Under pression as a carrier, Air France-KLM will develop its maintenance activity, the only profitable one, to meet the growing market in Asia and Africa related to the development of local airlines.

According to Oliver Wyman, the global market for the maintenance and repair of aircraft is expected to reach $ 50.8 billion in 2014, with an average annual growth of 5.2% since the beginning of the decade. Engine and aircraft manufacturers have already largely developed their service in recent years, offering maintenance solutions increasingly integrated.

"The Battle of services can change the balance of power," said Ali Rekik, Partner at Roland Berger Strategy Consultants. "For large companies this is a traditional margin maker and it is strategically important for them to be in this market."

Large companies which have developed a significant in-house expertise are no exception. On this growing market, with ever larger and aging fleets, Air France will face two major airline subsidiaries: German Lufthansa Technics and American Delta TechOps, a subsidiary of Delta Air Lines. (...)

"The airline business is a world of responsiveness, speed and to be fully effective, you should be in this business," told to Reuters Franck Terner, CEO of Air France Industries. "You should have sometimes to spend a little more money on the direct cost of maintenance to save several days of detention of a plane," he said. Sign of its determination, the Franco-Dutch group is particularly inflexible when it comes to defend its position in maintenance.
The signing of the order for 25 long-haul A350 Airbus announced a year ago, could take several more months because of negotiations between Air France and Rolls-Royce, each wanting to maintain engines. In engines and equipment maintenace, the most profitable one, Air France-KLM is forecasting an increase of about 10% per year in the next five years.

"It's very difficult to win a lot of money in maintenance and repair of aircraft," observes Tim Hoyland, a partner at Oliver Wyman based in the United States.
"But Lufthansa Technics and Air France KLM are well established engineering companies whichcan be effective in maintaining aircraft even in a region where costs are high."

In the first half, the maintenance activities of Air France-KLM has achieved a total turnover of 1.57 billion euros, including 523 million with third party customers and generated an operating profit of 56 million euros against a profit of 49 million euros a year earlier.

Air France-KLM, which last year acquired 26% of the maintenance company MAX MRO services in India, is studying the opening a repair shop in the centre of the country, most likely in Nagpur, said Franck Terner.

In China, the Air Framce group will open in Shanghai an avionics shop and discusses equity in local companies specializing in mechanical activities in Shanghai and in Xi'an.

"China is a market that is growing at high speed, but which is difficult to penetrate if you are not located locally because Chinese customers are attentive to the quality delivered and the employment development on their land" , explained Franck Terner. The group is also discussing with potential partners in South-East Asia and Sub-Equatorial Africa.

Air France-KLM already controls a joint venture with Royal Air Morocco, called Aerotechnic Industries (ATI), based at the airport of Casablanca and in charge of the maintenance of large medium-haul aircraft, including the Air France aircraft . The group is also present in Miami with Aero Maintenance Group, a 100% subsidiary specializing in the support equipment and aerostructures for North America and South America. It also has to its credit the major reconfiguration of the cabin of 10 Alitalia Boeing 777-200, and the modernization of navigation systems of the C135 French Air Force.

Source: Les Echos