Paul Phelan/CAIRNS
Australia's 1989 decision to deregulate aviation began to take effect in the early 1990s and its consequences are still being felt, particularly in maintenance. By 1989, long communication and supply lines from Europe and the USA had compelled Australia and New Zealand's four major carriers - Air New Zealand (ANZ), Ansett Australia, Australian Airlines and Qantas - to set up four separate, comprehensive and almost fully independent infrastructures providing overhaul and maintenance (O&M) and supporting logistics.
These included an unusually high level of in-house overhaul and repair capability, and mountainous spares holdings.
Until globalisation intervened, civil aviation regulation in the region was insular in the post-war years. Australia and New Zealand had developed two disparate regulatory structures, in which elements of UK and US systems were blended with antipodean input in wholly government-funded environments. As the protection of Australia's former "two-airline policy" were stripped away after deregulation, the costs of sustaining those operational and regulatory environments were exposed.
Accelerated rationalisation of Australasia's new O&M industry is inevitable. Contributing to it will be the new ownerships of ANZ, Ansett Australia and Ansett New Zealand, the O&M plans of a spate of start-up carriers, opportunities in the Asian market, New Zealand's slight competitive edge in labour costs and the more advanced technology found in the larger Australian facilities. There is also the ongoing trans-Tasman regulatory harmonisation, which has yet to bring Australia and New Zealand into step on maintenance issues.
Meanwhile, Ansett and ANZ are well advanced in developing a large standalone maintenance and repair organisation (MRO). To be named ANNZES (Ansett Australia and ANZ Engineering Services), the new group will be headed by US-born chief executive Bill Jacobson. It is designed to assimilate all the O&M assets and staff of both airlines and maintain four major bases at Auckland, Brisbane, Christchurch and Melbourne, plus smaller facilities on both sides of the Tasman. John Vincent, Ansett's executive general manager for engineering, says: "Over the first five years of the business plan, we believe we will generate A$120 million [$70 million] in benefits."
Jacobson is convinced the rationalisation will better position ANNZES to boost its competitiveness in the third party market. "About half of ANZ's O&M effort is third party. That's helped us bring a sense of competitiveness. In Asia, the economy is starting to expand again, but some areas in South-East Asia, on a cost-of-labour basis, are just as expensive as here. Ansett and ANZ can support a wide range of aircraft and our capacity to grow is double digit."
Although Ansett has been less aggressive in seeking third party work, ANZ, with its smaller overall operation, has always pursued that business vigorously - a strategy ANNZES plans to heighten, says Vincent. "We're not competing just with other maintenance providers, we're up against mammoth organisations like General Electric and Lufthansa Technik."
David Forsyth, Qantas executive general manager of aircraft operations, identifies a lesser dependence on third party work with the economies of scale that spring from a larger fleet. "We still have a policy of doing a certain amount of third party O&M, but the difference between ourselves and Air New Zealand is that some people there see it as an entity of its own, and they've made engineering a separate business.
"Qantas decided to keep engineering within the core airline. Our strategy is to increase our military O&M activity and we've been successful in taking the RAAF's [Royal Australian Air Force] Lockheed Martin C-130 work back into Australia from New Zealand. We do RAAF C-130 and P-3 Orion engine overhauls and we will assemble and test the Adour engine for the [BAE Systems] Hawk lead-in fighter.
"We also have the maintenance contract for the Hawk when it's in service. We've bid with the manufacturer for the Boeing Business Jet VIP aircraft, and we are part of the winning team, with Boeing, on the Project Wedgetail Boeing 737 platform for the airborne early warning and control system. We see RAAF and Australian Government work as key for us."
Forsyth says Qantas cultivates selected civil third party clients. "Engine overhaul is a growth area and generally potentially the most profitable work because you have a material as well as a labour element, so there's more added value. Our O&M third party revenue is over $100 million, about 10-15% of our turnover."
ANZ rationalisation
SIA's acquisition last week of 25% of ANZ will cement ANNZES' plan after ANZ completes its acquisition of Ansett in June. If SIA's bid succeeds, ANZ will aim to speed up consolidation, to drive down costs for both carriers. If Qantas succeeds, a similar trans-Tasman rationalisation will be certain. Much of the work by Ansett and ANZ would equally complement that change of direction in an ANZ/Qantas alliance.
New Zealand's Civil Aviation Authority began its rule restructure in 1990, closely aligning with the US Federal Air Regulations (FAR) structure, with FAR-style rule-making emphasised rather than parliamentary regulation, supported by in-house management systems and regulatory audit. That process was mostly completed in 1997, with fine tuning in progress, much of it in consultation with Australia's Civil Aviation Safety Authority.
Australia, which was perhaps two years behind, but on the same path, has altered course several times. It is blending elements of European regulation into its FAR-structured rewrite. Because of sovereignty issues and despite the Trans-Tasman Mutual Recognition Agreement and Single Aviation Market policies, several key issues are outstanding.
For example, although air operator certificate (AOC) holders of one country may operate domestic services in the other on their own AOC, the question of whether workshop approvals should be equally transportable is unresolved. The two countries' regulators, therefore, have yet to converge on the path to globalisation. "It's making this amalgamation more difficult because we are working with considerably different regulations," says Jacobson, who is tasked with establishing twin MROs, one in each country. "The Kiwis have gone down the US Federal Aviation Administration route and have got their regulations out - and they reflect the FAA line. The Australian rules have been repeatedly held up. It's a little frustrating, because we have to build an organisation that's capable of meeting the higher standard of the two, as we're going into the third party market."
Qantas' Forsyth is, however, confident rationalisation will occur. "The four airlines always talked reasonably regularly about what opportunities there were to rationalise in terms of reducing costs. That is now reduced to three airlines, and looks like effectively going down to two. The engineering people were pretty much the same now as they were when discussions started. We all know there are opportunities there, and I'd be surprised if we don't continue to discuss those things, whatever commercial links exist between Qantas, ANZ, Ansett New Zealand and Ansett Australia.
"There are levels of co-operation on a global basis such as the airline alliances, but there are also opportunities to promote co-operation on a regional and geographical basis. None of us wants to see what has happened in the past in Australasia, where we duplicated facilities side by side. Those same opportunities will exist, whoever the players are."
Source: Flight International
