Delta Air Lines to Build Heavy Maintenance Facility in Queretaro, Mexico

Discussion in 'Delta Air Lines' started by Glenn Quagmire, Sep 2, 2012.


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  1. Glenn Quagmire

    Glenn Quagmire Veteran

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    http://finance.yahoo...-150500636.html

    Bolded text added by me
     
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  2. Glenn Quagmire

    Glenn Quagmire Veteran

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    I am sure WT will pan this as a brilliant move, while Southwind will be completely confused since this is not covered under his talking point checklist.

    This is not good news for the TOC in Atlanta. It sounds like this is the beginning of the wholesale move of that operation across the border.
     
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  3. WorldTraveler

    WorldTraveler Corn Field

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    Actually, Glenn, I didn't real the statements you cited with pleasure - and have to keep the same sense of "uh-oh" front and center in mind. There is enough of a history of maintenance outsourcing among US airilnes to not allow anyone to let their guard down.....

    I'm not sure this is as big of a deal as it might seem.

    - previously, DL said the investment (IIRC) for the maintenance joint venture would be $45M. If that number is correct, it doesn't come close to building facilities anywhere near the size that would be needed to significantly compete with - let alone replace - the TOC. Can it be more than a couple bays?
    - your quote left out a key qualifier that was put in the original sentence "lower maintenance costs without compromising the very high quality work that Aeromexico provides Delta." That sentence does not mean, and probably should not be accurate construed as meaning that DL will send any more work out the door than it already does; it might not even mean more work for DL than what AM already does.
    - previous press releases about the maintenance joint venture said that the purpose of the maintenance JV was to allow DL and AM to profitably bid for MRO work which neither can do fully on their own today - either because of a lack of capabilities on AM's part or costs above levels to be profitable on DL's part for airframe overhauls. As has been noted, DL does insource airframe overhauls now, but only as part of larger maintenance contracts. This partnership should allow DL to bid on larger maintenance contracts but leave the airframe overnhauls to AM while allowing DL to do more engine and component maintenance.
    - DL already sends alot of airframe overhaul work to Asia where the cost of just getting the plane there is much, much higher than it will be to Mexico - and labor rates in Mexico are lower than they are in SIN and HKG, places where DL sends overhaul work today.

    Is there the risk DL could send more of Tech Ops over the board? Anything is possible. But since DL has said they intend to double the size of Tech Ops insourcing, that seems unlikely. Since DL already runs the largest airline MRO in the Americas, doubling the size is no small feat. Given that DL already keeps a higher percentage of its work inhouse than any airline except AA - who is itself in the midst of a major process to outsource work - DL would have to move an aweful lot of work away from DL employees to reach levels comparable w/ the rest of the industry.

    Let's also remember that all of the other airline mechanics had contracts which their employers through out in BK or have walked away from systematically.

    DL has the lowest maintenance costs in the industry by CASM. DL has the ability to build on what it does well instead of throwing the whole ball of wax out the door.

    Remain guarded? absolutely. worried? probably not necessary.
     
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  4. Kev3188

    Kev3188 Veteran

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    The company's maintenance labor casm's are up 50% compared to '08, and MRO revenue is down. I'm sure all options are on the table...
     
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  5. eolesen

    eolesen Veteran

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    Look at the footprint of ATL, and then consider all the money upgrading Maynard Jackson & building out the east access from I-75... The cynic in me says they didn't do all that just to feed the new international terminal. Is there perhaps a plan to add more terminal/gate space?

    If so, there's only two reasonable areas to consider for future expansion along the east access road: the remaining central cargo buildings, and where TechOps is.

    LAX is tearing out maintenance hangars to expand TBIT, so it's not out of the question to think that an airport would consider tearing out backshops and hangars in ATL.
     
  6. WorldTraveler

    WorldTraveler Corn Field

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    Kev,
    help me w/ the change in DL's MRO insourced revenue. I was not aware that it had significantly decreased. More significantly, I haven't heard any change in DL's stated plans to increase MRO insourced revenue to $1B which is double from current levels. Correct me if I am wrong.

    As for the increase in maintenance CASMs, that is true and there are some very good reasons for it.

    1. DL is fighting an increase in non-fuel CASM across the company, a given post-BK as pay raises are passed out. UA has faced the same thing. The merger helped eliminate some of the cost creep as efficiencies have been gained thru the merger but have been offset by reduced capacity.
    2. DL is nearing the end of a process to invest $2B in renovating and upgrading its fleet rather than spend tens of billions of dollar son new aircraft. All of those cabin mods show up on the maintenance expense line, as do overhauls of the used M90s that needed work before DL could use them.
    3. DL worked hard to shift the expense of renovating the 717s to WN before they are delivered; DL wants them in ready-to-fly condition.
    4. DL has already said the 100 new 739ERs will immediately reduce maintenance expenses.
    5. DL's fleet has aged in the past 5 years when virtually no new aircraft have been added to the fleet. That has an effect on maintenance costs - and will start to turn around w/ the new 739s, and the 717s and M90s which have been caught up on maintenance.

    Is it possible that DL's maintenance needs could shrink in the next couple years based on their fleet strategy above? Very likely - but that appears to be why they are ready to double insourcing revenues to fill the slack.

    Help me see the justification for believing that DL maintenance is any more prone to increased outsourcing than any other department.

    The notion that DL would support bull-dozing the TOC in order to add gates seems more than far-fetched.
    1. DL's fleet strategy REDUCES the number of flights thru upgauging, requiring fewer gates.
    2. DL continues to pull out capacity to keep pushing RASM up - to match CASM which is also increasing.
    3. WN is not growing ATL and doesn't have the fleet growth to do so until 2014-15 when the HOU int'l terminal is open and the Wright Amendment falls - two aircraft intensive strategies that WN has publicly stated are goals they will pursue.
    4. The ATL F concourse and terminal gates were more expensive per gate than the new gates at JFK which is probably why DL repeatedly tried to get ATL to scale back the plan. DL's only real interest in F was to eliminate the need to recheck bags for local int'l passengers after customs.
    5. F concourse was only half built out. There is room to finish that concourse before anything is bulldozed - yet there are no plans to built out F.
    6. DL has a beautiful and enormously unused facility at DTW which can easily accommodate any east-west flow traffic that DL could reroute to avoid new facility costs in ATL - not to speak of unused facilities at CVG and MEM.
    7. Even if ATL wanted to expand, it would be far cheaper to move air freight buildings, flight kitchens, and the post office than the TOC which is an industrial facility. And there really wasn't a huge amount spent to upgrade access to the F terminal... the roadways that support the int'l terminal were there all along and connected all of the support facilties that were there; it just wasn't a public access to the airport. DL has had a parking garage at the TOC (yes) for years. Look at the former Ford plant across the runway at how much it cost to shutter an industrial facility. There are also empty, unused hangars on the southside of ATL - between the south runways - where there is ample unused space for a new terminal.

    Consolidation and capacity discipline thruout the industry likely mean that little to no significant expansion will happen at US hub airports, except to replace aging buildings or in places like LAX where facilities have been landlocked for decades.
     
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  7. Kev3188

    Kev3188 Veteran

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    Loss of a key customer for starters.

    No one said the 1B goal isn't still there; they're just further from meeting it than planned. No one said Tech Ops was "more prone" to outsourcing or cuts than any other group, either; this thread just happens to be about them.

    This is all available for you to read on your former employer's website...


     
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  8. WorldTraveler

    WorldTraveler Corn Field

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    how about you help me out with a document from YOUR CURRENT EMPLOYER's WEBSITE that shows the loss of a key MRO customer and the resulting difficulty for DL in meeting its MRO goals. I'm not sure which customer that might be....which is why I am asking.

    The idea from the OP was that the TOC seems ripe for further shrinkage based on the opening of the Mexico facility. I don't see it, esp. since a qualifying phrase was left off the end of the original sentence.

    Perhaps there is more evidence that is there that I am not seeing.... I am asking you and Glenn among others because you have insight. I simply would like to see that insight.

    Just because Tech Ops CASM has increased doesn't mean that outsourcing is the answer. Based on the rest of DL's business plan, they are reducing CASM by INSOURCING work that was outsourced, which seems to me to be exactly what needs to be done in light of a shrinking industry- and DL's need to reduce capacity to keep matching capacity to the fares that support DL's costs. As Europe's future is as tenuous as ever, that seems all the more necessary.

    One other note on Europe, E.
    DL has shifted European capacity from ATL to JFK and that is likely to continue w/ the opening of the new JFK terminal. As Europe continues to struggle - and it will under just about any scenario for several years - the chances that DL's int'l operation at ATL will be smaller than today are fairly high.
     
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  9. Glenn Quagmire

    Glenn Quagmire Veteran

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    If it is a Delta goal to increase insourcing of airframe overhaul, it would make financial sense to "insource" the work the their new "home" facility in Mexico. I am quite sure the labor costs are far lower there than at the TOC. If they were not, they would not have gone to the expense of building it. I just don't see the capacity out there to add that much overhaul work to keep TOC full, and fill out the Mexico facility.

    As for shutting down an industrial facility, aircraft hangars are more air than structure. It would be relatively easy to shut down and demo one of the TOC's to make room for airport expansion while keeping the other and consolidating the shops. The only kicker is if they maintain a plating shop and waste treatment facility. Those are keepers.

    Do they still operate the paint hangars? I could see that being shut down immediately due to the EPA regs in the USA compared to Mexico.
     
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  10. Kev3188

    Kev3188 Veteran

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    I'm disappointed that you'd ask me to violate my employer's social media policy.

    It's all on there for you to check out yourself...
     
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  11. WorldTraveler

    WorldTraveler Corn Field

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    If it is relevant information, it has been released publicly and there is no need for you to violate anything - or be disappointed.


    Of course you could simply google the topic to see if it has been made public and cite the public source.

    The question was a simple request for you to contribute to the discussion and shed light on the OPs quote regarding outsourcing of Tech Ops....or increasing insourced revenue which provides job security to DL mechanics which you suggested might not be all its cracked up to be.
     
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  12. Kev3188

    Kev3188 Veteran

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    Not public, hence me telling you where to find it for yourself.

    Take my word for it... or don't...
     
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  13. WorldTraveler

    WorldTraveler Corn Field

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    based on that information, I do believe you and will dig deeper.

    thank you, as always.
     
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  14. Dalmd88#2

    Dalmd88#2 Member

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    The stated short term goal of the Mexico hangar is to get more of the current outsourced heavy check work back under our own roof. We on the hangar floor are also wondering if some of the narrow body PSV work could go south also. Could be, but we are moving to get more of the former NW fleet PSV type work back in house. The truth is the TOC is pretty crowded, unless we go back to just working DL planes and no more MRO work.

    As for the TOC being bulldozed to add more gates? Yes, it could happen and most likely will sometime in the future. First to go would be the engine/landing gear shops. You could double the gates at the international terminal with just this space. Those shops, which are good money makers and are getting crowded, do not have to be right next to a runway. A new facility could be built somewhere else on the airport (Ford plant area). No airport manager is going to want a couple of thousand jobs leaving just to add a few gates.
     
  15. RDU Jetblast

    RDU Jetblast Veteran

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    if this is any consolation, Queretaro is, IMO ,one of the most beautiful cities in Mexico with a top notch airport. a great place to retire with a large US ex-pat retirement community and competent healthcare If you are young and want to try something new, or if you are close to retirement and want to see how far your retirement income will go in MX, try to be assigned there to oversee the work. rich culture, superb cuisine, great nightlife. When life serves you lemons.....
     
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  16. eolesen

    eolesen Veteran

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    WT, what you've quoted about DL's intentions are all fine and good, but has nothing to do with what I was saying. DL's not the only carrier serving ATL. And no, I'm not just talking about WN, either.

    Putting a terminal on the far side of the airfield would be an option, but would make it quite difficult to tie into the people mover. It might be possible to put a charter/LCC terminal over there, but even that starts getting even more complicated than it needs to be. And, as mentioned two posts above, the shops don't need to be close to the runway. Having gates close to the people mover and existing garages/roadways is a little more pressing.
     
  17. WorldTraveler

    WorldTraveler Corn Field

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    DL doesn't want any or have any more gates at ATL and DL has the authority by virtue of the leases to not allow anything to be built that has the potential to disproportionately affect DL's costs... same type of lease exists for AA at DFW etc..... Why do you think the city of Atlanta worked so hard to sell the ATL terminal deal to DL and DL held it up at several stages.

    There are gates in ATL, there will be more as DL regauges its fleet, and gets rid of the 763 domestic fleet which allows a number of gates to be converted back to their standard size - a number of gates have been removed to accommodate widebodies on the domestic concourses - something that will not be needed as the 763 domestic fleet is retired.

    And you also missed that the F concourse is half-sized right now.

    The notion that the airport would shut down the TOC to build gates that aren't needed is pure fantasy.

    You also seem to have missed the part about no airport in their right mind would displace a facility that employees 5000 people.

    What is unchanged is that DL IS NOT moving the TOC - not to Mexico, not to AFW, not anywhere. A notion that DL would shut the TOC would be just as ridiculous as me saying that AA will just shut down TUL - after closing all of their other maintenance facilities. the TOC IS DL's maintenance operation, just as TUL is for AA, SFO is for UA etc.





    move on.


    DL and AM are spending $40M to build a facility that will be a tiny fraction of the size of the TOC... and that new facility will be the location where AM will do work which AM already does for DL elsewhere.

    DL and AM will work together to gain new insourcing revenue as part of the maintenance joint venture.

    Aviation week says:

    "Under the memorandum of understanding signed by the carriers, they will move work currently being performed at Guadalajara International Airport to the new facility at Intercontinental Airport in Queretaro, next to that state’s Aerospace Park.
    The new facility will enable heavy maintenance on as many as seven aircraft simultaneously, compared with three at Guadalajara, providing expanded MRO capabilities for the airlines’ own aircraft and for other carriers.
    A Delta spokesman says the new facility will have the flexibility to accommodate virtually any size of commercial aircraft, from a regional jet to a Boeing 777.
    Both carriers have offered heavy maintenance and overhaul services at the Grupo Aeromexico maintenance base in Guadalajara for the past six years."
     
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  18. eolesen

    eolesen Veteran

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    Time will tell. Moving the jobs to Mexico with your own labor would be a gutsy move. Certainly as gutsy as the refinery, and coming close to the Milwaukee Convention Center...
     
  19. WorldTraveler

    WorldTraveler Corn Field

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    Except that there really is no evidence that DL is going to outsource any more of its maintenance ops than are outsourced today - which was the inference of the OP of this thread.

    DL is going to build a joint maintenance base with AM as part of a maintenance JOINT VENTURE. AM already does work for DL Tech Ops. The original PR on the AM maintenance JV said it was intended to allow DL and AM to JOINTLY bid for maintenance work. There is nothing that says that is no longer the goal.

    And unless DL guts its entire US-based maintenance operation, it isn't possible to expand passenger facilities at ATL into the area that is occupied by the TOC. The heart of the TOC is on the west end - closest to terminal F.
    It also doesn't change that there is no need for more gates at ATL, there will be less of a need in a few years w/ DL's refleeting plan including the elimination of widebody domestic flying (which could still use gates on E and F), and that DL does have the right as the primary tenant to block airport projects which disproportionately add to DL's costs - which any new gates would do.

    It also doesn't change that the south terminal complex - which would not be connected to the airport train - has been on the drawing board for years and no one has said they are willing to occupy those gates - in part because they would be far more expensive that the gates DL has.

    It also doesn't change that DL has the capacity to easily add a couple hundred mainline flights at DTW w/o spending a dime on facilities.

    It is possible we could be hit by a meteor that would end life on planet earth. But it is such a distant possibility that, like worrying about the closure of the TOC - it isn't worth even the bandwidth to argue the point.
     
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  20. wings396

    wings396 Veteran

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    Is all of this news supposed to give us a warm fuzzy feeling about jobs outsourced outside of the US? While DL may be consolidating the work under one roof, its still outsourced work no matter how you ice it up. Just curious if the DL mechanics have anything to protect more work from being done in the new Mexican facility in the future? We all know that cheap labor is king, and it wouldn't surprise me to see more and more work shifted from the US to Mexico in the future. I realize that many other airlines do the same, and I don't care for any of it.
     
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