the European Aviation Safety Agency (EASA) and inducted its first repair shipments. Additional repair capabilities were introduced in April and by mid-May the facility had handled some 400 hours of repair work.
AJW Technique capabilities
By June, AJW Technique had certified all the areas of repair in its original planning, representing at least 80 per cent of all ATA component and powerplant maintenance chapters. AJW Technique also started recognising additional possibilities and introduced a couple of new repair competencies not originally handled by Aveos, such as rafts and slides.
The company’s capital expenditure requirements for equipment were fairly minimal because its equipment fit was so comprehensive. However, the company is now spending $1.6 million to buy additional component specific patches to add to the 60-plus patches it already owns for the three EADS ATEC 6 automated test equipment units. One ATEC 6 has an environmental chamber, specifically for testing engine control units. AJW Technique also has two ATEC 5000s for testing and calibration of integrated circuitry.
The facility’s list of equipment covers: shops, rigs and lines for milling and machining; painting; high-capacity cleaning; non-destructive testing; pneumatic systems; hydraulic systems; integrated drive generators; all fuel controls and components; high-pressure systems; air starters; and rotary components.
AJW Technique also has stands and rigs for electronic components ranging from laser gyro-based inertial reference units to flight management computers and weather radar antennae. The facility’s pneumatic shop is “the largest in Canada”, claims Simmonds, while its Schwein 1025Fx60 pressure manometer is one of only two in the country. The compressed air generating complex is also massive.
Simmonds says AJW Technique expects to employ around 100 people by the end of 2013 on a one-shift basis, enabling it to handle 25,000 repair units a year. This will probably expand to a two-shift basis with approximately 200 personnel by the end of 2014 and possibly a final size of around 300 staff on a three-shift basis by the end of 2015.
From the outset, Whiteside has emphasised that AJW Technique is a one-off for AJW. “This is a single business unit, so we won’t repeat it elsewhere,” he says. The USP of the acquisition is the branding opportunity; as Simmonds notes, a repaired component going out from AJW can now have “an AJW Team tag on an AJW unit sold from an AJW company”.
A concentration on quality
According to Whiteside, price will not be AJW Technique’s primary selling point - it will be quality. AJW Technique aims to offer high quality repair services which the company expects will be of interest to OEMs as well as airlines. Equipment manufacturers “are looking for people who are not PMA-ing and who have a good quality reputation in the marketplace” to handle some of their MRO burden, says Simmonds.
Whiteside says a second selling point for AJW Technique is that, backed as it is by the $500 million-plus inventory of AJW Aviation, it will be able to offer customers free and immediate exchanges on a vast range of repair components at any location in the world where AJW Aviation has the inventory. The actual cost of the exchange will be built into the repair cost.
AJW Aviation’s extensive use of power-by-the-hour (PBH) supply contracts is another factor which Whiteside reckons will help AJW Technique. Additionally, its employment of the same process management and quality control systems as AJW Aviation will let it closely share sales data with its sister company – indeed, it already has done so. This will not only promulgate sales leads but will also help AJW Technique to use PBH repair contracts.
“Nobody in North America does power-by-the-hour” on component repair, says Whiteside. Offering such contracts should help AJW Technique to expand its MRO presence in the huge North American market, which currently represents only 11 per cent of AJW Aviation’s total business. “We’re the biggest in the world at what we do. Now North America has access to it,” he states.
New areas of business
Most of AJW Aviation’s spares and components supply business to date has been for Airbus and Boeing aircraft, but AJW Technique has been tasked to win new areas of MRO business. AJW Aviation itself is expanding its product lines to include commercial aircraft from other manufacturers, as well as business aircraft, helicopters and some military aircraft.
One aircraft manufacturer AJW Technique and AJW Aviation want to work with is Bombardier, a key reason being that customers in Russia and Central Asia now represent one third of AJW’s overall business. These countries’ airlines are adding large numbers of second-hand Bombardier CRJs as the aircraft finish their primary service careers with Western carriers. Accordingly, both AJW companies are intent on adding a wide variety of CRJ part numbers to their respective service lines. Russia is also showing signs of becoming a large market for the new Bombardier CSeries.
Given the massive numbers of Embraer ERJs and E-Jets operating in both American continents, Simmonds also intends to build the facility’s repair business for Embraer commercial aircraft. “I’d be a fool not to,” he says.
Simmonds spent many years working in the helicopter industry and envisages AJW Technique competing for rotary wing MRO business within a year. In future, the company will also bid for component MRO work on regional jets, corporate aircraft and some military aircraft.
One factor that Simmonds reckons will help AJW Technique to make headway in these markets is its partnership on total engine repair solutions with Kelly Aerospace, the Lockheed Martin company which bought Aveos’ engine repair facility. Life for AJW Technique should get very interesting sooner rather than later.
An extended version of this article will be available in Aircraft Technology Engineering and Maintenance, Issue 124 (June-July 2013).