Seven Arab airlines have decided to co-operate in the maintenance arena to save costs and improve service levels - and the group could grow in the future.
Air Algerie, EgyptAir, Emirates, Kuwait Airways, Middle East Airlines (MEA), Qatar Airways and Saudi Arabian Airlines signed a memorandum of understanding during the Arab Air Carriers Organization (AACO) annual meeting in Algiers in November to jointly manage inventory and, at a later stage, share work between maintenance, repair and overhaul (MRO) stations.
More AACO member carriers were interested in the partnership, says the association's secretary general Abdul Wahab Teffaha, but when the initial consulting project was launched in early 2011, it was soon overtaken by political changes in the Arab world and a number of airlines put their involvement on ice. However, they may rejoin the group at a later stage, says Teffaha.
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AirTeamImages Member carriers already jointly buy fuel through AACO to cut kerosene bills |
Once both phases have been implemented and the partner airlines are satisfied with the results, the carriers' MRO stations are to work together in certain areas, says Teffaha. "Hopefully, by the end of the five years we will have at least started working on the co-operation between the maintenance businesses." But, he adds, this phase could begin earlier, depending on how the first two stages progress.
AACO members have supported one another with AOG parts in the past but on an ad hoc basis, mainly involving bilateral agreements between individual carriers. Now the airlines want to share data on inventory levels and buy spares as a group, says Teffaha.
The MRO co-operation has had precursors in other areas within AACO. David Stewart, vice-president at aviation consultancy ICF SH&E, says member carriers are jointly buying fuel through AACO to reduce their kerosene bills. ICF SH&E conducted a six-month market analysis prior to the November agreement to determine potential cost savings and material supply improvements. Reducing inventory cost has been the major driver for the initiative, and Stewart says the seven airlines decided the benefits were "robust, solid and had value".
NO COMPETITION
Teffaha has no concerns that the pact could adversely affect the MRO business of some of the participants. While the co-operation has been arranged between the airlines, some of their technical divisions or standalone maintenance affiliates - such as EgyptAir Maintenance & Engineering and MEA subsidiary Mideast Aircraft Services Company - are competing in the third-party MRO market.
"We are not trying to eliminate competition between maintenance bases," says Teffaha. "We are trying to co-operate in areas where co-operation is viable for the parties concerned." This could involve establishing specialist capabilities at individual facilities, which can then be utilised by other group members. However, Teffaha points out that the partnership does not aim to cater for the carriers' entire MRO requirements.
While the pact might revive memories of Europe's ATLAS (Air France, Lufthansa, Iberia, Alitalia, Sabena) and KSSU (KLM, SAS, Swissair, UTA) groups from the 1970s and 1980s - where, in each case, the carriers pooled MRO capacities to support their fleets - Teffaha says the AACO carriers are not aiming to recreate a similar partnership.
"A full-fledged ATLAS or KSSU structure may [raise] some concerns with regard to possible competition limitations. We are not heading in that direction and I don't think we would be able to reach that kind of structure," he says.
Stewart thinks the main challenges will be to agree on common sets of technical standards between participant airlines. This will be necessary to jointly buy equipment, which the carriers may have configured to their individual needs in the past. Conversely, purchasing fuel as a group is easier as Jet A-1 is a standardised product across the industry.
But for Teffaha, the main hurdle is more fundamental. This is to shift from a culture where airlines manage their businesses individually to one where competitors routinely work together. "We know from previous experience that the most difficult part is to convince people, even at a micro level, that doing their tasks jointly with other airlines is something that can be done."
This is in spite of the premise that smaller carriers are likely to gain proportionately higher benefits from the partnership than their larger peers.
"We all knew from the beginning that the likes of Emirates and Qatar Airways will not have the same level of benefit as someone like MEA or even EgyptAir," says Teffaha. "But the study has shown that everybody would benefit [and] the whole thing of working together is about accepting that others [might] get more benefits than you."
Source: Flight International
