Johannes Bussmann became chairman of Lufthansa Technik’s (LHT) executive board in April, replacing August Henningsen, who retired. Bussmann joined LHT in 1999 as a development engineer, and most recently oversaw human resources, engine and VIP services, beginning in 2012. He spoke with Lee Ann Shay about his aspirations for the MRO.
MRO: What changes are you planning for Lufthansa Technik’s strategic vision?
Bussman: August Henningsen and I worked together on the board for almost three years, so we have already determined a new strategic approach. The main targets will remain but we also want to grow stronger in the Asia-Pacific and Americas regions. One good example is the Puerto Rico facility we will officially open in November.
How is the Puerto Rico operation going so far?
We are very proud that from groundbreaking to the first check only took 11 months. Already we have a couple checks running through to ensure everything is properly working and to see what changes will speed up this process. We are very happy with the performance there, and have lined up a good local workforce who are currently training at our facilities around the globe—so the international training puts us in good shape. Puerto Rico is running fine but to be honest, for a fair assessment we have to wait until the first 20 or 30 checks have gone through there smoothly.
I think that worldwide there is an overcapacity of hangars—I don’t think the problem is that we don’t have enough. The main difference is how they are run. For instance, look at efficient car manufacturing production plants. MROs that have just one or two lines probably don’t make sense. More carriers with big fleets want to buy complete lines. The tenders for single checks are dwindling. We are seeing bigger projects in the market.
Are more carriers committing to longer-term contracts?
That’s what we would like to see in the market. But bigger airlines will not put all their eggs in one basket. I wouldn’t do that myself. But I’m very sure that providers that can truly offer three or four lines exclusively for bigger projects will succeed in the long run if they give the airlines the flexibility they need for the usage of their aircraft and for rescheduling their flight plans, but that is hard to do if you have less capacity.
What are your expansion plans in Asia and how does Ameco fit in?
Air China wanted to integrate the Air China Technics group with Ameco. We have found a new stable setup for Ameco if the transition is performed. We are in the midst of the process, including technology transfer.
It is a partnership we have run for many years and we want to maintain it. The investment Lufthansa has there did not change on an absolute basis, but via integration of Air China Technics a lot of line maintenance capabilities came to the new Ameco.
So that is why we hold our absolute investment, but it leads to a dilution to 25% from 40% as the line maintenance was added because it is a big portion of the integration. The capabilities are not changing, but we modernized the management structure. Historically the management positions were shared between Chinese and German colleagues—and now Ameco will either be led by a German or a Chinese colleague.
At LHT Philippines, the [Airbus] A380 expansion should open in November. And there are other carriers outside China and the Philippines that could have an interest in working with a partner, which offers further possibilities. Talks are ongoing, and if things go well, we might find another location in Asia.
What other joint ventures would you like to establish, and will there be changes to your engine MRO network?
In the next decade or two, there will be a big swing in the engine MRO market. If you look at the sales numbers of the OEMs—they hold 50-60% of the aftermarket at the point of sale already. So that means for an MRO that the accessible market in a traditional perspective, with airlines as the direct customer, is smaller—at least for the first life of the engine. But that definitely means cooperation among bigger MROs and OEMs becomes more important. That is one of the main reasons we teamed up with GE.
The risk portfolio they take under their wings when they sign aftermarket contracts makes a good fit between partners because their traditional model is changing, too. They have to keep repair costs in line with the contracts they sign—and that is the experience LHT brings to the table. For older engines and those working under the traditional mechanisms, that is stable.
How will repair development work with the new GE joint venture?
We will have joint efforts with engineering teams and the experience we gain from the existing engine models—so it is not that we will be starting anew—we’ve had engineering teams working together for quite a while. But now they will be doing it for the benefit of the same company, which should speed up the process and get more things on the table. Because intellectual property is now shared, this makes things a lot easier. That’s how we will run the joint venture and why we will have an almost equal share, because that is our understanding of cooperation.
How do you decide when to cooperate and when to compete with OEMs?
It depends. Take the engine side as an example because it illustrates what is happening. The market structure changes and it is very hard for an MRO other than the OEM to make all the investments. Because of the increased reliability of the aircraft and engines—and longer time on-wing—you need more and more business to gain the scale. And IP is completely different. We’re not talking about 10-15%, we’re talking about times two, times three, times four. And on the components side, times 10.
So for smaller facilities—10-15 years down the road, it can’t be economical. If you don’t have the scales, you will not be participating in the market.
That’s one side, so we make a judgment [as to whether] there is an economical market. If there is, we go for it. For someone deep in the technology already, the investment is less than for someone coming to it new.
The other factor is that if the OEM is a potential customer itself, they hold a lot of signed contracts; from that perspective they have a lot of risk in their portfolio. We have had, for many decades, a different approach to repairs and on-wing services, for example, because we look at it from an airline’s perspective. We know from our maintenance staff every day what problems are encountered and what materials are used.
So if the OEM is interested in the experience we bring, it is a win-win situation—as long as there is an openness about cooperation and [melding] these things together. If so, we can cooperate, but if it doesn’t coalesce, then we compete.
Most engine OEMs are making bigger strides to provide services for mature engines. Do you agree with that approach?
It means a big change for them with all the surplus parts on the market. We watch this closely too, because it also drives the work we do here in the shops. We use more surplus than we did in the past because the surplus prices can compare to the repair prices—so we balance repairs, parts and on-wing time. Whatever is more reasonable will be performed. And some customers change engines to avoid shop costs [and] save money—or do a dedicated workscope to meet the end-of-lease requirements, or whatever the needs are.
With the increased surplus in the market you can request parts with 1,000 more cycles. A decade ago, it was hard to generate that much surplus to have the freedom to decide that. And I think the thing that will definitely increase are on-wing services, with the increased number of flat-rate contracts out there with the intent to avoid shop visits. Shop visits 95% of the time are more extensive than doing the same thing on-wings.