Despite little industrial heritage and a tiny defence budget, the Republic of Ireland has become a European leader in aerospace, at least in two particular areas: maintaining and financing airliners. This special feature on the country's industry looks at how Ireland has built this expertise and plans to consolidate its success. We also look at how the Irish Air Corps is - finally - deploying new aircraft and at the very different aerospace economy over the border in Northern Ireland
The rip-roaring growth that secured its Celtic Tiger reputation in the 1990s may have slowed, but for a country of fewer than 4 million people on Europe's fringe, Ireland punches above its weight in aerospace, particularly in maintenance, repair and overhaul (MRO) and aircraft finance. It is home to two of Europe's biggest MRO shops - Shannon Aerospace and FLS Aerospace - and several of the industry's leading lease specialists, including Pembroke, RBS Aviation Capital and GE Capital Aviation Services. The continent's largest low-cost carrier, Ryanair, has its headquarters at Dublin airport, not far from state-run Aer Lingus, which Ryanair began life competing against over the Irish Sea.
So what is behind Ireland's success in aviation? In short: geography, history and government policies. Aer Lingus - now coming back strongly after a near-death experience two years ago - was built largely on links with the Irish émigré community in the USA; Shannon, on Ireland's west coast, was a transatlantic staging point before the advent of the jet and has developed - thanks to generous tax breaks - into the country's main aerospace hub.
The sector has benefited from Ireland's well-educated, relatively low-cost, English-speaking workforce and eurozone membership, and enterprise-encouraging schemes. "It's an easy country to do business in," says Declan O'Shea, chairman of the Federation of Aerospace Enterprises in Ireland (FAEI) and vice-president aircraft maintenance and engineering at FLS Aerospace. "We have a tax system that supports multinationals and state agencies that are enthusiastic for inward investment. Labour costs are exposed to the Irish economy, but revenues are tied to the European economy."
Ranking
The FAEI estimates that around 15,100 people are employed in the aviation and aerospace industry in Ireland. Around 7,000 of those work for airlines and a further 2,500 for airports and air traffic management and infrastructure providers. Of the remainder, MROs employ 4,000, with 800 each working in manufacturing and "internationally traded services" - leasing and finance as well as software development and employment agencies. According to figures from European industry trade body AECMA, Ireland ranks fifth in Europe in size of aerospace manufacturing and MRO sector relative to population, employing 2.6 per 1,000 citizens, after the UK, France, Luxembourg and Sweden and ahead of countries with sizeable aerospace industries such as Germany, Italy and Spain.
The MRO sector has been the bedrock of Ireland's aerospace industry since the 1970s. This year has seen two hugely significant moves. Just over a year after selling its 50% stake in Shannon Aerospace to joint venture partner Lufthansa Technik, Swiss MRO company SR Technics burst back into the Irish aerospace scene with a $160 million deal to buy FLS Aerospace from its Danish owners. At the same time, Icelandic leasing specialist Air Atlanta bought Shannon MRO from United Parcel Service (UPS), announcing plans to become a fully fledged third-party maintenance house and expanding into the full range of Boeing aircraft.
Ireland's MRO activity is clustered around Shannon airport. As well as Shannon Aerospace and Air Atlanta Engineering, there are Lufthansa Technik subsidiaries Lufthansa Turbine Technologies and Lufthansa Aircraft Painting. In Dublin, FLS dominates the scene: its six-hangar overhaul facility is next to the city's airport. Another Lufthansa Technik subsidiary, Airmotive Ireland, employs around 460 people and Pratt & Whitney also has a facility in the city.
The sector was jolted by the aftershocks of 11 September which left independent MROs competing for a shrinking pool of airlines and aircraft. However, so far, Ireland's maintenance operations, which grew steadily throughout the 1990s, have escaped relatively unscathed. The FAEI estimates that around 320 MRO jobs disappeared between 2000 and 2002, but the sector is still employing a fifth more people than it was in 1998. In fact, for FLS, it has been its UK operations which have borne the brunt. In January - a month before being bought by SR Technics - it announced it was shutting its UK heavy maintenance centres in Stansted and Manchester to concentrate activities in Dublin. Around half of its 1,500 UK jobs will go.
The company is continuing line maintenance at Stansted and a joint venture with charter airline MyTravel Airways in Manchester, MyTravel Aircraft Engineering, to carry out A checks across its fleet and C checks on its Airbus A320s. FLS, owned until 1998 by Aer Lingus, insists that its new ownership will not affect what it calls its "necessary restructuring".
Merger
For FLS, which has a 1,400-strong workforce in Dublin, it had become increasingly difficult to justify having two heavy maintenance centres in the UK and Ireland. Stansted was carrying out around 400,000h of overhaul a year, half of them for low-cost carrier EasyJet, but FLS says moving the work to Ireland will not be an issue for its customers. Last year, Dublin performed 900,000h of work, well under its capacity of 1.5 million hours. Although the merger will ease some of the cut-throat competition in the market, "overcapacity in hangar maintenance" will remain, warns Declan O'Shea.
FLS's strategy has been to avoid tussling with often lower-cost rivals for every "747 with tons of maintenance hours on them". Instead, he says, "service delivery is now the key. We are transitioning to a service operation. Going out in the spot market isn't where it's at. We see ourselves as service providers in the repair-cycle management market, selling a complete solution and taking all engineering tasks away from airlines so they can concentrate on what they do best." He adds: "Unlike some other MROs, we understand what airlines need. We understand what on-time departures mean for airlines."
The company has worked at developing specialist niches. It has shops overhauling landing gear and auxiliary power units, where O'Shea believes the market for "non-aligned businesses" will grow despite competition from original equipment manufacturers. It has also "spent four years specialising" in in-flight entertainment (IFE) and other cabin modifications. Recent contracts have included refurbishing eight South African Airways Boeing 747-400s with IFE and installing Virgin Atlantic's new-style Upper Class cabin with flat bed seats on its 747-400 fleet.
Head to head
On the other side of the country, Shannon Aerospace has, with the purchase of FLS by SR Technics, found itself head to head with its former joint venture partner. However, while FLS's Dublin activities handle both widebodies and narrowbodies, Shannon Aerospace, established 12 years ago and employing around 850 staff in one of Europe's most modern MRO facilities, has focused on single-aisle airliners. Unlike FLS, it can depend on contracts from "shareholders'" aircraft - in this case Lufthansa and its Star Alliance partners including Scandinavian Airlines - for a substantial part of its business, although this proportion will fall from 50% to 40% this year, says head of marketing and sales Seven Domke.
The move to newer-generation aircraft and leaner airline operating margins is changing the marketplace for all maintenance providers, he says, with intervals between overhauls much less than for previous generation airliners and carriers demanding faster response and turnaround times. Domke sees the burgeoning low-cost airline sector as a huge opportunity for "two or three years' time" as heavy checks become due on dozens of new Airbus A320 and Boeing 737 family aircraft.
But if Shannon Aerospace and FLS are cautious about market prospects, one maintenance house is nothing short of bullish. Until this year, Shannon MRO - on the other side of the airport from Shannon Aerospace in a hangar opened in October 2002 - was almost exclusively an in-house maintenance centre for UPS's Boeing 727s. A subsidiary of Aer Lingus until 1999, only 10% of its work latterly was for third party customers, mainly on 737s.
Expansion
Now, following its takeover in February by Air Atlanta, Shannon MRO will be renamed under the Air Atlanta brand and intends to expand its capabilities across the entire Air Atlanta range, by adding 757s, 767s and then 747s. "We are optimistic we can deliver two or three type approvals this year," says chief executive John O'Loughlin, who also plans to expand the 150-strong workforce by more than a third over the same period.
The tie-up represents a "tremendous opportunity to enhance the product" being offered to its lessees by the Reykjavic-based company, says O'Loughlin. "They are out there marketing their range and services and they can now add base maintenance and completion to that portfolio." The UPS business will be retained until the end of 2005, "by which point we would hope to have increased third-party inputs significantly", says O'Loughlin.
In employment terms, the aviation finance sector's contribution to Ireland's aerospace industry may be dwarfed by that of the MROs, but its influence on the economy is probably as important, with several of the world's biggest players based there: RBS Aviation Capital and Pembroke are in Dublin, and GECAS and Debis Air Finance are in Shannon. Ireland's expertise in aircraft financing began in the 1970s when Guinness Peat Aviation (GPA) operated in Shannon, but much of the expansion has been recent. RBSAC - a subsidiary of the Edinburgh-based banking giant - set up in the teeth of the downturn in 2001 because it could "hand pick" skilled managers being let go by other finance houses. "The industry was in a downcycle so lots of incumbents ran for the door," says one source.
RBSAC - which claims to be the number three lessor in the world today with 140 "new technology" aircraft on operating lease - chose Ireland because of its regulatory environment and "critical mass of intellectual capital". GPA "spawned a lot of inherent expertise in asset management" and lessor-friendly tax treaties with many countries made doing business from Ireland attractive, says the source.
Pembroke Group - a joint venture between Rolls-Royce and GATX Capital - has been on the scene since 1993. It owns 30 aircraft - mainly Boeing narrowbodies - and manages a fleet of 120, with chief executive Garry Burke describing the company as "much more of a niche player" than some of its competitors. He puts Ireland's success in becoming a global centre of excellence in aviation financing down to the government's effort to build a financial services sector in the late 1980s, with international companies lured with zero tax rates. "The country became a very lessor-friendly environment and still is," he says.
An FAEI report published last month on the future of Ireland's aerospace industry, called Flight Path to the Future, argues that, while Ireland has developed a successful aviation sector in MRO and aircraft finance, it has not made the "technology leap" to "major player" status that it has in pharmaceuticals and information technology. The report says Ireland's aerospace industry has the potential to be similar to Singapore's, an island state with a similar-sized population to Ireland's, which has built a world-leading reputation in aerospace technology.
The report proposes linking the industry's two main sectors in a bid to make Ireland a "one-stop centre for aerospace excellence". It suggests Irish-based lessors agree package deals with power-by-the-hour MRO provided by Irish maintenance houses, making the most of Ireland's low taxes on company profits to "offer competitive rates internationally". MROs, the report says, must "develop more higher end value added component repair and process technologies that will bring in house component repairs that such companies currently subcontract abroad".
Ireland's aerospace sector, concludes the report, is "at a point where it needs to broaden and deepen its roots and move its products and services up the value chain".
The idea of damp, spacious, verdant Ireland as another Singapore may seem far fetched. But, in aerospace terms, the Celtic tiger clearly has not finished roaring.
MURDO MORRISON / DUBLIN, SHANNON & BELFAST
Source: Flight International
