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Company of the year Magnetic MRO sold to Guangzhou Hangxin Aviation Technology

Chinese company Guangzhou Hangxin Aviation Technology will acquire 100 per cent of the Estonian aircraft maintenance company Magnetic MRO for € 43 million.

The deal will be finalized by the end of March when the parties have fulfilled all regulative requirements.

Estonia’s company of the year

In 2017 Magnetic MRO received the Estonia’s company of the year and exporter of the year awards. The aircraft maintenance company services large aviation companies from Europe and even from Africa. Today the company’s market share is tiny, but they are hungry for more.

Brussels Airlines, airBaltic, Austrian Airlines, Thomas Cook, FedEx − those are just some examples of companies that have their aircrafts serviced in Estonia at the modern hangars of Magnetic MRO. Maintenance is not only limited to checking tire pressure and oil exchange. Aircrafts are disassembled here down to the smallest details and the base maintenance of a plane can take several months. The company is based in massive hangars at the Tallinn Airport. Their new hangar, specially built for painting aircraft, was opened in November this year. It is fully booked for the next six months.

In 1991, Estonian Air − the first national airline in Estonia − was established. The company needed someone to take care of the maintenance of their Boeing aircraft and hence established its own maintenance unit. For some years Estonian Air was under Maersk and SAS, the latter of which also had its aircraft serviced in Tallinn due to lower labour costs.

In 2010, the maintenance unit went under the ownership of the venture capital company BaltCap which, since 2014, has carried the name Magnetic MRO. It was a period of large-scale change. Estonia was no longer the land of cheap labour.

Much more than a maintenance company

Risto Mäeots, CEO of Magnetic MRO says that Baltcap’s entry changed the rules of the game. In 2014, the company added the sales of engines and spare parts into its portfolio in addition to base maintenance. Today, the engine branch has become the largest part of business for Magnetic MRO, generating profits in the region of 25 million euros this year. Aircraft maintenance makes up 17 million of the turnover and so does the sales of spare parts. Aircraft spare parts are sold in 36 different countries.

“Aviation companies spend 75 billion euros a year on maintenance, in order to keep planes flying and to purchase spare parts. It is a growing business and in a decade, it will be worth 109 billion euros,” says Mäeots.

Magnetic MRO’s share of this market is only 0.01 percent today. Yet the company’s annual turnover this year is over 70 million euros. They have set their minds on the aim of getting a larger piece of the pie. By 2020, the company’s turnover should reach 140 million euros.

“Our current share is so small that we would not be worth much if we didn’t grow,” says Mäeots. According to him their average competitors are just that, average, and their customer service of secondary quality.

Building trust

In order to have premium class airlines bring their aircraft into maintenance with your team for months means a lot of hard work. In the case of Estonia, it also means getting rid of some prejudices. We are a former Soviet country after all. For example, Estonians have been asked what kind of garage they do their work from.

A breakthrough came when customers began to visit on location and witnessed professional work with the latest technology in place. The Estonian company started to get more procurements; airlines gave test jobs. Today, Magnetic MRO is a recognised name in its field. The company’s selling point is not cheap prices, but the quality and price ratio as well as work performed to deadlines.

“We are not about making big talk about delivering in ten days. We are realistic and clients appreciate that. The topping on the cake is Estonia’s reputation for being innovative. Average maintenance companies are actually lagging behind in comparison,” says Mäeots.

Old, big aircraft maintenance companies have mostly grown out of aviation companies with a long history. In comparison to them, Magnetic MRO is more flexible and modern. For example, it is possible to print plastic 3D aircraft details, if necessary. The tools are equipped with microchips that show who is using what and this, for example, eliminates the chance that someone forgets the tools inside a plane.

Aviation is not like the world of automobiles where an Audi service provider can also repair an Opel for instance. The aviation industry is much more strictly regulated. In order to add new types of aircraft into the maintenance portfolio, each technician and company needs to have the appropriate license.

“One needs to have a critical mass of customers within the distance of a two to two-and-a-half-hour flight and one needs to consider the types of their aircraft. We are focusing on Boeing 737 and Airbus 320 families,” says Mäeots.

At the same, time he admits that there are changes going on globally, to do with the optimisation of seats and fuel expenditure. This has led to the development of Embraer and Bombardier and also ATR. Hence, Magnetic MRO is constantly carrying out analysis on where next to invest. This is a strategically pivotal decision.

The Estonian airline Nordica is operating Bombardier and ATR. Therefore, Magnetic can only offer them line maintenance and not base maintenance.

Maintenance matters

What is the difference between the two types of maintenance? Mäeots brings a parallel with cars. Line maintenance is like a car owner checking out the car in the morning, looking at the tires, lights and wipers. It is the daily operative maintenance done when airplanes make their regular stops.

The base maintenance of an aircraft, however, is comparable to a car’s annual check-up. In aviation, one counts flying hours and landings, whilst also checking the calendar. After every year and a half, an airplane is brought to large-scale maintenance and disassembled into details. Depending on the age of the airplane the volume of work varies from a week to a month. Just like in the world of car maintenance, aircraft producers have identified what exactly needs to be checked.

Aircraft maintenance is a very sensitive field. A lot of data and business secrets move around here. Mäeots admits that this makes the work much more complicated. The responsibility is higher. Every detail, change and activity on that detail is recorded.

Today it is fortunately all carried out electronically, albeit there is still a lot of paperwork. Magnetic MRO also helps to facilitate aircraft ownership changes, which need a documented history of the iron birds.

Without the paperwork or electronic history, an airplane is just a pile of metal. One is not allowed to fly such a plane and nobody can tell whether it is safe or not. The documentation is worth tens of millions of euros.

Helping Africa

The competition in aircraft maintenance is huge in Europe because of the seasonal nature of the business − people tend to travel more in summer and airplanes need to be flying. This is the reason behind Magnetic MRO’s decision to enter the African market. It is not a region for everyone. Mäeots admits that there are many prejudices about the dark continent and the media tends to emphasize the negative. The reality is different.

Magnetic MRO’s main partner country in Africa is Nigeria where they are currently collaborating with four aviation companies.

“The history of continuous catastrophes has changed Nigerian aviation companies. It is forbidden to bring airplanes older than 20 years into the country. Such strict rules don’t even exist in Europe; Boeing 737 Classics from 1995-96 are a standard phenomenon here,” says Mäeots.

He believes that in ten to twenty years we will see incredible growth in Africa, similar to Asia today. Soon the company’s delegation will travel to Ethiopia, home to probably the best airline on the continent − Ethiopian Airlines, which also has a Boeing 787 Dreamliner − even rare in Europe − in its airplane park.

“Of course there are various crises in Africa and you need to be able to manage the clients. Use advance payments and such like. We have already established who we can do business with and who not,” explains Mäeots.

These days the maintenance of Nigerian airplanes takes place in Tallinn. The company understands that the African market is changing. Today, they don’t have a single maintenance hangar, but this will change in the near future. It will then make no sense for African companies to fly for six hours to Europe. At the moment they don’t have a choice.

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