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S7 Engineering: growing MRO business
Tuesday January 18, 2011 14:21 MSK / Vladimir Karnozov
The system crisis in the Russian aircraft manufacturing industry continues, which results in very low output of deliverable passenger jets, at the rate of six to ten a year. Meantime, the Russian air transportation system needs about one thousand modern passenger jets, according to analysis of prominent local and foreign institutions. The Russian airlines have been replacing their morally and technically outdated Soviet aircraft for newer Boeing and Airbus products. As of now, about four hundred airliners made in the US and EU are in fleet of Russian carriers. To fly safely, they need proper maintenance.

Initially, the imported aircraft were sent abroad for maintenance, repair and overhaul (MRO) since the local MRO specialists lacked experience and equipment to do the job right. But it was costly. As time went on, certain far-looking managers started looking for a better solution that would make use of the great aviation knowledge and skilled labor present in this country. Airlines and their partners and supporters began investing into MRO business. This has led to foundation of several very aggressive and competent organizations that have been growing their business year after year. 

We got a chance recently to speak directly to Eugeny Kochetov, general director with S7 Engineering, one of the biggest and fast-growing Russian MRO specialists. At the very beginning of our meeting, Kochetov spoke about the expansion of his enterprise, - a very impressive expansion. He confirmed the fact of the S7 Group acquired control over Domodedovo Technik, - another prominent MRO specialist created several years ago by the powerful East Line group. 

Then, Kochetov shared with us the new plan on establishing a branch in the airport of the city called Caucasian Mineral Waters (Kavkazskie Mineralnye Vody, KMV). This was a big news, meaning that the S7 Group is firmly on its way of becoming the undisputed leader in the Russian MRO market. «Indeed, creation of KMV branch is a new step in growing our business», - said Kochetov, - and smiled. By the time he spoke to us, EASA inspectors had already visited the place and promised their approval of it by January 15, 2011. EASA inspection took place in the middle of December, just about the time S7 Group was finalizing the deal with East Line on purchase of Domodedovo Technik. The KMV branch will start with doing C-checks on the Boeing 737 Classics. EASA approval for that work should come together with the general certification of the new organization. 

Eugeny Kochetov: Indeed, creation of KMV branch is a new step in growing our business

For those who knows the Russian MRO industry the name of Caucasian Mineral Waters is not new to hear. For a long time this city housed a once-famous MRO station called «Aircraft repair plant no.411 of the civil aviation», or ARZ411 for short. The S7 Engineering starts its presence here with hiring the huge hangar that used to belong to ARZ411, where Tupolev Tu-154 trijets were undergoing major overhaul. The ample space will also be used for C-checks on Airbus A320 with respective approval expected in the spring, for same work on the 737 Next Generation, targeted for the fall of this year. This means that by the year-end the new branch will be able to offer Russian airlines services on three most popular imported aircraft types.

Today, KMV team is only 25 people: qualified, prepared and awaiting EASA approval to start working. Most of them were previously with ARZ411 and worked on Tu-154Ms. Sadly, this one-prominent and very competent organization has been suffering from shortage of funding and various managerial mistakes. Besides, the Tu-154 is «an outgoing type», with remaining airplanes gradually leaving active service as time goes. The workhorse of the Soviet and then Russian air transportation system in not so distant past, with nearly a thousand copies built, the Tu-154 is now often seen as a morally and physically outdated machine. 

Aeroflot – Russian Airlines, GTK Rossiya and S7 Airlines have already withdrawn this type from service. UTair, one more of the top five Russian carriers, has also been replacing its Tupolev by Boeings. These carriers used to be ARZ411 customers, altogether operating nearly a hundred of the Tupolev trijets. The S7 Airlines grounded its Tu-154s in November 2008, together with another important Russian type, the Ilyushin Il-86 wide body quad, for the same reason: too high a fuel burn. «The western airplane are more expensive to buy, but their fuel burn is lower, which makes them more attractive for the airlines», Kochetov explained.

S7 Airlines started operating western jets in the middle of the past decade, first the Airbus A310 and the Boeing 737 Classics shortly after. Later on, the airline added more modern types, the Airbus A320 and Boeing 737 Next Generation, which now form the backbone of its fleet. When the S7 made principal decision to shift from Soviet to western types, it was at the same making decisions on their maintenance. It was decided to make use, as much as possible, of the specialists and facilities available in the home country. 

At first, the S7 used existing MRO facilities in the Tolmachevo airport of Novosibirsk to service the western types. These facilities were operated by Sibir Technik, a member in the S7 Group. But this was not enough, and the group leaders decided to create a brand new MRO company that would be based in a Moscow airport and serve S7 aircraft there. This led to foundation of S7 Engineering, which began operations on 21 January 2006. 

: We started with the 737 Classics line maintenance checks since our main customer, the Sibir (S7) airline was operating a number of such aircraft

«We started with the 737 Classics line maintenance checks since our main customer, the Sibir (S7) airline was operating a number of such aircraft», Kochetov recalls. Having mastered this type, the newly borne organization won a guaranteed order from the main customer. Later on, when the new business was set up and running, S7 Engineering subsequently mastered Airbus types, including A319, A320 and A321.

It is important to notice that S7 Engineering did not narrowly focused on a single manufacturer, as did Aeroflot MRO station (it mastered C-checks on the A310) or Domodedovo Technik (from start it has been Boeing-only). The time has proved the S7 strategy to be the right one: Aeroflot MRO business shrank as the airline has largely outsourced aircraft maintenance work to European MRO specialists, while East Line was losing the competition and finally chose to sell its MRO business out. 

At first, on financial considerations, the Russian carriers (with a single exception of Aeroflot) chose to take «very much used» western aircraft, and these often required a lot of attention by MRO mechanics and engineers. The A310 was one of such types, it was flying with Aeroflot (and its affiliates like Diamond Saha), S7 and – very briefly – with Transaero. Once running a fleet of six A310s, S7 has downsized it to one machine, - and that one will soon leave Russia, thus putting an end to the Russian career of the type. This career was pretty much controversial, but what was indeed achieved as the fact that the Russian mechanics became masters in their trade when working on the Airbus’ two-hundred seater. 

Rather liberal initially, the Russian lawmakers became more active recently and impose a ban on import of jetliners older than ten years. The law does not allow Russian carriers to add more aircraft like Airbus A310 and Boeing 737 Classics to their fleet, but they are allowed to operate those examples that had been imported before this law was imposed. The newer western types, including Airbus A320 and Boeing 737 Next Generation, seem to be safer and less demanding machines, while easier to maintain. Normally, A-check on the older 737 is performed four times more often than on the Next Generation. It is interesting to notice that, despite their image of being hart to maintain, the newly Russian aircraft require A-checks at 500 or 650 FH intervals, - in the case of the Ilyushin Il-96-400T and Antonov An-148. These figures are similar to those for the Airbus A320 family, for instance.  

The business of S7 Engineering grew together with the growing number of imported jetliners. Today, the company holds rights to perform line and base maintenance on the А310, А320 family, Boeing 737 300/400/500 family (the Classics), Boeing 737 600/700/800/900 family (the Next Generation) and the Boeing 767-200/300. Furthermore, albeit the A300-600 has never been operated by a Russian airline, the type was mastered by S7 Engineering in order to support a foreign operator flying into Russia. 

Today, the company has the following split of work: line maintenance 49%, base maintenance 23%, interior servicing 11%, decoding of the flight recorder information 7%, airframe and systems repair 4%, with the reminder made up by other activities. Most of the work is done «in the open», when aircraft are on the apron. On a typical day, S7 Engineering serves 90-100 inbound and outbound flights.

The main working site is that in the huge hangar in Domodedovo airport of Moscow, which is used for line and base maintenance, as well as repair work when the latter is needed on a malfunctioning aircraft. As of December 2010 (before S7 Group purchased Domodedovo Technik), S7 Engineering hired in the airport of Domodedovo 3,500 square meters of hangar space plus nearly 1,000 square meters in other roofed area for MRO activities, 1,500 square meters of office and warehouse space. 

Now, with the purchase of Domodedovo Technik, and its move under control of S7 Engineering management, Eugeny Kochetov is looking at ways how to merge the two companies without cutting job places. «In the end, there must be one MRO company in Domodedovo. We will save as many jobs as possible», Kochetov said. The merger is likely to be the biggest company in Domodedovo by the use of hanger space, - the merger will occupy the largest part of the huge Domodedovo hangar. 

Apart from Domodedovo, the company is also present in Pulkovo airport of St. Petersburg, where its branch serves flights of Taimyr airline and prepares to serve those of S7 Airlines and Globus, the latter also being member in the S7 Group. With three sites in different locations at hand, S7 Engineering is planning specialization for each, in order to optimize the company’s activities. 

: Our goal is to cover as much of the growing Russian MRO market as possible...

«Our goal is to cover as much of the growing Russian MRO market as possible. I take the view that all airplanes operated by Russian airlines must undergo maintenance in this country. The market is big and growing. To get a good part of it, we must prove that we are competent, and we can do the work right and at a good price. If we manage this, the airline customer will choose us». A large presence in Moscow Domodedovo, a popular destination for dozens of airlines, and skilled labor and facilities available cheaply in the Causasus Mineral Waters can prove a combination that is hard-to-beat for the competition. 

The existing customer base is rather large for a relatively young MRO company: S7 Airlines, Globus and Nord Star are the three airlines that contracted S7 Engineering for «Total Technical Support» package. Other customers (line and base maintenance) include Yamal, VIM-Avia, Orenburg Airlines, Urals Airlines, UTair, AviaNova, KogalymAvia, Moscowia, Sky Express, GTK Rossiya, Yakutia, Air Tatarstan, Moscow Airlines, RusLine, Nord Avia and Vladivostok Avia. Clients that sometimes apply for a service (work on apron) are Air Malta, Somon Air, Boeing Capital, Air Moldova, Iberia, Egypt Air, TAP (Portugal), Bulgar Air and Air Berlin.

Russia used to be a big MRO provider when hundreds of domestic airlines and aircraft operators in foreign countries operated few thousands airliners made in the Soviet Union. The Soviet fleet has much dwindled, and this reduced the customer base for Russian MRO specialists. Today, Russia is almost absent from the global MRO market that is estimated at 45 billion US dollars.

Now the Russians are trying to increase their share by mastering western types and offering high quality of work at relative low cost. Now, the airlines can order C-checks on their Boeings from three Russian organizations: S7 Engineering, Sibir Technik (in Novosibirsk) and VARZ-400 (Moscow Vnukovo airport). Competition is provided by Uzbekistani and Lithuanian MRO stations, and, certainly, by their European colleagues which are within the reach for most of the Russian carriers. 

From its foundation in 2006, S7 Engineering has been facing tough competition. But it not only managed to survive, but also grew in volumes of orders and productivity. Since 2007 its workforce grew from 420 people in 2007 to 917 employees as of late 2010. S7 Engineering is a success story and it may continue that way in the years to come.

 

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