A chance phone call from an old apprentice friend from his Aer Lingus days has launched Conor McCarthy into the maintenance business. The Irishman poses for pictures with his friend Paul Brennan in an eerily deserted hangar at Dublin Airport that they hope will shortly be filled with narrowbodies in for maintenance checks.
It was Brennan who told McCarthy in early 2009 that the company he was working for, SR Technics, was closing its large overhaul operation in Dublin. "I knew it had some good businesses like APUs and landing gear repairs," says McCarthy, but he also knew how tough it was to make money in Europe's high wage environment. At its peak SR Technics had employed over 1,100 people and maintained a wide range of Airbus and Boeing types. However, while parts of the company were profitable, its losses were too large for parent Abu Dhabi-based Mubadala Group to sustain.
McCarthy, a former Ryanair chief operating officer who has worked with easyJet, Mexico's VivaAeroBus, Australia's Jetstar and is currently a director or AirAsia, saw the chance to create a profitable services business in Dublin. The first idea was to call the company Phoenix Aerospace, but they kept it simple and went with Dublin Aerospace. Although there were several parties interested in taking the SR Technics operation as a going concern, including a management buy-out, the business plan that looked the best on paper came from McCarthy. With so many jobs at stake the Irish government was an interested party and potential bidders all presented their plans to Enterprise Ireland and the Irish Development Agency.
"We had to get their support for our ideas and they saw us as a credible business model," says McCarthy. He was selected by SR Technics as the preferred bidder and assembled an impressive group of investors. These include AirAsia founder Tony Fernandes, aerospace giant EADS, Enterprise Ireland and Dublin-based aircraft technical consultancy Santos Dumont. McCarthy himself is the largest single shareholder.
"We pulled together $25 million in investment. We are fully funded with cash in the bank," he says. This has bought a virtually ready-made maintenance base including a hangar for three narrowbodies and landing gear and auxiliary power unit workshops.
Less than a year after SR Technics closed its doors, the team of just 35 at Dublin Aerospace has been busy re-commissioning mothballed equipment and organising its new operation ready to begin taking in work. The company won its certification in October and McCarthy is now seeking the first Airbus or Boeing airframe work.
LOWERING THE COST BASE
A critical part of making Dublin Aerospace work is to start with the right plan. After rejecting the idea of buying SRT as an ongoing concern, McCarthy went about reworking the traditional MRO business model to lower the cost base. "We have a name in Dublin for producing good quality work but not for producing it at the right price," he says.
"We've managed to reduce our direct costs and our labour costs by 40%, which gives us huge capacity to price [competitively] within the marketplace and win business," he says. "We can go out there with rates that are 20-25% below [SRT's] previous pricing and still make sense out of it." Starting from scratch, the new, non-unionised, Dublin Aerospace has a fresh set of working arrangements. "Crucially we will have no overtime, a traditional lubricant in this business," says McCarthy. "The first thing I did was tear down the time office. We've said that there is a nine-hour day, and a five day week."
The incentive for staff, who McCarthy admits have a lower than average basic salary compared with other European workers, comes from doing the job faster and more efficiently. They are then rewarded in a profit share scheme, paid quarterly, paying out up to 20% of the company's profit. There is also the incentive for the job to be done properly too, for if a part comes back on warranty the time spent repairing it is a negative count against that team. The 20% profit share is divided into half for the company's overall performance and half for the each of the business units of which there are four: Narrowbody aircraft overhauls; APU servicing; landing gear overhauls and technical training.
He has turned to an old Aer Lingus arrangement to deal with seasonality and the airline desire for major checks to be performed in the quiet winter months. This sees staff working every second Saturday during the winter. For every four Saturdays worked they get a week off in the summer.
Dublin Aerospace has plenty of room to grow incrementally as it wins business, says McCarthy. "We've built a model that has the capability to flex costs in relationship to volume." Part of this is down to having hundreds of experienced engineers in the region made redundant because of the SRT closure. Dublin Aerospace already has hundreds of CVs from potential workers. The company could be employing over 100 people by the end of 2010. McCarthy anticipates that two narrowbody lines will be up and running within a year.
"Our challenge is to keep our costs right. That's the parallel with the low-cost airline business," says McCarthy.
Source: Airline Business
