Air NZ proposes outsourcing engineering services

Air New Zealand proposes outsourcing some engineering services

19 October 2005

Air New Zealand has today announced a proposal to outsource heavy maintenance on its long haul aircraft and engines.

Under the proposal Air New Zealand Engineering Services (ANZES) would outsource heavy maintenance of the airline's long haul fleet of Boeing 747s and 767s as well as the new Boeing 777s, which start arriving at the end of this month. It would also outsource maintenance of the engines that power these aircraft. This work would be outsourced to a specialist, large scale maintenance centre in Asia or Europe.

Under the proposal around 600 jobs could be disestablished, mostly in Auckland. ANZES currently employs a total of 2,100 staff in Auckland and Christchurch.

Air New Zealand Group General Manager Ventures Craig Sinclair said the global aviation market has undergone rapid change in the past three years.

"Maintenance, repair and overhaul (MRO) for long-haul aircraft is now dominated by large scale international maintenance providers, who through their size can achieve more competitive cost structures. Add to this their proximity to key customers and, for some, the benefits of operating in low-cost Asian economies, and our current small scale, remote operation simply cannot compete," Mr Sinclair said.

"An exhaustive review has established that this situation will not improve as ANZES is facing declining volumes of work from Air New Zealand and has been unable to secure any committed, long-term external customers for either wide body heavy maintenance or wide body engine maintenance," he said.

"The proposal to outsource wide body heavy maintenance and engine maintenance would save $100 million over five years, compared to ANZES continuing with the status quo."

Mr Sinclair said increasing cost pressure on ANZES was masked in 2002 and 2003 by some temporary contracts with QANTAS and the relatively low New Zealand dollar. QANTAS is no longer a wide body aircraft maintenance customer and the New Zealand dollar has risen sharply.

"Compounding this, our internal requirement is declining and new generations of long-haul aircraft coming into service require substantially less maintenance over the aircraft lifetime. As a result ANZES cannot operate a viable heavy maintenance programme solely based on Air New Zealand's future fleet. In fact, it would have to attract a substantial amount of work from offshore in order to be viable - which would put us head-to-head with the large-scale operators that can match ANZES' quality and surpass it in terms of cost and turnaround time," he said.

A defined consultation process involving unions and staff will take place over the next two months with the final decision to be announced on 19 December 2005.

Mr Sinclair said an open and transparent approach is being taken by the company.

"Unions and staff will have the opportunity to examine all the pertinent information and we welcome alternative proposals that may result in fewer job losses or the retention of more work in New Zealand.

"ANZES has consistently provided excellent service to the airline and enjoys the confidence of the public and airline management for its quality of workmanship and commitment to safe practice."

Mr Sinclair said the company recognised the announcement would be unsettling for ANZES staff and their families and would provide support should the proposal go ahead.

Mr Sinclair and ANZES General Manager Chris Nassenstein are meeting with ANZES staff in Auckland and Christchurch over the next few days to discuss the proposal.

Air New Zealand and ANZES each have a number of other significant investments in their engineering portfolios, which are not affected by the proposal. These include

* the narrow body aircraft maintenance business in Christchurch

* the military and marine and industrial engine maintenance capability in Auckland

* the Christchurch Engine Centre (a joint venture with Pratt & Whitney)

* Safe Air, based in Blenheim

* Australian-based Tasman Aviation Enterprises.

Note: Air New Zealand Chairman John Palmer, Chief Executive Officer Rob Fyfe and Mr Sinclair will be available to discuss today's announcement at a media conference at 3.15pm following the company's Annual Shareholders Meeting at Sky City Conference Centre in Auckland.

ENDS

Editor's Notes:

Air New Zealand Engineering Services (ANZES) is the largest engineering business within the Air New Zealand Group, supplying aircraft, engine and component maintenance, repair and overhaul (MRO) services and associated technical design and fleet management to commercial and military customers in New Zealand and overseas.

Glossary of terms

* Maintenance, Repair and Overhaul (MRO): An MRO is an organisation that provides comprehensive maintenance, repair and overhaul services and associated planning and technical support, usually encompassing work on airframes, engines and components.

* Wide-body aircraft: An aircraft with two aisles e.g. 747, 767, 777.

* Narrow body aircraft: An aircraft with a single aisle e.g. 737, A320.

* Heavy maintenance: Detailed maintenance that requires an aircraft to be worked on in a hangar, and to be out of service for more than two days. Heavy maintenance work varies in scope but is usually classified as either a C or D check. C checks are scheduled every 12 to 18 months, while D checks occur every five to six years.

* Light maintenance: Maintenance accomplished in less than 48 hours, including maintenance done overnight. Often referred to as A checks, which are scheduled every four to six weeks.

* Line maintenance: Basic maintenance conducted at an airport terminal/gate between flights or overnight to ensure an aircraft is airworthy. Also known as turn maintenance.

* Airframe: The body/fuselage of an aircraft.

* Aero engines: Engines that power aircraft.

* Marine and Industrial (M & I) engines: Engines used to power boats or used for industrial purposes.

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