August Wilhelm Henningsen, Lufthansa Technik Group
Release Date: 2009-06-11
At the end of 1994, Lufthansa's former engineering division was converted into an independent stock corporation under Ute name Lufthansa Technik. Has this change been the critical success factor that enabled Lufthansa Technik to outperform the industry in recent years?It is true that our results were good the last years, but you have to take into account special circumstances. Fluctuations in the euro-dollar exchange rate have resulted in some gains and losses over the years, and last year we were blessed by the increased value of the dollar at the end of the year. At the same time, we continued to grow last year. We were successful in convincing airlines around the world to buy component or engine Services, maintenance Services, and other products we have in our portfolio.
Lufthansa Technik is not the only company that offers these Services. What are the main competences that convince your customers to work with Lufthansa Technik rather than your competitors?
There are a number of reasons. First of all, we have hands-on experience and are really at the forefront of operations, not only for Lufthansa and Lufthansa Cargo but also for other Operators around the world who we directly support on the line maintenance side. We understand what aircraft operations need: reliability and support.
We have developed measures and Services that support airlines directly at the heart of their operations, such as troubleshooting support, engineering support, but also hands-on support with top-notch mechanics who regularly train to keep up with the latest developments in the industry. For us, being at the forefront with our customers means offering the next level of support in component Services, engine Services, airframe and base maintenance Services. We speak the languages of our customers and we have a complete supply of products for the whole lifecycle of airplane operation.
An airplane is an environment in itself, with the broad band of complex Systems distributed all over the aircraft, and can only be fixed when it is on the ground. There are a lot of major components for flight control, engine control, pressurisation of the cabin, air conditioning, etc. etc. Programmes have been designed to oversee and monitor these systems. If there is a fault, you have to check whether the Computer monitoring the System is broken, or whether it is the cabling or the component itself. Once you have identified where the problem is, you must have the required materials available to fix it, otherwise you have a grounded aircraft. We are very strong at combining technical capabilities and logistical efficiency. We have a System that can provide us with an overview of our material stream anywhere in the world, and will allow us to transfer components as required. This gives the customer the reassurance that he will be supplied, and we guarantee this.
In a perfect world, would you have every component in stock at every airport?
That is not necessary; otherwise you would quasi have a second airplane available at every airport. The art is to limit your stock to a level that does guarantee the Operation of a faulty aircraft.
Airlines are trying to cut costs in the current economic climate, does thgis mean that you are reducing your inventory levels around the world?
This has nothing to do with the crisis. The materials level we have in stock for different aircraft is very much dependent on the operations of that particular airplane, the age of the airplane, the environment it flies in, the number of flight hours it flies per day and its daily flight cycle, which all have a large impact on maintenance requirements. This is a learning curve, and our supply levels in a certain place changes according to the different parameters. The aircraft is a living System in a sense: the requirements of each component change from aircraft to aircraft and depend on age and condition. We have to anticipate problems that might occur after 5,000 or 10,000 flight hours, replace components before they break, and make the necessary modifications. This has to be taken into consideration in the management of our material stream. We have an exchange system in place which enables us to ship a faulty component back to our Workshop in Hamburg, fix it, test it, and then ship it back into the material loop. Our supply chain is not affected by economic conditions, we keep it in place no matter what, and it is up to our customers to decide what Services they require from us.
When the aircraft is in Operation, different maintenance tasks have to be performed. Some maintenance checks are carried out before every flight, while others take place on a daily, weekly, monthly or yearly basis. The less frequently a maintenance check occurs, the more thorough it is. For example, every airplane has dormant Systems that are only used under emergency conditions, and these Systems have to be checked. Once every 5 to 6 years we conduct a D-Check, during which we take the cabin inferior out and check the primary structure to make sure there is no corrosion or cracks in the body of the airplane, while all systems will be checked for integrity. After this, the airplane goes back to 'Zero Hours', as we call it, and it can go back to Flying for the next 5 to 6 years, under continuous maintenance conditions, as in the previous lifecycle. The Performance of the engines, which can generally fly 10,000 to 20,000 flight hours, is monitored individually. If Performance drops or fuel consumption rises per engine, the engine is brought in for complete overhaul. The engine is essentially rebuilt and then delivered back to the airline. In the interim period we provide lease engines so that the airplane can continue to fly.
We have the four main products: line maintenance, component and logistics Services for material availability, engine overhaul Services and airframe checks. We also maintain and check our customers' landing gears over its entire life. This is a Special task, but it can be added to our component Services. In addition, Lufthansa Technik has a Special business unit that Services business Jets and VIP airplanes.
Over past decade, your customer base has expanded rapidly, but not every Company you work with has the same maintenance philosophy. How have these different philosophies influenced the Operation of Lufthansa Technik?
It is a moving target, and the tasks are constantly shifting as airplanes are on a continuous modification cycle. If we find problems on engines or components regarding reliability, we have to assess the root cause and make sure we are in contact with the engineers of the components to discuss the issue. They can either modify the component themselves, or if it takes too long we can do the modifications ourselves. We are an approved design Organisation and can certify these modifications – if needed - on a much faster cycle, while ensuring that reliability doesn't suffer on the fleet we are supporting. This “debugging” allows us to improve our customer's reliability. Wherever there is a problem, we will do our best to fix and improve it. On the materials side, we have contracts where we are paid per flight hour, so if we have less work in the shop our profitability rises. This gives us an incentive to produce the best components for our customers. Of course, it is also in the interest of our customers to increase the reliability and availability of their fleet. There also is a continuous change of technologies: going from 737s to A320s, right through the generations, it is a continuous journey for all people involved. You always have to adapt the Organisation to a new technology, a new aircraft type, to new Systems, and new approaches. These are the external changes that face the Organisation, and we have to adapt. This is why we have our own technical training Organisation: training people is a continuous task.
Is this continuous change perceived in your Organisation as something that is forced upon the Organisation by the outside environment, or is this an opportunity to distinguish yourself and create a competitive edge?
On the external side, new airplane types and new technology are constantly introduced. On the internal side, we also develop new technology that goes hand in hand with our changing experience and size. We are constantly changing the way we do business. This puts a lot of pressure on our development, but also gives us the opportunity to develop new products and new ways of doing business. Questions come out of these changes, which give us the potential to innovate.
How important is it to be a truly global company in this business?
Size matters. Forty years ago, everyone supported themselves, because the communication infrastructure was not in place: there was no internet, no fax, and transcontinental telephone calls were rare because expensive. As a result, the airlines had to rely on their own technical resources. Today we have a tremendously strong network around the globe, so it is easy to reach our customers not only through communication pipelines but also through our logistics Channels.
It is very interesting that already years before Lufthansa Technik was created in 1995, Lufthansa already entered into a Joint venture in China to provide MRO Services. What was the thinking behind this?
It started in 1984 and was based on the Vision of the Lufthansa management that China would be a very big market, that it would play a major role in the future world economy. They saw that aviation would play a very important part in the development of China, connecting the country to the world. The management team at Lufthansa at that time had connections with the General Administration of Civil Aviation of China (CAAC), and a team composed of managers and engineers was sent to China after the country had realized that the introduction of western-type planes into China in the mid-80s would require technical knowledge and support. There was a week of discussions and lectures in China, and then a large Chinese delegation came over to Germany.
It became clear that there was interest for support coming from the CAAC, especially from the Beijing branch. We sent 20 people to Beijing to bring their engineering, work planning, material flow and repair activities up to speed. Subsequently, both parties decided that it would be good to establish a Joint venture, which after lengthy discussions was created on August 1st 1989. At that time, 49 Lufthansa technicians were based in China and a new hangar was opened for international customers to overhaul airplanes in China. We had to ask ourselves what our unique selling proposition was in China. We were training technicians, overhauling airplanes for Air China, and we were offering these Services to the rest of the world. We convinced Lufthansa to get the ball rolling and be our first international customer, because this industry is relatively conservative and you have to convince the customers that you can serve them well. It takes a lot of work to get to a position where people trust you enough to entrust their airplanes to your Organisation. It was a very interesting time. We had a very good team consisting of Germans and Chinese. Over time we downsized from 49 to 27 expats and developed new capabilities as new airplanes came in.
Across different industries we have seen the failure of companies entering the Chinese market thinking that they can be successful by replicate their existing business model. How different is your business model in China from the one that is applied elsewhere in the world?
Actually the business model is not too different because the airplanes are the same. The airplanes don't know who is servicing them. A 747 is a 747, and it has the same basic specifications whether you service it in Frankfurt or Beijing. The way in which we operate is not that different, the difference is in the people. The principals of education and training have to be very similar. English is a huge issue in China. In the aviation industry, radio communication is in English, documentation in English and material data is in English. Overcoming the English language barrier is a problem that we have improved substantially but it is a continuous task.
Also, it takes years to obtain all the qualifications required to work on an airplane. These qualifications are mandatory to guarantee that every airplane we deliver is airworthy. Therefore, our people have to be well trained and able to take this responsibility. The maintenance of airplanes is not like running a manufacturing plant; we cannot just take people from the street and train them in a relatively Short amount of time. When you approach a faulty airplane, you don't know what the issue might be, and you have to be trained to be able to identify problems. Our customers rely on the fact that the people that do this job are top qualified, and responsible to do this job perfectly. It is a big project to bring people to that level of qualification.
You were in Beijing during the 10th anniversary of this Joint venture, and the 20th anniversary is coming up shortly. What was the message you sent to your people in China when you addressed them ten years ago?
The challenge at that time was gaining international business, because we were relatively young. We wanted to expand the customer base, so this was an important goal. Secondly, the Air China fleet was growing rapidly at that time, and we had to grow with the demand. We had to make sure that we were selecting the right people, educated them well, and make sure that we could grow fast enough to meet the demand from our main customer in China. That was the main message.
It is said that civil aviation in China is still in the Start up phase.
What have you learnt in the past 20 years that positions Lufthansa Technik ahead of the competition?
Our competitors are also very good. There are Chinese companies that entered into other joint venture projects and have become very strong and experienced in the last 10 to 15 years. They were maybe a little later than we were, but the question of the demand for these airlines was very similar. These companies developed dedicated MRO businesses and are developing. They have built up good reputations and will be tough competitors over the coming years. Competition will increase. The market is growing, but we will have to see how the recession will affect us, and if we will be able to continue our growth pace of the past five years. The market is not easy, it is very competitive and the airline customers are very demanding. This is okay in our business, because they have to be.
The Chinese MRO market is currently worth $1.85bn, which is only a very small percentage of the global market. Which role do you expect the Chinese market to play in 2020?
The Chinese market is growing at double the rate of the rest of the world, so a very steep increase of additional airplanes and additional supplies is needed. Modern airplanes are more reliable, with less work per flight hour to be performed compared to airplanes from 20 years ago, so productivity will be creeping up. With the same facilities and infrastructure we will supply and Service a higher volume of airplanes, engines and components.
Our growth in Beijing is very much dependent on the growth of Air China, our main customer. In parallel, we want to grow our third party business. The new big hanger we opened early last year is mainly for line maintenance and Operation of Air China. It has also become a portent of the future. It would be foolish to build a hanger that is too small from the beginning.
What would you like Lufthansa Technik to achieve in the coming decade?
We want to continue what we have established in the past. There is a quite clear line of evolution: we have to adapt to new aircraft types and to the new demands that we will face. We want to supply more customers, and continue to grow.
| Company: | Lufthansa Technik Group |
| Position: | Chairman of the Executive Board |
| Country: | Germany |