Contractors eye United work
3rd-party firms are prepared to step in
By Jack Naudi
jack.naudi@indystar.com
December 19, 2002
The future of United Airlines' maintenance center in Indianapolis could rest somewhere in Alabama, North Carolina, Florida or Texas.
Those warm-weather states are home to about 100 Federal Aviation Administration-certified companies that repair and maintain aircraft for many U.S. passenger and cargo airlines. Those companies, along with a few on the West Coast, could easily take over all of United Airlines' vast maintenance operations in as little as three or four months, said one aviation expert.
"I doubt that you would see United get to 100 percent (outsourcing of maintenance), but it will get larger," said Bruce Strand, president and chief executive of Denver-based Strand Associates Inc.
For example, Pemco Aviation Group sure would like a piece of United Airlines' maintenance business.
The company is hardly alone.
With United looking to cut costs amid last week's bankruptcy filing, Pemco is among dozens of small and midsized companies coveting the possibility of getting more work for aircraft maintenance operations. That work could very well include the maintenance of Boeing 737s and 757s now done by United workers in Indianapolis.
"If they determine they wanted to outsource . . . we would love to do that work," said Doris Sewell, vice president of legal and corporate affairs for Birmingham, Ala.-based Pemco.
The reason for United's possible interest is simple. The outside companies typically charge airlines from $45 an hour to $55 an hour for maintenance work. A United mechanic earns $30 to $35. Strand figures that when benefits and overhead are added, United pays close to $80 per hour to repair a plane in-house.
With United in bankruptcy court, striving to cut costs to survive, maintenance is a logical place to start. Wages for the company's 13,000 mechanics, including the 1,125 to 1,225 in Indianapolis, cost the company close to $1 billion a year. The company will spend an additional $500 million this year on nonwage costs for its aircraft maintenance operations.
By contract with its mechanics union, United cannot outsource more than 20 percent of its maintenance work. Today, the work the company does farm out goes mainly to TIMCO Aviation Services in Greensboro, N.C., and ST Mobile Aerospace Engineering in Mobile, Ala. Representatives from both companies declined to comment for this story.
Although exact numbers are not known, United probably is "well behind the curve" compared to its competitors in outsourcing maintenance work, Strand said. Globally, airlines spend about $37 billion on aircraft maintenance, with about half going to third-party maintenance companies.
A bankruptcy judge could soon remove United's chief obstacle to outsourcing a large chunk of its work: the company's contract with its mechanics union. Besides the limit on outsourcing, the contract prohibits United from closing any of its three primary maintenance centers in Indianapolis, San Francisco and Oakland.
If the judge guts those provisions, every part of United's maintenance operation could easily be outsourced, Strand said.
"Indianapolis has a very real challenge on its hands to make sure that some of that very modern facility is used, if not by United, then by someone else," he said.
Local mechanics have beat a steady drum against the third-party maintenance companies, suggesting that the quality of work is sub-par.
In fact, FAA records show that third-party vendors have relatively solid safety records. One exception was last year when a TIMCO repair center failed to reinstall fuel system components on a United-owned Boeing 737. In that case, United was fined $200,000 because it bears ultimate responsibility for the planes.
To put that in perspective, however, the FAA during the past year has proposed or collected fines totaling $2.3 million on American Eagle, $1.4 million on United, $300,000 on Saber Cargo and $170,000 on American Airlines for various maintenance-related violations by the companies' mechanics.
The third-party company operations are subject to the same level of scrutiny as those run by the airlines, said an FAA spokeswoman.
"If they are not safe, we do not allow them to continue to function," said Elizabeth Corey, a spokeswoman for the FAA. "We consider all of them safe."
So does Stan Mackiewicz, executive director of maintenance technology for Embry-Riddle Aeronautical University in Daytona Beach, Fla.
Embry-Riddle has one of the leading aircraft maintenance education programs in the country, and many of its graduates work today for United. Many also work for the third-party companies in the Southeast, he said.
"The quality (of those companies) has to be equivalent, if not better (than the airlines)," he said.
At Pemco, all of the mechanics hired must have previous experience, Sewell said. Most of them worked for regional airlines or in general aviation, repairing turboprop planes and small jets.
Not all airlines, however, see the third-party vendors as a benefit. For one, Indianapolis-based American Trans Air does all of its maintenance in-house. Most of the work is performed at Indianapolis International Airport and Midway International Airport in Chicago.
"I don't know who espouses the theory that it's cheaper to do it outside, but that is not the case for ATA," said Jim Hlavacek, the company's chief operating officer.
ATA mechanics, however, earn on average about $20 per hour, roughly 40 percent less than United mechanics. But Hlavacek said conducting all of the maintenance in-house also offers the airline considerable flexibility that it would not have by farming out the work.
"It gives you better control on the type of maintenance," he said. "And let's say the FAA comes out with some modification. You can work that right into your schedule (of regular maintenance). You know exactly what is scheduled."
The third-party companies also are facing the same economic hardships that have struck major airlines such as United.
TIMCO, for example, has been restructured in the past year. The company has sold several unprofitable units and only recently extricated itself from more than $400 million of debt.
Lockheed Martin, the military aircraft giant, is trying to sell its small commercial aircraft maintenance operation in Greenville, S.C. "It's difficult for us to compete with the third-party providers," said company spokesman Dave Jewell.
At Pemco, sales fell nearly 15 percent in the third quarter compared with the same period a year earlier.
But at least Pemco remains profitable. One of the largest airline maintenance outsourcers, San Antonio-based Dee Howard Aircraft Maintenance, filed for bankruptcy late last year and its assets eventually were sold to ST Mobile.
Despite those blips for third-party companies, Strand figures it's not a matter of whether United, if allowed, would outsource more maintenance work; it's more like how much.
"I think the economics are going to drive United to take advantage of more outsourcing," he said. "Whether they totally outsource the work in Indianapolis . . . it will be completely an economic issue."
