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Competitve Business Strategies

Abstract on Aircraft Maintenance Repair and Overhaul Companies 

The research is about the competitive challenges that MRO industries are currently facing, especially with the increase of aircraft fleets and also demand for low-cost maintenance. The MRO industry has played a significant role in the aviation industry in Ireland. A projected increase in aircrafts fleet from Boeing and airbus has given insight to the need for more MRO’s in the industry. This paper proposed a different business strategy approach in solving this problem through an in-depth analysis of competitive business strategies of Aircraft Maintenance Repair and overhaul companies. To do so, the paper presented a macro environment analysis of the MRO industry and suggested strategies to gain a competitive advantage. The analysis recommended that the key problems in the industry are related to supply chain management. The paper suggested that to endure effective supply chain management the industry can implement an integrated lean six sigma framework along with the adoption of new technologies to improve its business process. Moreover, to gain a competitive advantage, the industry can also utilize produce differentiation strategy like Luftansa Technik.

Contents

Introduction.

Theoretical review..

Competitive analysis of the macro-environment

PEST analysis of the MRO industry in Ireland.

SWOT analysis of Irish MRO industry.

Analysis and discussion.

Lean six sigma framework for MRO facility.

Conclusion.

References

Introduction to MRO Industry

The MRO industry has played a significant role in the aviation industry in Ireland. A projected increase in aircrafts fleet from Boeing and airbus has given insight to the need for more MRO’s in the industry. The research is about the competitive challenges that MRO industries are currently facing, especially with the increase of aircraft fleets and also demand for low-cost maintenance. According to a report by Indecon, the MRO sector in Ireland contributed 413 million euros as of 2017 to the Irish economy and its projected to increase in the coming years (Figure 1) (Indecon International Economic Consultants 2019). The research gives an insight into the business strategies that maintenance repair and overhaul companies are taking to meet the overwhelming demand for aircraft maintenance and be competitive in the maintenance industry. The entrance of OEM (original equipment manufacturers) in the after-market has given rise to maintenance costs. According to a report from Oliver Wyman, OEMs are trying to recapture more of its engine and aircraft components using Great intellectual property ownership. "This means OEMs can force operators to use their parts and sometimes their MRO operations for repairs and maintenance, providing a competitive advantage in the marketplace. MRO providers, who buy the OEM-designed components, may end up paying more".

This paper proposes a different business strategy approach in solving this problem through an in-depth analysis of competitive business strategies of Aircraft Maintenance Repair and overhaul companies.

Theoretical Review of Aircraft Maintenance Repair and Overhaul Companies 

MRO industry in Ireland is comprised of a diverse range of activities designed to ensure the continued safe operations of non-civilian and civilian aircraft. The MRO sector in Ireland has experienced considerable growth in the previous decade, both in terms of employment and aggregate output. The MRO industry has been fundamental to the success of Ireland as a global leader in the aviation industry. The aviation industry has been enjoying an extended bull run for over a decade. Ireland airlines have had access to cheap finance as competition drives down debt costs and lease rates (Israel and Curkovic 2020). Moreover, while grappling with the competitive landscape of the market with new entrants capitalizing on high demand and cheap finance continue to grow.

The competitive analysis of the MRO industry’s macro-environment is mentioned below.

Competitive Analysis of The Macro Environment

The macro-environment of every business contains several factors that can destroy a business if left unchecked. To mitigate the impact of negative factors associated with its macro environment, and to gain competitive advantage, the MRO industry must understand its macro-environment factors which affect the entire economy of business. To facilitate the analysis of the macro environment of the MRO industry, the PEST analysis is an analysis tool used to conduct a macro environment analysis. 

PEST Analysis of the MRO Industry in Ireland

Political

These factors refer to the policies, regulations, and laws by the government that have a direct impact on the market.

In respect of political factors, airlines operate within the global environment where multiple exogenous factors collide at once, resulting in numerous challenges for the aviation industry and its subsectors like the MRO industry. In the global context, geopolitical threats are increasing especially from the China-US trade wars and are impending departures from European Union (EU). On the other hand, the Irish government agencies have managed to strengthen ties between Irish MRO companies within the UK through development and training, investment, and R&D support (Skelly 2019). Moreover, the political environment towards the MRO industry has always been strict because their business operations have a significant impact on passenger safety. However, government policies also support the MRO industry by assisting MRO infrastructure investments to meet the national planning framework and local economic plans. The National Aviation Policy (NAP) sets the underlying framework of government objectives for aviation in Ireland. NAP aims to facilitate the growth of the air transport sector including wider aviation value chains like the aviation maintenance and repair sector (Patankar and Taylor 2017). The success of the Irish MRO industry is dependent on government support because, while the industry can hold its own in the global market, its success depends on the overall attractiveness of aviation infrastructure in Ireland.

Economic

Economic factors include the economic structure of the country and its influence on the MRO industry.

The aviation industry in Ireland employs around 5,500 individuals and over 160 companies, and the maintenance, repair, and overhaul is its largest sub-sector. To enter in the MRO market, partnering is a key factor and Irish end users tend to prefer international suppliers with Irish based partners and representatives with local market knowledge. Rising interest rates in the global economy, but especially in the US, are increasing the US dollar exchange rate which impacts airlines by slicing their margins of revenues in non-dollar currencies (Malone 2017). This, in turn, affects the financial viability of industries in the MRO sector. The decreasing support of central banks in respect of supporting the markets through an increase in interest rates and withdrawal from quantitative easing is further exacerbating the problems of the aviation industry. Moreover, labour cost is becoming a significant issue for the MRO industry which is increasing maintenance costs and pushing up prices for airlines. This is especially important, given the labour-intensive nature of the MRO industry (Todd and Simpson 2019).

Social

These factors include cultural influence and demographics that workforce, partners, and customers experience in the macro-environment.

The respect of social macro factors, over the years, the millennial generation has emerged as the biggest consumer class of the airline industry which has resulted in major social changes. These changes are more pertinent in terms of services, in which the consumer base has become more and more demanding. This has also increased the pressure on the MRO industry as they have to be more stringent regarding their business operations (Santos, et al. 2019). Moreover, to cater to the increased demand, MRO operatives have to increase their cost. Additionally, the MRO industry is closely associated with safety culture because of the severe consequences in case of errors.In terms of the consumer base, most of the revenue of the Irish MRO industry is driven by the European market. The social dimensions and demand patterns differ according to the region, however, environmental awareness is one of the common elements affecting operations in the aviation industry along with technology affinity, saving behaviour, and economic awareness. The level of demand for apprenticeships in the Irish MRO industry has reached new heights with an excess of applications and is vital to the continuous growth of the MRO industry (Balcerzak 2019). In the current scenario, the lack of adequately skilled personnel presents a challenge for the MRO industry to support business growth.

Technological

This refers to the impact of the new application of old technologies or new technologies on the industry.

The airline industry and its sub-sectors are heavily dependent on technology and innovations. However, in contrast to this, the MRO industry is still almost exclusively dependent on human labour. Despite this difference in dependencies, the advent of new technologies, such as robotics, and additive manufacturing is shaping future trends in the MRO industry. The rise of robotics was a hot topic in MRO Europe in 2018 and almost all of the panellists suggested that robotics intervention is one of the fastest-growing MRO technologies (Martens, et al. 2019). However, robots often simply aid labours with precision-oriented and routine tasks, rather than replacing them. In addition to this, autonomous drones are being used for inspection of the exterior of the plane. Additive manufacturing is also gaining ground in the industry and is being actively pursued by companies operating in the MRO sector. Additive manufacturing is being used by large MRO providers, but not at its fullest potential. Despite the advent of new technology, the adoption rate in the MRO industry is relatively slow as compared to other industries. This slow rate of adoption is not necessarily due to lack of opportunities or availability, but because of the fact that the sentiment in the industry is not particularly suited or flexible for such technologies (Malone and Darcy 2019). Such autonomous technologies are considered to be risky or at least inefficient as maintenance personnel would have to check up on their work.

The above-mentioned PEST analysis suggests that while governmental and regulatory policies are strict on the MRO industry because of the cost associated with errors, they provide valuable support for the growth of the industry. Furthermore, the slow growth of the global economy and the increasing exchange rate of the US dollar is driving the cost of the MRO industry. In addition to this, labour costs are becoming a significant cost for the industry which is increasing maintenance costz and pushing up prices for airlines. This is especially important, given the labour-intensive nature of the MRO industry. In respect of social factors, the increasing environmental and safety awareness of millennial consumers are also forcing the industry to use better and more expensive approaches. In terms of the consumer base, most of the revenue of the Irish MRO industry is driven by the European market. Moreover, innovative technologies, robotics, and additive manufacturing are shaping future trends in the MRO industry. However, the rate of adoption is slow in the industry because of associated sentiment which seems to favours human intervention.

SWOT Analysis of Irish MRO Industry

SWOT analysis is a strategic tool designed to ascertain the strengths, weaknesses, opportunities, and threats associated with a given entity. This helps the entity under analysis to understand the opportunities that can be used to gain a competitive advantage in the market while mitigating the impact of external threats and internal weaknesses.

The SWOT analysis of the Irish MRO industry is mentioned below.

Strengths

· Double tax treaty network (Dunne 2019)

· Presence of OEM firms

· Aircraft fleet size (Sproglou, Kourousis and Kaulmichalis 2018)

Weakness

· Supply chain management

· Managing and retaining talent

· Lack of skilled labour (Malone and Darcy 2019)

Opportunities

· Growth of industry participants

· Innovation and technology

· Skill development

Threats

· Volatility in the geopolitical and economic environment

· Foreign currency fluctuations (Widmann 2016)

· Incapacity to innovate

Table 1: SWOT Analysis of Irish MRO Industry

Strengths

  • Double tax treaty network

Ireland’s extensive double taxation treaty network is a key player in creating a positive business environment for the MRO industry. Dunne (2019) mentioned that the significance of this network for the industry is one of the top-cited importances in the policy area. Although such policies are mainly beneficial for the aviation industry, however, their positive effect directly influences the strategic position of the MRO industry.

  • Presence of OEM firms
  • While in some key areas of activity, OEMs may represent extra competition for the MRO industry, Widmann (2016) reported that the presence of OEM firms in Ireland positively impacts the MRO industry. This is so even though major OEMs in respect of investment in significant tier 1 primary manufacturing is likely to be challenging because such organizations can undertake tie 2 manufacturing activities and sub-system design. Smaller-scale niche OEMs also provide service and manufacturing operations which strengthens the MRO market and wider aviation ecosystem (Holloway 2018).
  • Aircraft fleet size

Ireland based aviation companies manage more than 3,000 aircraft worth more than $90 billion, and available published industry projections suggest that the aircraft fleet size will further grow in upcoming years (Figure 3) (Sproglou, Kourousis, and Kaulmichalis 2018). The presence of a strong aviation industry provides MRO companies with continuous business and ensures the financial viability of the industry.

Weakness

  • Supply chain management

The supply chain struggles are omnipresent in every major industry, and the Irish MRO industry is no exception. MRO companies in Ireland are pointing to managing the supply chain as the second biggest threat to their operations. To effectively execute their business operations, the MRO industry depends on the procurement of required equipment for various sources (Kearns 2018). This results in a need to manage a vast network of suppliers as even small delays can cause a chain reaction and result in schedule and budget problems.

  • Managing and retaining talent

Due to an increase in the adoption of new technologies and processes, and the continuous focus on reducing cost, the MRO industry requires a talented and engaged workforce. The lack of skilled workforce represents the weakness of the industry to manage and retain a skilled workforce.

  • Lack of skilled labour

MRO firms report that they face considerable challenges in meeting expected growth of the industry, especially in respect of the availability of skilled labour. Indecon’s economic evaluation of the aircraft maintenance, repair and overhaul sector in Ireland mentioned that 92% of the MRO firms suggest that they do not have adequate labour to cater for the expected growth rate of the industry (Malone and Darcy 2019). The table mentioned below illustrates the responses of MRO firms in respect of the availability of skilled labour.

Please indicate the extent to which you currently have adequate capacity in your infrastructure and skilled labour to accommodate business growth

Existing skilled staff

Physical infrastructure

Adequate capacity

7.7%

58.3%

Inadequate capacity

92.3%

41.7%

Total

100%

100%

Source: Indecon analysis of responses to confidential information request to MRO firms

Opportunities

  • Growth of industry participants

The MRO sector in Ireland has numerous opportunities related to both, potential evolution of the position of Irish firms and the overall growth of airline traffic. Industry participants expect considerable growth in their businesses over the next decade. The below-mentioned table illustrates that over 90% of airline firms expect business growth which will be supported by continued growth in the airline industry.

Growth rate

% of Respondents

No significant change

8.3%

0-25% growth

16.7%

26-50% growth

50.0%

51-75% growth

8.3%

75-100% growth

16.7%

Weighted average growth forecast for the next 5 years

39.0%

Source: Indecon analysis of responses to confidential information request to MRO firms

  • Skill development

Skill development also presents an opportunity for the MRO industry to improve its business processes and to capitalize on the future growth of the industry. As mentioned earlier, the MRO industry does not have adequate labour which will enable the industry to exploit the industry growth rate. By undertaking skill development activities, the MRO industry will be able to develop skilled labour to facilitate business growth.

  • Innovation and technology

The aviation industry is being transformed by significant advances in innovation and technology. New technologies like advanced polymers, 3D printing, and metal material sciences, data analytics, and industry4.0 present significant opportunities for the aviation industry and its sub-sectors like MRO to improve their business practice and streamline processes. Moreover, the increasing activity by entrepreneurs and increasing private investment in technology start-ups is further driving the adoption of innovative technology in the MRO industry.

Threats

  • Incapacity to innovate

As mentioned earlier, new technology presents significant growth opportunities for the MRO industry, however, at the same time, incapacity to innovate is a threat to the MRO industry. Failure to innovate inhibits the ability of the industry to capitalize on the growth of the aviation industry.

  • Foreign currency fluctuations

Considering the huge amount of aviation organizations operating globally, a significant portion of their revenue comes from a variety of currencies which makes them vulnerable to fluctuations to exchange rate fluctuations. This threatens the financial viability of the aviation industry and its sub-sectors like MRO because the MRO industry depends on the operations of the aviation industry and threats to the aviation industry reverberate in the MRO industry as well.

  • Volatility in the geopolitical and economic environment

To keep up with increasing demand facilitate by increased production, the MRO industry has to deal with increased geopolitical volatility and shortage of skilled labour. These risks are further exacerbated by the increasing political tensions and economic conjunctures. This affects the business operations of the aviation industry which, in turn, will have an adverse effect on the business of the MRO industry.

Analysis and Discussion on Aircraft Maintenance Repair and Overhaul Companies

The abovementioned competitive analysis of the MRO industry in Ireland suggests that some of the key challenges faced by the industry include supply chain management which often results in turn around delays and reduces the competitive advantage.

One of the key strategies the industry can adopt is lean manufacturing like six-sigma.

In addition to this, companies can also adopt new technology like the mass-production of new-generation aircraft to improve their competitive advantage. This is so as such technology will help the industry to tackle challenges associated with maintaining increasing demand and executing effective supply chain management.

Lean Manufacturing

The lean manufacturing approach will provide significant benefits for the MRO industry if adopted in their facilities. The principles of lean manufacturing search through the supply chain and production activities to recognize and eliminate non-valuable activities that result in disruptions. Among applicable lean tools, MRO can apply the lean approach through the development value stream map of the industry’s current state of operations and facilitate the establishment of a workable future state. Application of lean manufacturing strategies such as six-sigma can facilitate the adoption of quality monitoring controls and production of zero or near-zero defective products. Such adoption will result in the reduction of waste and will help to streamline the business processes.

Lean Six Sigma Framework for MRO Facility

The six sigma approach aims to achieve sustained customer satisfaction through its continuous focus on the needs of the customer. This approach emphasizes the issues which affect customer satisfaction and eliminates performance issues before they occur. Six sigma framework achieves this by focusing on process variable that is vital to quality. Implementation of an integrated lean and six sigma approach will result in both the “waste reduction” and “quality control” with the industry. Hill, Thomas, Mason-Jones, and El-Kateb(2018) mentioned that the effectiveness of the six sigma projects are significantly increased if Lean tools and principles are included in the adoption of Six Sigma.

While the six sigma approach follows the DMAIC model for problem reduction and quality improvement for existing processes, the lean six-sigma integrates the DMAIC model into the principles of the lean framework. Figure 4 illustrates the generic lean six-sigma framework which can be implemented into the MRO industry to facilitate continuous improvement in systems and processes. The implementation of lean six sigma in the MRO industry is divided into 5 stages. The table mentioned below defines the lean six sigma matrix and the various elements for each stage of the lean six sigma programme.

 

Lean cycle

Six sigma cycle

 

Stage 0 (Training and preparing)

Stage 1 (Specifying value)

Stage 2 (Synchronizing internal value stream)

Stage 3 (Creating flow)

Stage 4 (Pull on demand)

Stage 5 (Creating perfection)

Define

Instituting a departmental wide LSS training in both techniques, tools, and management.

Determining expectations and goals, and establishing roles for staff.

Routinely monitoring key parameters to identify issues early to work on them in later stages.

Management focuses on recognizing customer value and assess this in respect to the current system

LSS team focuses on inspections that were missed in the 1st stage

Late calls prevent the flow

Designing system to pull through gate stages

Defining the optimal stage within the system

Measure

Analysing the strip and build process by process analysis which shoes critical to quality (CTQ) factors and operational instability in operations of MRO

Observational and VSM activities to assist the clarification of problem areas

Pareto analysis

Measuring stage-gate performance

Continuous measurement of system performance

Analyse

Identifying key CTQ areas to focus on

Pareto analysis

Correlation analysis of missed inspection

Restructuring operational systems

Analysis of solution

Improve

Establishing an LSS team to work upon CTQs and the way to resolve them

Analysis of how late calls are especially problematic

Initiation of training to make sure technicians are completely aware of product standards

Piloting new operational systems and ensuring the flow of thorough gates. TOC analysis

Establishing LSS blitz teams for systematic improvement

Control

Development of action plan by LSS team to resolve CTQ and meeting customer value requirements

Development of training plan by LSS team to see if fit for internal value stream is in alignment with CTQ issues of customer

Constant review of training by management to ensure effectiveness

Training and developing new team compositions to control improvements

Managing new process order ad new process specifications

The tools and techniques mentioned in the LSS table describe the suggested process for MRO facilities to improve their operations and achieving customer satisfaction.

Moreover, the industry can also engage in differentiation strategies like the one used by Lufthansa Technik to provide cost-effective and better quality service. Lufthansa Technik provides maintenance, repair, completions, and overhaul services for aircraft components and engines. The company employs an integrated cost leadership/differentiation strategy to come up with a wide range of innovative ideas that can be used to gain competitive advantage. The said strategy is built on the belief that companies need unique and clear positioning. Differentiation leadership aims to provide perks that augment value for the consumer (Redpath, O'Connell, and Warnock-Smith 2017). Building such a strategy for the MRO industry will help the industry to differentiate their products and services form the OEMs, and will provide a valuable competitive advantage.

Conclusion on Aircraft Maintenance Repair and Overhaul Companies

In conclusion, the paper presents the macro environment analysis of the Irish MRO industry and suggests that the key problems in the industry are related to supply chain management. The paper suggests that to endure effective supply chain management the industry can implement an integrated lean six sigma framework along with the adoption of new technologies to improve its business process. Moreover, to gain a competitive advantage, the industry can also utilize produce differentiation strategy like LuftansaTechnik.

References for Aircraft Maintenance Repair and Overhaul Companies

Balcerzak, T. 2019. Global aerospace industry risks. ZeszytyNaukowe. Transport/PolitechnikaŚląska.

Dunne, E. 2019. Aircraft leasing: A review of Ireland’s role in its past, present and future development (Doctoral dissertation, Dublin, National College of Ireland).

Hill, J., Thomas, A.J., Mason-Jones, R.K. and El-Kateb, S. 2018.The implementation of a Lean Six Sigma framework to enhance operational performance in an MRO facility. Production & Manufacturing Research6(1), pp.26-48.

Holloway, S. 2018. Changing planes: A strategic management perspective on an industry in transition. Routledge.

Indecon International Economic Consultants. 2019. An economic evaluation of the aircraft maintenance, repair and overhaul sector in Ireland. 

Israel, D. and Curkovic, S. 2020. Indirect Procurement: A Literature Review and Study of Trends. American Journal of Industrial and Business Management10(04), 775.

Kearns, S. K. 2018. Fundamentals of International Aviation.Routledge.

Laureani, A. and Antony, J. 2017. Leadership characteristics for lean six sigma. Total Quality Management & Business Excellence28(3-4), pp.405-426.

Maertens, S., Leipold, A., Nahas, N., Shah, D., Abramovich, M., Wollersheim, C. and Keimel, H., 2019. The Economic Footprint of the Business Aviation Sector in Europe. Airline Economics in Europe (Advances in Airline Economics8, pp.137-166.

Malone, G. and Darcy, C., 2019. Perceptions of 'Just Culture'-The Case of Aircraft Maintenance. Journal of Strategic Innovation and Sustainability14(1), pp.48-65.

Malone, G., 2017. A Study into the Perception and Motivation of Just Culture in Aviation Maintenance (Doctoral dissertation, Dublin, National College of Ireland).

Patankar, M.S. and Taylor, J.C., 2017. Risk management and error reduction in aviation maintenance.Routledge.

Redpath, N., O'Connell, J.F. and Warnock-Smith, D., 2017. The strategic impact of airline group diversification: The cases of Emirates and Lufthansa. Journal of Air Transport Management64, pp.121-138.

Santos, C., Abubakar, S., Barros, A.C., Mendonça, J., Dalmarco, G. and Godsell, J., 2019.Joining Global Aerospace Value Networks: Lessons for Industrial Development Policies. Space Policy48, pp.30-40.

Skelly, R., 2019. Narrow Specialist: An Analysis of Ireland’s “Strength (s)” in Aviation Leasing and Financing. Issues in Aviation Law and Policy18(2).

Spyroglou, I., Kourousis, K. and Koutsomichalis, A., 2018. Investigation of In-service Creep Failures of Aircraft Ti-6Al-4V Bolts.In MATEC Web of Conferences (Vol. 188, p. 04008).EDP Sciences.

Todd, D. and Simpson, J., 2019. The world aircraft industry.Routledge.

Widmann, M., 2016. Competitive position analysis of airlines: traditional airlines and low cost carriers–market development, trends and outlooks based on the European market.

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