Chinese CFM56 overhaul capacity could rise sixfold in the next few years.

A rush of new and expanded CFM56 overhaul shops in China planned for the next several years is likely to leave the country with more capacity than even its burgeoning engine population needs.

Executives involved in the expansion are looking more closely at getting work from abroad, opening a new phase in China's move into the international aerospace market. Experience suggests that they could be quite competitive.

Three companies have revealed plans and now a fourth, Sichuan Snecma Aero-Engine Maintenance, will join in the sudden craze for adding Chinese capacity to overhaul CFM International CFM56 engines used on Boeing 737 and Airbus A320 family aircraft.

If the stated plans of all four companies eventuate, then Chinese capacity to repair and overhaul CFM56s should rise sixfold in the next five years or so to perhaps 900 shop visits annually. The current two shops are handling about 150 a year amid what two senior managers call a rough balance of supply and demand. Airline fleet growth, meanwhile, suggests that Chinese demand for CFM56 work will only about double in the same period.

Admittedly, some or all of the players could fail to meet their capacity targets. It won't be easy to ramp up as quickly as some of them project, not least because mechanics will be hard to find. But even assuming that companies broadly miss targets, it is hard to avoid the conclusion that within a few years China will be able to handle considerably more CFM56 shop visits than its own airlines need.

The biggest current operator in the field is MTU Maintenance Zhuhai, whose capacity is some 200 shop visits a year. Probably only about half of those engines are CFM56s, since the facility also works on IAE V2500 engines. The profitable five-year-old operation at Zhuhai in southern China will launch an expansion in 2009 or 2010 that could lift capacity as far as 350 engines a year with only marginal additions to its plant and workforce (AW&ST Oct. 15, 2007, p. 58).

"To keep up with demand, we definitely have to expand," says Holger Sindemann, the new chief executive of the company, which is jointly owned by MTU Aero Engines and China Southern Airlines, its main customer.

Sindemann is not the only one eyeing the rising demand, however.

Sichuan Snecma will expand after it is converted from a partnership between Snecma and Air China into one between CFM (40%) and Air China (60%), says Mike Wilking, GE Aviation's president for the China region. The plant can now handle only 50 engines a year, and more capacity will be needed immediately after the reorganization, says Wilking. Then it will need to grow again within a few years.

"With the growth in the market in China and Asia, by five years from now that shop will need to do several hundred shop visits per year," he says. "We're not going to grow that facility too fast," he adds. "We're going to match it with demand."

Meanwhile, two new operators are planning to enter the market. Pratt & Whitney is setting up a CFM56 overhaul shop with a capacity of 250-300 engines a year in partnership with the third main Chinese airline, China Eastern, in Shanghai (AW&ST Jan. 7, p. 55). Construction began last October, and the first engine is scheduled to arrive by the end of this year. James Guiliano, the Pratt & Whitney executive responsible for the plant, says the company is sticking by its plans.

Singapore Technologies Aerospace will build yet another CFM56 shop at Xiamen in southeastern China. The company wonýýýt divulge the plant's capacity, but ST Aerospace President Tay Kok Khiang says it will eventually have 350 employees--a figure that suggests perhaps 150-200 shop visits a year, depending on how much component repair work is sent back to Singapore.

The Singaporean company is the only one of the four without a big airline as a partner in China. Tay says he's eyeing the potential market for budget carriers.

Planning, including finalization of the building design, is underway, with a target for breaking ground on the site by year-end and commencement of operations next year, ST Aerospace says.

SR Technics, meanwhile, is looking for a site for the Asian maintenance facility that it would like to set up. One industry executive familiar with the company's approach says that a CFM56 overhaul plant in China is a possibility for SR Technics.

Another industry executive says upcoming engine decisions for A320 family aircraft will help determine whether China can feed all of these CFM56 overhaul shops in the long term. And, he notes, France hasn't been too popular in China since the French government and thousands of French protestors objected loudly to Beijing's response to Tibetan riots in March. That could encourage China to favor International Aero Engines, which is mostly Anglo-American, rather than the Franco-American CFM International.

If so, export orders for the overhaul shops will become even more important, says that executive, who notes that industry leaders involved in China are already thinking that way.

MTU Zhuhai's Sindemann certainly is. "One challenge is for sure, and that is the upcoming competition," he says, while adding that he likes the position that he has inherited from his predecessor, Walter Strakosch.

"We are definitely one step ahead," says Sindemann. "We established our joint venture seven years ago, we have an established relationship with the biggest Chinese carrier, and we have already managed to overhaul 500 engines."

While confident of his domestic position, Sindemann adds: "The way forward for this facility is to go international. We have already done shop visits for several airlines outside of our region, such as North and South American airlines."

And the competitiveness will be based on quality of performance, not merely price.

GE's Wilking also says Chinese engine overhaul facilities are quite capable of competing on quality.

Ameco Beijing, which works on PW4000-94 and Rolls-Royce RB211-535 engines, already earns 20-30% of its overhaul revenue from foreign customers.

MTU Zhuhai's experience, too, suggests that Chinese CFM56 shops should be competitive internationally. Although labor is only a small part of engine overhaul costs, every little saving helps in winning a contract--and Chinese mechanics' wages are still only a fraction of those in many other countries.

An executive at one of the companies reckons that wage rates will give his shop in China an advantage for at least a decade, and possibly two.

Moreover, the low productivity normally associated with low wages isn't appearing in the Chinese engine overhaul industry. MTU Zhuhai is already spending about the same number of worker hours on each overhaul as is its sister plant in Hannover, Germany.

One Chinese engine-maintenance executive thinks Chinese mechanics can exceed Western productivity rates simply because they work harder. He says in visits to Western engine shops he got the impression that much less work was going on than he'd expect to see in China.

But, however industrious the Chinese mechanics may be, they are also scarce. And the expansion of overhaul capacity will require many hundreds of them.

"It is very difficult to get mechanics that have worked more than 1-2 years," says Sindemann. "It is more or less impossible."

The companies can train fresh recruits from the technical schools, of course--and then hope that they don't jump ship after a couple of years and take their increasingly salable CFM56 skills to a rival shop.