Delta Air Lines is looking to bring in $1 billion over the next few years by taking competitors' planes under its wing.
The carrier has quietly expanded its maintenance, repair and overhaul division to the Minneapolis-St. Paul International Airport, where it repairs rivals' aircraft in addition to its own. The business, which started at its Atlanta hub in 1999, pulled in $500 million in revenue last year. Delta is aiming to grow that to $1 billion in three to four years.
"It makes sense for Delta," said Basili Alukos, an equity analyst with Morningstar. "Given how many aircraft are out there and how many are used, there's going to be an increasing demand for maintenance."
Delta mechanics currently service planes for Sun Country Airlines, Hawaiian Airlines and North American Airlines at Delta's three hangars at MSP. In Atlanta, it does repairs for several other carriers, as well as private and military jets. Delta also does some on-call work, in which it sends mechanics to other locations where planes need service.
Delta is beefing up its maintenance division at a time when airlines are struggling with soaring jet fuel costs and high wages. Analysts say such services provide Delta with a way to grow its revenue without raising ticket prices. The business, which expanded to MSP earlier this year, also helps Delta use the space and employees it acquired when it purchased Northwest Airlines in 2008.
"Rather than lay off employees ... they create synergies," said Bob Herbst, founder of AirlineFinancials.com, which provides industry data and analysis. "Basically, it creates jobs and generates revenues."
Delta said MSP airport is "a key part" of its strategy to grow its maintenance business, which employs 700 locally.
Delta spokeswoman Ashley Black said no new employees were hired at MSP as a result of its maintenance business, but the airline said it may adjust staffing if demand increases.
We "continue to look for opportunities to leverage our people's skills as well as our facility as it makes the most sense for our customers," Black said.
The maintenance business at MSP was started primarily to fix Delta planes because the company wanted its Atlanta hub to expand maintenance and repair services to outside carriers. But as the division grew, Delta had to send some of that third-party work to MSP.
Analysts say the business is a growth opportunity for Delta because smaller air carriers usually don't have their own maintenance services; it's expensive to run a repair facility and hire skilled maintenance workers. In the past, airlines have gone to places like South America and China for maintenance, but as fuel costs have risen, it's cheaper for carriers to get their planes serviced in the United States, Herbst said.
"By letting us do their maintenance work, they focus on their core business: flying people," Delta's Black said.
Carriers like the service
Hawaiian Airlines says it saves millions annually by using Delta's services in Atlanta and the Twin Cities.
"If we were to do it ourselves, the capital investment in the new facilities, tooling and measuring equipment would be large, and so working with a partner like Delta lets us avoid these high capital costs," said Keoni Wagner, Hawaiian Airlines spokesman.
The maintenance can be especially crucial to carriers such as North American Airlines, which has only nine planes in its fleet.
"As a charter airline, we can't have our planes sitting on the ground for very long," said North American spokesman Steve Forsyth.
Other carriers, such as American Airlines, also repair third-party jets. But American Airlines spokeswoman Andrea Huguely said the company's primary focus has been maintaining its own aircraft.
Delta plans to expand its maintenance services to Detroit and has asked the Federal Aviation Administration for permission to do so, Black said.
The airline has also entered into an alliance with Aeromexico to invest in a maintenance facility in Mexico that will open in the third quarter of 2013. That facility will provide repair work for Aeromexico and Delta as well as third-party airlines, Delta said.
Black said the partnerships show how Delta is looking at creative opportunities.
"We can no longer rely solely on organic growth," Black said.
Wendy Lee • 612-673-1712