MURDO MORRISON / SHANNON & ALEXANDER CAMPBELL / LONDON
Takeover should alleviate intense competition in the European third-party maintenance, repair and overhaul sector
A year after selling its half share in Lufthansa Technik joint venture Shannon Aerospace, SR Technics has ended months of speculation by paying Dkr350 million ($60 million) for Shannon Aerospace's Irish rival FLS Aerospace. The move represents a major consolidation in the highly competitive European maintenance, repair and overhaul market.
The venture capital-backed takeover will bring the former Swissair sister company - bought out by management in 2002 - significant Boeing business for the first time and cut its reliance on ailing Swissair successor Swiss International Air Lines.
But loss-making FLS - owned by Danish conglomerate FLS Industries - says the move will not change its decision to close its UK heavy maintenance operations at London Stansted and Manchester, with the loss of 420 jobs, and concentrate activities at its biggest site, Dublin. SR Technics hints that further cuts are likely there and has appointed managers to identify "any possible duplication [of jobs]".
Meanwhile, in another step that confirms Ireland's importance as a heavy maintenance centre, Icelandic wet-lease specialist Air Atlanta Group has bought Shannon Aerospace neighbour Shannon MRO from United Parcel Service (UPS). It is the privately owned company's first move into maintenance. Shannon MRO, which relies on UPS's fleet of Boeing 727s, plans to expand into 757s, 767s and 747s by the end of the year and increase staff by a third to 200, says chief executive John O'Loughlin. It will change its name to Air Atlanta Engineering and retain the UPS business until the end of 2005.
The merger of SR Technics and FLS should reduce some of the intense competition in the European third-party maintenance sector. FLS Aerospace, formed in 1988, has grown as a result of a series of acquisitions, but has struggled to make a profit since FLS bought the six-hangar former TEAM Aer Lingus operation in Dublin six years ago. FLS and SR Technics employ around 2,800 staff each and the merger will take combined turnover to more than $1 billion. FLS has line maintenance facilities in a number of countries in Europe and the Caribbean. SR Technics' main site is in Zurich.
Analyst Manuel Magalhaes with Frost & Sullivan says the merger will deliver synergies and help to see off the threat from original equipment manufacturers. FLS's biggest customers include Aegean Airlines, EasyJet, South African Airways and Virgin Atlantic and it handles a mix of Airbus and Boeing aircraft. SR Technics' business is almost entirely Airbuses and Boeing MD-80s, with around 40% of turnover coming from Swiss. He says: "With the entry of OEMs on to the market, competition is becoming even more intensive. Over time, the continuing pressure on profits and increased competition will force mergers and consolidations. Market valuations and financial power will limit those companies that can lead these changes."
The merger will still leave Lufthansa Technik, which took over SR Technics' 50% share of Shannon Aerospace in December 2002, as the biggest player in the European market with a turnover of €2.8 billion in 2002. It is followed by the other main airline-owned maintenance provider, Air France Industries.
Source: Flight International
