Joramco Part 147 maintenance training center in Amman. Joramco
Joramco has opened a Part 147 maintenance training center at its base in Amman.

Where MRO Labor Rates Are Heading

Is the law of supply and demand for aviation aftermarket wages starting to kick in?

As discomfort continues to grow about globalization, competition between third-world cheap labor and first-world workers has become a political football.

In some ways, however, the whistle has already blown on the debate in aviation MRO. It is now seven years since United Airlines outsourced Boeing 747 and 777 heavy maintenance to Ameco Beijing and six years since Qantas engineers staged strikes over the airline’s plans to move work offshore.

Since those days, MRO wage differentials between Asia and the West have narrowed, prompting some airlines to look closer to home for widebody maintenance (narrowbodies’ more limited range means that they are rarely serviced thousands of miles from their operator).

Joramco

Joramco has opened a Part 147 maintenance training center at its base in Amman.

A 2014 survey by Oliver Wyman found that a majority of U.S. airlines sending work offshore were willing to pay 5% more to use domestic providers. Interestingly, by 2017 that had become almost exactly the difference between MRO worker wages in China and the U.S., according to Oliver Wyman’s annual labor rate benchmark report.

“Labor rates are key—we need to provide competitive bids,” says Troy Jonas, vice president of MRO services for AAR.

After years of stagnation, however, mechanic and technician wages jumped in the U.S. in 2016, potentially threatening to widen differentials once again. According to U.S. Labor Department figures, average mechanic salaries were up 4% and average avionics technician wages were up 5%.

“The industry continues to be sensitive around the labor rate, but inevitably it will need to increase in order to align with increased technician wages,” says a source from a U.S. MRO provider.

Labor-intensive

Among several independent and airline-affiliated maintenance providers interviewed by Inside MRO, the proportion of technical to administrative staff ranged from 60/40 to 80/20, with the industry average thought to be around 65% technical. Given that maintenance is labor-intensive, this indicates how important wage costs are to MRO providers.

Jordan-based Joramco says it has tried to keep a lid on wage costs for the past decade in order to retain a competitive advantage.

“Offering competitive labor rates is one of the most important pillars for Joramco in order to win business,” comments a company representative.

Other MRO providers agree that labor rates are a key part of any bid for new work, but they also highlight the significance of other factors such as “expertise, infrastructure, quality or proximity to the customer,” says Martin Horn, senior director of recruiting and vocational training at Lufthansa Technik (LHT). “For a solid business case, the complete package must be considered, not only one aspect,” he adds. 

Labor rates in LHT’s home country of Germany have risen about 2% annually over the past 10 years, the company says. 

Wage Influencers

Salaries in any industry are dictated by the availability of and demand for the requisite labor, but within that broad equation are many variables. Influencing the supply of labor, for instance, are: retirement of older, experienced workers; competition for staff from related industries; training and education capacity in certain regions; and the mobility of labor between and within countries.

Joramco

“It is challenging to find some specific aircraft experience in the market,” says Jonas.

 Competitors for technical staff include airlines and government operators as well as industries outside aviation or defense.

Sometimes, supply is not a problem. LHT says it is an attractive place for technical staff to work. “Thus we haven’t had difficulties to find the right staff for our traditional MRO business, so far,” says Horn.

In such cases, wage pressure can stem from sources other than supply. For LHT and other European MROs, this pressure often comes from unions, while Joramco identifies inflation and the “political situation” in the Middle East as contributory factors.

Joramco also flags the need to ensure a stable supply of new maintenance workers and those with the right qualifications: “The issue of manpower to meet maintenance demand and the requirement to continuously upgrade the capabilities and competencies of certified staff through training is a serious impediment to growth,” the company says.

To avoid this obstacle, Joramco has opened a Part 147 training center at its base in Amman. Aircraft manufacturers, meanwhile, have rapidly expanded their pilot and technician training capacity, with Airbus having added 10 new training centers in the last three years alone.

Demand for maintenance workers can vary on a seasonal basis, but long-term trends have been identified based on predictions for fleet growth. Airbus estimates demand for 550,000 new maintenance engineers over the next 20 years; Boeing puts the requirement at 679,000.

“Demand for skilled technicians has increased over the past 10 years, and we expect it to accelerate at a faster pace in the next 10 years due to the number of technicians retiring and a decrease in new technicians entering the labor pool,” says Jonas.

While Jonas is mainly referring to the U.S., aircraft manufacturers agree that the Asia-Pacific region will have the highest overall demand—accounting for 40% of new MRO workers, according to Boeing—a factor that might keep pushing Asian salaries toward Western ones.

That said, the Airbus and Boeing forecasts could be undermined by advances in technology (as in automation) and, to a lesser extent, other productivity improvements such as lean manufacturing. As a result of these trends, in 10 years’ time a maintenance provider might need fewer new workers to add a given amount of capacity.

Contractors

MRO demand can prove volatile in the short term, and not just due to the traditional winter peaks and summer troughs of hangar work. New aircraft equipment is sometimes less reliable than expected, needing modifications and upgrades; mid-life engines can prove more durable than forecast, pushing back an expected wave of overhauls by several years; and low oil prices can extend the service lives of mature aircraft and engines that require more maintenance.

To cope with such variability, most MRO providers use contract workers to fill capacity gaps during busy periods. “It gives us the flexibility to react quickly to up- and down- cycles, which happen on very short notice, sometimes,” says Horn.

The German MRO explains that using contractors to manage peaks and troughs of activity allows it to keep full-time headcount stable and to avoid large-scale hiring and firing.

Widespread use of contractors might distort the labor-rate picture somewhat, since their hourly rates are generally higher than full-time staff. One U.S.-based MRO says that Oliver Wyman’s published rate of $56/hr. in the U.S. seems “rather high” but adds that airlines tend to pay more than independent maintenance providers. Certainly, the Labor Department’s estimated average mechanic salary of $61,000 per year is much less than $56/hr. would suggest.

The Impact of Automation

The replacement of humans by robots has been gaining ground in several industries for decades. Technology experts now caution that using automated systems to replace humans will become much more widespread, given advances in artificial intelligence and robotics.

The aviation aftermarket, however, has mixed feelings about the potential of automation.

“Efficiencies have come from use of technology/IT systems that allow for enhanced productivity in the planning phase, flowing the entire aircraft check, and a focus on a critical path,” says Jonas, but he adds that “the industry is still dependent on touch labor.”

 A Joramco representative says: “Increasing automation doesn’t apply in our company, as aircraft maintenance work is labor-intensive and needs to be accomplished by a skilled labor force.”

LHT, in contrast, is investing heavily in automation, which it believes will become a vital tool for raising MRO productivity. Its AutoInspect project tested automated damage-recognition via the use of white-light interferometry for crack detection on combustors. Traditionally, this task is performed manually using dye penetrants.

EasyJet, meanwhile, has experimented with the use of drones for airframe inspections, which it says could cut inspection times from more than 5 hr. to less than 30 min.

If automation does creep into tasks such as these, one might expect demand for workers qualified to perform them to decrease, along with their wages. But LHT argues that automation is not about cutting back on labor costs.

“It is not the aim to hire less staff or to reduce existing staff but to support employees in their daily work and to free them from time-consuming and repetitive working processes which can be easily done by machines,” Horn says.

Automated inspections provide a good example of how this might be achieved. While a robot might perform the inspection process itself, analysis of the results will still usually have to be performed by a skilled technician.

The goal, LHT says, is to combine humans and machines to “provide added value in the form of high product quality and efficiency.” 

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