Lufthansa spends on sharkskin patches

Bloomberg

Deutsche Lufthansa AG’s plane-servicing business, the German airline’s most profitable unit, is more than quadrupling research and development spending to shore up its dwindling market share and fading margins.
The Lufthansa Technik maintenance, repair and overhaul division is in the middle of a 200 million-euro (US$221 million), five-year R&D program that’s come up with products such as sharkskin-like fuselage patches that improve aerodynamics and lower fuel costs, and using three-dimensional printing to make cheaper tools. Spending in the next budget period will be “clearly above” current figures, Helge Sachs, head of the 100-employee R&D team, said.
Lufthansa Technik’s top rank in the industry is at risk as its market share erodes and profitability is under pressure.
New competitors are emerging as aircraft and engine manufacturers push into services, while improved jet performance has reduced maintenance needs and a switch to making planes from composite materials instead of aluminum requires new technology for repair work.
The R&D unit is tapping into the division’s day-to-day operations to come up with cost-saving internal processes.
as well as products to offer other airlines, Sachs said.

“Up to 20 percent of expenses to operate an aircraft come from maintenance, repair and overhaul,” the executive said at the unit’s facilities in Hamburg. “We look after almost 3,800 planes. That’s a treasure chest of data that we will harvest more and more.”

The division has a target of increasing annual revenue 60 percent to $8 billion in the five years through 2018, with Asia, the Middle East and North America each contributing about $1 billion in growth. Its operating profit as a proportion of sales narrowed to 8.1 percent in 2015 from 9.7 percent in 2013, in contrast to the passenger unit’s margin more than doubling to 5.2 percent. Lufthansa Technik estimates its global market share has shrunk, to 8 percent last year from 13 percent in 2009.

Lufthansa Chief Executive Officer Carsten Spohr outlined a goal this week for the division to cut 70 million euros from administrative expenses by 2018, part of a group earnings-improvement drive also affecting the cargo and catering units. At least 700 jobs at the engine-repair business are at risk as Lufthansa considers where to maintain the planned Leap engine for Airbus Group SE’s A320neo aircraft.

The R&D unit was set up two years ago, combining about 10 million euros of projects previously scattered across Lufthansa Technik. It’s looking for at least 50 percent of its concepts to become commercially viable, with seven in 10 of those probably staying in-house and the rest sold to customers, Sachs said. Areas of focus will include techniques to fix an engine without removing it from the wing, and “predictive” maintenance, which uses data analysis to monitor plane parts so they can be replaced before they stop working, Sachs said.

“How to get aircraft to ‘talk’ is currently one of the most intriguing topics in the industry,” Sachs said. “Pinpoint repairs will allow service providers to dramatically reduce costs: their own, and those of their customers.”