The recent report from Oliver Wyman analysing the impact of COVID-19 on commercial aviation anticipates: “the impact of the COVID-19 pandemic will be even worse than the 9/11 terrorist attacks, the 2003 SARS epidemic, and the 2008 financial crisis”. Airlines are the first to face financial difficulties, which caused them going for the radical reductions in their capacities, followed by staff lay-offs, reduction of salaries and other possible means in order to manage their fixed costs in the time of the unknown.
Cost saving is a natural and straightforward strategy to survive these turbulences, however:
- Due to the regulatory environment aviation industry is surrounded by, some costs (e.g. continuous airworthiness management/hereinafter – CAM(O)) are unavoidable and, thus, in this article we try to explore (i) what airlines are currently doing to manage the increasing costs and (ii) how to squeeze the best possible value of must-have functions, such as CAMO;
- As financially painful as this could be, we do see “hold & wait” strategy being applied by lessors reducing and/or even waiving payments from airlines during the period of this pandemic. This could look like charity, but make no mistake, there is a practical side of such approach – it is better to maintain clients even if under different conditions rather than to lose them whatsoever. Hopefully, the silence in the market will not last for too long and asset management (hereinafter – AM(O)) decisions will have to be made.
What should the market players be prepared for and what potential challenges we will see in 2-3 months? This is another topic discussed below.
- From basic parking to full one-stop-shop package
Before going to the value of CAMO, let us discuss the first-hand strategies, currently applied by airlines. What is the primary need when there is no possibility to fly? Of course, to park your aircraft.
Unfortunately, when ~55-70% of the global fleet is grounded, it is rather difficult to find a place to park. If only MROs had parking lots, they would bring a great value to airlines and lessors. When added to the one-stop-shop package, such basic service like parking could be provided together with base & line maintenance, CAMO, AMO, design and other engineering solutions.
- Importance and value of CAMO in the time of awaited transitions
Regarding the value of CAMO – our experience working with a variety of airlines and lessors across the globe shows that CAMO can be treated as a very technical and not a value-creating service. However, the real value of continuous airworthiness management is revealed during the transition periods.
As this is especially relevant for the leased airplanes, the quality of CAMO should be a critical interest for the lessors. They should be making sure that their aircraft are being supervised by the right CAMO having a proper performance track record, a diversified and fully competent team of engineers, a focus on quality management processes and proper IT solutions implemented in place.
Our experience in the management of re-delivery processes shows that the direct asset value of aircraft can go down by 15-40% (which is millions of euros!) in a case of poor CAM process, not to mention the vital safety aspects. Moreover, this will also bring the indirect losses that a lessor or an airline would encounter trying to fix the records, gather documentation and sort potential problems with the regulators.
The selection of right CAMO in aviation world is a direct mirror for the selection of the right audit company in any of the listed ones. This is not only about the 1-page audit opinion to be released; this is the confidence and assurance of what the auditor/CAMO provides to its shareholders/lessor or airline. Hence, lessors should follow the example of the financial institutions and push airlines to choose a reliable and trusted partner rather than a mediocre CAMO (or auditor).
- Expected AM developments and challenges
The situation that we are experiencing now will not last forever – the abovementioned report by Oliver Wyman presents 3 scenarios showing the potential alternatives related to the revamp of aviation industry. Even in the worst-case scenarios, AM decisions will have to be made to manage the financial risks and positions timely and correctly.
Based on the above, we would predict that redelivery process should start booming again in the following 2-3 months (June-July 2020), which will result in the challenges that we have been experiencing before. This relates to:
- A lack of or a highly limited pool of competent human resources, because it will be swallowed by the market due to the urgent needs from lessors or airlines;
- A need for a clear prioritisation and a focus on the right market players /part of the fleet, which should be managed first.
One could argue that in case of the slow recovery, the number of (re)delivery processes will not be that large. However, being one step ahead and in a fully-ready mood would definitely gain the winning momentum for the lessors, as they will (i) have the most talented team and (ii) will be able to manage their opportunities and risks in the most effective way.
Having all of the above in mind, what should aviation do and how can we – FL Technics – help?
- Firstly, look for the one-stop-shop solutions. Going for the packaged services would solve most of your issues.
While other organisations are able to propose solely CAMO service to you, which does not resolve all your problems, FL Technics can propose a full solution from A to Z. If you put your aircraft at our facility, it will be treated by FL Technics mechanics and airworthiness engineers, who will assure that the maintenance and storage works, records management and full design modification (if needed) are implemented.
Currently, we do help our clients with combined offering that includes parking, line maintenance and full engineering package (CAMO/ AMO), which is cost-effective and takes away a number of questions off the airline and/or lessor.
- Secondly, select the right CAMO as they are the accountants of your aircraft, and can either increase the value of your assets or drain it to nothing if aviation industry specifics will not be understood properly and implemented poorly.
- Thirdly, consider (re)deliveries – the market will recover yet no one is sure when. However, should you start the preparation works earlier, you will gain competitive advantage in either taking back the planes and securing your risks or giving them to the right (healthy) client.
Author: Liudas Jurkonis , Head of Engineering| Part M, FL Technics. Email: Liudas.Jurkonis@fltechnics.com
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