Engine makers grounded by global meltdown

Dubai: The makers of aircraft engines say they are struggling to stay profitable due to the combination of reduced travel amid the global recession and their efforts to develop better engines.

On one hand, aircraft manufacturers such as Boeing and Airbus are demanding engines that have greater fuel efficiency and lower emissions. That has forced the engine makers to increase research and development to such a level that most of their profits come from maintaining the engines during the life of the aircraft.

But on the other hand, the global recession means aircraft are being used less, which means longer and longer periods between major maintenance overhauls — called shop visits — which are a major source of revenue for the engine makers.

"The main focus of an engine maker is the after market, maintenance and shop visits and so on," said Stephane Garson, a general manager for CFM, a joint venture between US-based GE Aviation and France's Snecma and one of the largest suppliers of engines to Airbus and Boeing.

"Of course, when you have a downturn you have less traffic, less operation, which means people are using less of their aircraft or they are adapting their frequency of their fleet, which means you have less use on the engines."

There isn't much for the manufacturers to do but wait it out, according to Eckhard Zanger, a senior vice-president of MTU Aero Engines, Germany's leading aircraft manufacturer. Their industry is a long-term business, he says.

"Usually what drives profitability is the maintenance and spare parts, which is quite a long way away from the research and development phase," Zanger says. It takes many years, sometimes 15 to 20, before a company see returns on its investment.

Not increasing cost

Zanger says that maintenance accounts for about 40 per cent of MTU's business.

But finding ways to increase maintenance costs is no way to win friends or customers.

Engine makers instead need to find ways to decrease the need for maintenance, according to Phil Harris, a senior vice-president of British engine maker Rolls-Royce.

"We've seen a significant increase in the time on wing — the time between having to overhaul the engine. From an engine lasting three or four years, the engines will last five to six years on wing now. That means predictability, reliability and lower cost for the airline."

Fuel efficiency is also equally important, because it can mean greater viability for the airlines during times of higher oil prices, Zanger said.

"If you just reduce fuel consumption by 1 or 2 per cent, is an important factor for the airlines," he says. "Because the margins for airlines are so small that even a small reduction is a competitive point for them. A 15 per cent reduction is really a big contribution to their profitability."

Zanger said that fuel costs alone, depending on oil prices, are about one-third of the operating cost of an aircraft.

He said that customers want to see a further reduction of about 30 per cent over the next 10 to 20 years. Half of that can come from the engine, but the rest has to come from the aircraft itself, usually by way of lighter components.

With reduced fuel consumption also comes reduced emissions.

Zanger said that carbon dioxide emissions go down at the same rate as fuel consumption.

He says that engine manufacturers are also trying to reduce nitrious oxide emissions a further 50 to 60 per cent.

The good news for the engine manufacturers is that demand for new products is still high. Airbus and Boeing currently have a backlog until 2011.