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Mon 18 Feb 2008 04:00 AM

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Face off

Obaid Hableel, chairman and CEO of aircraft maintenance provider Hableel Aviation Group, on challenging the Middle East's MRO monopoly.

Obaid Hableel, chairman and CEO of aircraft maintenance provider Hableel Aviation Group, on challenging the Middle East's MRO monopoly.

How strong is the MRO industry in this region?

Hableel Aviation doesn’t want to be specific to any airline because we are not a flag carrier or national institution.

Each one hour flight costs around $1000 in MRO, so if you take the aircraft in the region and multiply it by 4000 hours, which is average hours per year, it gives you business.

Today, in the GCC maintenance, repair and overhaul is a $2.5 billion business. Normally 70% of this business is going to three or four specific entities outside the region.

In the meantime, we have the downside of this which involves sending the equipment to international agencies.

We have difficulties getting the components, equipment or engines back on time. We have to wait in a queue and it's first come, first serve. The whole process lasts nearly one year, so during this period the end-users are suffering delays.

This means they have to buy more engines and components, so it's all calculated to make people buy more equipment and wait. You are increasing demand on certain services that have limited supply, leading to higher prices and manipulating the market.

Ultimately, three to four users in this area have consistent pricing and vested interests. They also have political and national alliances, so lots of airlines have agreed strategic partnerships with these specific service providers.

If we have 1000 aircraft in the region, they are divided between four or five users and all of them already have partners in one form or another. They agree on pricing structure, so today the objective is to break the monopoly.

How will you break that monopoly?

We break it by providing better service and turnaround times. Our services are carried out in this region near the customers and they are directly involved in the repair processes.

They will make the decisions for the costing, making it faster and more efficient. If an invoice is sent across the continent you have no choice but to pay it whether you like it or not.

That will not be the case here. Price structuring takes into consideration transport costs and taxes, which are usually 15-20% higher outside this region.

If we can provide similar services for cheaper rates without the tax and transport costs we are providing one third of our rivals' costs.

So there are few MRO providers in the UAE?

Today, people are obliged to go outside the UAE because there is no alternative here. There are a few establishments here, including GAMCO (now ADAT). This institution was built to support Gulf Air and Tristars.

It was built as a base maintenance operation to carry out checks - it wasn't designed as an MRO. It was designed for aircraft which today is obsolete. The facility can support Tristars, with companies coming to GAMCO for maintenance.

They are highly skilled in Tristars but we are not in the Tristars age - we are in the A380 age. The A380 doesn't fit their hangars and they don't have the tools for them.

We have a big facility in this region, which is Emirates Engineering. It is highly advanced and very modern. It is designed for the A380. However, Emirates Engineering Services was designed to support it's in-house equipment, so the people in charge are doing a tremendous job to keep their fleet in the air.

They are also having difficulty supporting expansion. Every other day, Emirates is buying more aircraft but doesn't hire more people to support those additional planes.

How are you different to other providers in this region?

We support other airlines in the region. We don't want to be specific to any airline because we are not a flag carrier or national institution.

It gives us flexibility to provide effective and cost efficient price structures to the people who like to receive our service. Everybody in this region is lacking these services.

Which airlines do you work with?

I have three airlines committed to work with me and we are dealing jointly with them. For example, there is a need to offer these services in Ras Al Khaimah so we will go there and support our client.
I have committed customers with more than 250 aircraft in a couple of locations. I will not disclose who I am working with but we are partnering with airlines. Carriers should focus on the air travel miles and not MRO.

Which aircraft do you provide maintenance for?

In the GCC, MRO is a $2.5 billion business. Around 70% goes to outside entities.

We are geared up to do all Boeing and Airbus equipment. The difference between my approach and the 50 other people who would like to do MRO in this region is they don't have one aircraft in hand whereas I have 250.

I expect to have around 700 aircraft during the next 10 years. We want contracts to support those numbers. You can't do this for one or two aircraft. This market is driven by the customers and we have to be cost effective.

We need to be as good or better than the competition, while turnaround times have to be shorter than others.

When did you establish Hableel Aviation Group?

Hableel: This is a purpose built company and we have been in operation since 1974. We have been involved in several businesses but our aviation-related activities were launched in 1992 to offer aeronautical support.

I saw there was a need and we had been doing smaller activities related to airlines. This concept [carrying out MRO within the UAE] has faced resistance from certain people. The challenge here is overcoming industrial institutions that monopolise MRO services in this region.

They were capturing hundreds of millions of dollars and it is not in their interests to see a facility that can compete with them. I spoke to a particular airline and said ‘the company you're with has this price structure but if you come with me you will have these costs'.

That's how I managed to get 250 aircraft on board. I have made customers partners, so this is the difference between my service and other providers that operate outside the region. Competitors have tried to achieve partnerships with certain airlines and they have failed.

When a company wants to convince a customer that they are partners, it will say ‘we will come here and take all your spare parts, but we will not do it here - we will do it in another country'. But I'm working here in our clients' home town, which is the difference.

So there aren't many flexible MRO providers in this region?

From the time I started the MRO operation in 2003, people became aware of maintenance, repair and overhaul and before that you wouldn't hear about it.

Having said that, several financial, technical and unrelated institutions have made approaches to different parties around the world to partner with them.

There are 20 institutions that want to set up MRO operations here, many of which are related to big names and families or linked with political umbrellas. But the difficulty is they have to call consultants who only help if you put good questions to them.

If you are a banker and want to ask such a question, you ring a consultant and tell him to set up a MRO for you. But MRO is a huge industry - it's a $40 billion business. It applies to several components and aircraft.

A plane normally has 20,000 components meaning you need 20,000 facilities to cover the whole range.

What MRO services do you offer?

We have people across the world covering the specifics we require. If you want to launch a shoe factory you need to produce a minimum number of shoes each day to be viable and this is the same thing.

For smaller networks or satellite stations, it is possible to generate business here because there are adequate numbers of components going through. For other components, it's not possible.

The landing gear is one of these because it usually takes 10 years before it needs replacing and you have to wait that long. That's why Goodrich closed its landing gear facility. We have selected high movement items like components, engines and electronics to avoid this problem.

They break frequently and have calendar and operating lives. For some, the operating life is shorter, so we select the ones with shorter lives that come back and need servicing more regularly.

Goodrich is an original equipment manufacturer that, like us, offers better and cheaper labour. The company has also reduced its outsourcing by carrying out MRO here.

Apart from quicker turnaround times, what other benefits are there to carrying out MRO in the Middle East?

In the last five years oil prices have increased by five times. That immediately influences the transportation cost, so instead of sending equipment one dollar per kilo it's now five dollars per kilo.

If you had a contract signed five years ago you can't meet the same price structure, so you need to be here to reduce costs and honour that agreement. A lot of companies are trying to come here but they are having difficultly breaking into the market.

The monopoly can be fought two ways; by either restricting the customer from going elsewhere or restructuring prices. We have proper measures in place to address these variables in a political and strategic manner to ensure the customers and OEMs are happy.

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