How is the transition going?
Friis-Petersen: It is going very smoothly. I’ve worked closely with Leo the past 10 years during my past two roles, which were in Hannover, Germany, where Leo was running the shop, and now in Amsterdam, where MTU Maintenance Lease Service is based. We’ve had consistency in management and it is a smooth transition.
Leo, looking back at your career, what are some of the highlights or surprises?
Koppers: If you look at the last 16 years with MTU, the development of MTU’s MRO business is amazing. When I came to MTU, MRO was the fifth wheel on the wagon. We had the commercial OEM programs everyone was dreaming about—participating in the Pratt & Whitney V2500 and PW200, General Electric CF6 and Engine Alliance GP7000 programs. The military program was the dream, where we started building the biggest turboprop engine, for the A400M. That was it. At that time, we were part of Daimler Chrysler. MRO was something we did in Hannover and it was a relatively small business segment, maybe $500 million in total revenue. If you look at the business today, MRO is by far the largest segment within the MTU group. We have a full-blown shop that we are expanding again in Zhuhai (China). We’re probably going to move to a bigger facility in Vancouver (Canada). We’re expanding the Hannover facility, where we employ 2,300 people. Berlin is getting bigger.
The thing that really brought us forward was the focus on MRO and the belief that this is something we could do really well. When KKR purchased us in 2004, for MTU, that was an enormous step forward because the engineering focus slowly turned to a combined engineering/financial focus, driven by KKR’s interest, of course, to exit one day. The IPO in 2006 was at €21 ($24): it was trading earlier this year near €200 Euros. We did the right things on the OEM side, too. We stepped into the right programs, but the growth of MRO has been phenomenal. This year will be the fourth year in a row we have record revenue growth and profitability in MRO. MTU has really become an entity.
Another major step was to move into the lease business. We partnered with Sumitomo Corp. and started this joint venture in Amsterdam in 2014. It went from a €25 million operation to €180 million in less than four years.
We set a strategic path that is materializing.
Friis-Petersen: That also points to where we will develop going forward. It’s all about how we can support the core business with additional services. Customers increasingly are looking for more comprehensive service packages. It is also about adding new capacities to the network. We are confident that we are positioned with the right new engine types.
Are there any new services or capabilities you can talk about?
Friis-Petersen: We launched a technical asset management service on Oct. 17. Because 40-50% of the engine fleet is owned by financial institutions, with our core in-depth knowledge of the engine, paired with the experience we have gained as an asset owner, we thought this would be a good time to step into that market and go into more of the technical asset managements.
Several of the new engine programs have experienced technical problems. Given the fleet transition that is happening and MTU’s position in some of them, how are you dealing with it?
Koppers: Years ago, people used to ask how are independents are reacting to OEMs getting into the aftermarket. Our response has been, ‘if you can’t beat them, join them.’ We created an OEM-MRO part of the maintenance division: We have an OEM MRO part and a separate MRO-independent part. They use the same shops but not the same people. The independent part is about two-thirds of what we do and OEM MRO is about one-third. That means we are in all of the next-gen engines: GEnx GP7000, geared turbofan but under an OEM network. That positions [us] perfectly in the long term so it can be split and offered as an independent, whenever that point comes. Having all of that experience and know-how of being part of OEM network is helpful. Sure, many new engine programs have [had growing pains]. Go back in time and you’ll see the launch of the V2500-A1 and initial CFM56-2 had issues, too. It’s not completely unusual. If you take the CF6-80C2—by now considered to be one of the more reliable mature engines—it had 18 new configurations of turbine blades before it stabilized. Don’t forgot what these engine are asked to do from a fuel saving, noise and pollution stand point—each [iteration is] higher and better. If you look at the geared turbofan, it’s doing what people wanted it to do: fuel savings, noise reduction. It has [growing pains] that need to be solved, but the key element—the split of the LPT (low pressure turbine) from the fan, is working perfectly. Now you need to make sure all of the little details that are creating issues today are reengineered—and these are not extremely difficult engineering things to tackle. In 3-4 years, everything will be working and people will be happy with the geared turbofan.
Predictive maintenance and analytics can be a differentiator. How does MTU perform in this space?
Koppers: Digitalization is a trend in society. I’ve got a feeling that in aerospace it’s too much of a buzzword. In engine maintenance, we’ve already made serious steps in engine trend monitoring, which we developed our own. What you see is engine trend monitoring systems becoming more sophisticated—they are not new, they started in the late 1970s or early 1980s. The new engines generate more and more data, so you have even more information about what the engine does. It will help forecast engine removals. Remember, this industry is already excellent in forecasting engine removals. How many inflight shutdowns does this industry have? You can count them on one hand. Will it get significantly better? Yes, but the problem today with the newer generation of engines is that certain components are failing.
Friis-Petersen: it’s all about crunching the data and getting the right conclusions. The trend is doing more and more to help manage fleets. It is important to know how engines behave on-wing. That is why we’re investing in digital products. We’re taking a more active step in that direction.