Printed headline: From the Top of LHT
What is your assessment of the competitive landscape of the MRO market?
There has been a long stretch without any major downturns or hiccups, which is a unique situation in itself. We think there will be annual growth rate of about 7% for the next 6-7 years, and that is a good basis for the development of airlines and for us as an MRO company.
Lufthansa Technik was one of the first to set up a global network. Who do you view as your chief competitors?
It’s a combination of established MRO providers in different segments—base, engines, components, etc.—so the number of competitors differs based on the area. Some are more regional, some are more global—and the higher the technology level, the more competitive the global landscape is. On the other hand, we have new technologies coming into the market—you have higher pressures [in engines], more electricity, more digital in the aircraft. Because of this, we are very sure that more than half—if not up to two-thirds—of legacy MRO providers will disappear over the next decade or two because they do not have access or the volume or the size to invest in all of the new technologies. It should not affect fleet growth, but it will result in different ownership structures. That means established players like us, and others, will buy entities, and I’m pretty sure a couple OEMs will invest in the aftermarket, too. With the established fleet, due to the difficulties on the engine side predominantly, they will fly a little bit longer, which will increase price pressure—that’s obvious and a very normal market reaction. The difference will be this: Who has the size, the financial capabilities and know-how to invest in new technologies and aircraft types? In 10-15 years, these will be the participants in the MRO market.
As for acquisitions, is there anything on your target list that you can talk about?
We are looking into certain areas from geographical and technological perspectives. We want to have another narrowbody base maintenance location in Asia—something that we are working on. We are further developing our Puerto Rico facility and laying the cornerstone for our joint venture with MTU in Poland—the other things I’m not ready to speak about.
How do you foster an innovative culture that embraces new technologies—but keeps a certain focus?
I separated digital from IT. One is the pure technologies—production and repair methodologies. These are things that generally affect the bottom line. There is a dedicated team who identifies things we will need to perform repairs in the future, and those are the things we’ll invest in. We have one or two specialists from each production division—for example, 3D printing is two product divisions, and they jointly run the additive manufacturing center of excellence. That’s how we approach this. So I have a fairly small, central team who has an overarching view on the technologies, and they work with experts from the product divisions so we have a direct link between the business and the research field.
That took a while to establish because we needed dedicated resources. Before, we had specialists doing both component projects, for instance, and these technology projects. We stopped that, so we have dedicated teams that are only doing research. But they are still sitting in the workshops—otherwise they would lose the connection with the shop floor. It took us at least two years to make this change, but if you were to ask me today, “Would you do it this way again?” I would say “Clearly, yes.” It’s sustainable and self-driving.
The second section is digital and data management. Digital is a completely different thing than IT, and we needed people who had deep experience running our production systems—and others with big data backgrounds who know how to read the data. Interpreting the data is key—knowing that out of 100, you need 0.1. This interaction with people who know how to write algorithms and develop artificial intelligence approaches—and those with engineering know-how from the workshops—is important. It’s not enough to know the mechanical removal reason or see the pilot write-up for a part—what’s really interesting is what mechanics find when they disassemble a component and then come up with the idea—with sensor data, stress data—and bring it together to see if there are patterns.
We separated the groups on the board level, too. The digital side reports to me and the IT reports to the chief operating officer, so there is complete separation. Of course we talk a lot about it. But they have a different focus, and that allows us to have a good dedication on these new things. So when there’s a new release of SAP, you’re not slowed down by half a year on the digital side. You do lose some synergies, no doubt, but I think it was a good decision. It also makes it easier to attract people.
How many customers are using Aviatar, the independent platform LHT created?
Dozens are testing it. A lot of customers want to know what it’s about, what it is capable of doing. We have various test cases examining that, and then we have others beyond the test phase and providing live data into the system and working with it. That number is changing every day because we have a quick-boarding function so customers can easily connect their data sources to Aviatar in 24 hr. to see the live system using their own data instead of demos or presentations. It was important to overcome the barrier, “I need a big IT project to find out what this is all about.” It’s a very simple data connection. If the customer is interested, then you can start to connect all relevant interfaces to data sources. The limiting factor is more our capacity than anything else, but the interest in the market is huge.
There are many data analytics platforms available to the aftermarket—including Aviatar and those from OEMs and other providers. Does there need to be consolidation of these platforms to gain scale?
I have a very clear view on this. Airlines are the owners of the data—not airframers, not anybody else. It’s the airlines’ responsibility to know the condition of their aircraft, and they should be in the position to ask different providers—such as Airbus, Boeing, us or whomever—to give market participants the data and see who has the most powerful working ideas with the data. Where is the biggest output? Because then you are discussing who brings the best value to the airlines—not who has established a monopoly. That is something we are promoting heavily at the IATA [International Air Transport Association] level and with airlines. I think that is a shared view. You need a powerful alternative to the airframers’ solutions. If there is no alternative, it’s clear where this is going.
We started Aviatar earlier than Airbus’ Skywise product. We started Aviatar, but I’m pretty sure we won’t be the sole owner 12 months from now because it’s not our idea to establish Aviatar as another monopoly, like an airframer’s solution. We want it to be an open, independent platform, so we are talking with our competitors and other market participants to become stakeholders with us. We will put Aviatar into a company so it can have multiple shareholders. This is extremely important because we don’t want monopolization around data ownership. The competition then will become who does good things with the data—not who has access to it. That is our vision. The interest is quite big, because none of the airlines or other market participants want further monopolization of the supply chain. That’s why the response to this idea is so great.
Could this almost become something like SITA, which is owned in common by the air transport industry?
It could, but it needs one more layer. You could separate data storage and the predictive/analytical side. You would need an independent organization, maybe IATA, that decides who gets what. But the data is useless without having the know-how to read it and find patterns. I think it’s dreaming to believe artificial intelligence will solve all of this. You need engineers who know how these things really work. You still need a lot of expertise and shop knowledge to make sense of the data.
We are not afraid of competing on delivering this platform. But we are deeply against the monopolization of access to data.
Don’t you think you’ll get some pushback from some of your airline MRO competitors? Why would they want to partner with you on this?
If one of us tries to do it on our own, it will fail. We need to join forces because you need volume, as well as volume of experiences and shop data. Doing it together makes much more sense. And for the customers, I don’t think they want 10 platforms. There will definitely be a platform for Airbus and one for Boeing one day. Predix seems to do a lot for engines but not for other things. You need maybe one or two more platforms. That’s why I believe in joining forces and being a neutral party. We run joint ventures with MTU, Air France Industries and many others—so it’s not new to do something with competitors.
Although airlines own their own data, data ownership comes up frequently when talking about data analytics.
Airlines need control of the data to retain their ability to influence their operations and technical reliability as a performance indicator, which is always 98 or 99-point-something percent. What we are dealing with is the small percentage down from 100, and that’s why we need to optimize. It ends with stranded passengers, but you need crew planning, pilots and all these things behind it. To save 0.1%, that goes through the whole value chain. That’s why the airlines need a say. On the front side, it’s only a component or engine change, but it has a lot to do with predictability and planned maintenance, and airlines need to be able to control that. A component can work well for 8-10 years, and then all of a sudden, a defect shows up. It’s important that more than one pair of eyes looks at it. That’s also why multiple people need access to that data to get their heads around solutions. It’s important for reliability, safety and cost.