INSIGHT: Overhaul for Russia’s aircraft maintenance industry

The weak ruble will motivate Russian MRO providers to localize more maintenance services (Photo by Leonid Faerberg / Transport-Photo.com)

Russia’s aircraft maintenance, repair and overhaul (MRO) industry has huge growth potential fuelled by the tumbling ruble, cheap labor costs and by the launch of new products, forecasts one of the country’s market leaders.

With less than 30 per cent by value of all MRO work on Russian-operated aircraft performed domestically, this tendency is set to change following the collapse of Transaero Airlines last year – and as innovative companies introduce additional, attractive new services and modernization. The Russian MRO sector has already been working on contemporary aircraft types for the last 10 years. Surprisingly, this market shift is evolving despite an almost 20 per cent shrinkage of the country’s active airliner fleet in 2015.

The country’s leading MRO provider — Engineering Holding (EH) that has two subsidiaries, Sibir Technics and S7 Engineering, expects the share of local services to grow on the back of the weak ruble. Roman Fyodorov, EH’s chief financial officer, revealed in February this year that those Russian and CIS carriers whose aircraft are still serviced abroad “will look to switch to domestic providers” in the near future.

“According to our estimates, the share of locally-available maintenance services will reach its ceiling shortly. So, further growth will be largely dependent on Russian MRO providers’ ability to secure international contracts,” Fyodorov adds.

Those companies will only attract foreign customers with quality, speedy performance and good customer service, he observes.

In order to catch up with the international level of services and expand beyond the somewhat limited domestic market, Russian providers have been doing their best to replicate global best practices.

EH has been particularly active in this respect, setting the trend by markedly expanding its range of products and services. The company has signed agreements with Zodiac Aerospace and TAT Technologies this year to establish repair facilities for aircraft toilets and heat exchange units, respectively – the first such centers of competence in Russia and the CIS.

In June this year, S7 Engineering, in partnership with leading European MRO provider SR Technics, opened the CIS-only MRO centre for CFM56-5B/7B engines; and in the fall of last year, Novosibirsk-based Sibir Technics began commercial operations of a cabin interior materials fire-resistance test laboratory, a part of its production facility at Tolmachevo Airport.

This development means that Sibir Technics can now offer the complete cycle of cabin interior modification services, including design modification; as well as production of test samples and a growing suite of other aircraft modifications.

Such new service offerings, along with the prices denominated in the weakened ruble, have enabled EH to attract a number of new clients, including Aeroflot, VIM Airlines, the Kazakh Defense Ministry, Air Kyrgyzstan, Azur Air, and IFLy (heavy maintenance forms), as well as Rossiya Airlines, Ural Airlines, and Air Astana (painting services).

In September 2014, EH took advantage of the devaluing Russian currency (when one US dollar would buy around 39 rubles) by opening a paint shop at Mineralnye Vody Airport. By early 2016, the exchange rate was 65 rubles to a dollar, which made the ruble-denominated services even more appealing. In April and May this year, the company repainted several aircraft of Ural Airlines, Air Astana, and Rossiya. It was the first time their Western-built airliners had been given a paint job in Russia. Newly-merged Rossiya also turned to EH after previously having its new liveries supplied by a number of foreign specialists.

In each of these instances EH had won a competitive tender, thus proving that, with domestic competition intensifying, resourceful MRO businesses could find success in Russia.

Another example lies with Ulyanovsk-based painting centre Spektr-Avia, which does not have fully accredited painting specialists, and which opted instead to lease-in qualified personnel. Not for the first time, Spektr hired specialists to repaint Azur Air and VIM Airlines aircraft.

Other Russian MRO players vying for a share of the domestic market include the maintenance arms of Aeroflot Group and Volga-Dnepr Group, as well as the maintenance services at Rossiya and Ural Airlines.

A-Technics, Aeroflot Group’s new MRO subsidiary, was launched at Moscow’s Vnukovo Airport in the spring of this year. It provides line and periodic maintenance on the A320 family, as well as on the B737NG, B747-400, and B777-200/300 models. A-Technics’ primary customer is Rossiya, which has seen its fleet grow with additional aircraft from the defunct Transaero, Orenair, and Donavia.

Aeroflot as one of the largest customers sets a new bar for the Russian MRO sector (Photo by Leonid Faerberg / Transport-Photo.com)

A-Technic is also able to service Aeroflot Group’s budget carrier Pobeda. The company’s plans include making its facility at Orenburg Airport, inaugurated in the fall of 2014, a certified repair station.

The combined Rossiya and Pobeda fleet now stands at nearly 100 airframes and A-Technic is already accredited to work on 120 of flag carrier Aeroflot’s airliners.

However Rossiya is in no hurry to outsource all of its maintenance work. The airline began carrying out C-checks on its own fleet at St Petersburg’s Pulkovo Airport last fall, a decision which reportedly is expected to save around 74 million rubles (US$1.18m at the current exchange rate) annually.

Meanwhile, Ural Airlines, which launched its MRO arm in January 2015, rather impressively performed nine С-checks, 118 A-checks, and 11 engine replacement jobs in the service’s first year of operation, saving the carrier more than 100 million rubles (some US$1.56m at the current exchange rate).

Sergey Skuratov, chief executive of Ural, underscores the immense savings the airline is making with the new services. “We save on personnel and component costs, on the cost of leasing technical facilities, and so on,” he explains.

“Our 2016 plans include increasing the volume of in-house MRO work by 60 per cent and by starting to do D-checks, the heaviest maintenance form.” The carrier is also planning to start offering MRO services to third parties, which would create a new revenue stream.

Volga-Dnepr Technics Moscow is also strengthening its market presence in the maintenance and repairs market. Like S7 Engineering, Volga-Dnepr Group’s maintenance subsidiary won approval to service Sukhoi Superjet 100 regional airliners this year. It also reportedly attempted to land a maintenance contract with Pobeda Airlines, which eventually preferred to have its B737-800s C-checked by Vnukovo-based Vostok Technical Services (VTS), a company which ran into change-related difficulties at the airport. Vnukovo also hosts fast-growing MRO provider UTG maintenance and engineering, which gained approval in spring this year to perform C-checks on B737 Classics and to conduct specified maintenance work on B777-200/300s.

The future of VTS may be linked with that of Arkhangelsk-based Nord-Technik, which was purchased with regional carrier Nordavia Airlines this year. Both MRO specialists now have the same beneficiary.

Elsewhere, Ufa-based Ural Aviation Services, an UTair Group company, is another market player worth watching. In the summer of 2015, the enterprise had its Bermudan OTAR 145 certificate – essential for any organization seeking to maintain a Bermuda-registered aircraft – extended for another two years.

By Artyom Korenyako

Russian fleet of fixed-wing commercial aircraft*

Note: * The table includes aircraft mentioned in the Russian register of commercial operators as of February 2016 except the business aviation aircraft and aircraft  with the capacity of less than 19 passengers.

Sources: Federal Agency of Air Transport