With the nation's commercial airline business in a virtual free fall due to the COVID-19 pandemic, Duluth aircraft mechanics could see some lean times ahead.
Since 2012, AAR Corp. has operated a maintenance, repair and operations facility in Duluth out of a massive building that was formerly home to a team of mechanics employed by Northwest Airlines. In aviation parlance, such a facility is commonly called an MRO. As of last summer, AAR employed about 340 people at its Duluth base.
Although AAR representatives have not responded to questions from the News Tribune, the company's president and CEO, John Holmes, told analysts during an earnings call last week that the MROs it operates can expect significant turbulence in the coming months.
"We expect a sizable impact to our commercial airline business as a result of the decrease in commercial air traffic," Holmes said, concurring with an analyst's estimate that airlines will probably continue to experience a 70% to 80% decline in business until fear of the coronavirus wanes.
"In order to proactively address the anticipated impact of COVID-19, we are taking steps to ensure that costs remain aligned with the decreasing demand," Holmes said, detailing some of those measures, including "a hiring freeze, reducing or eliminating all nonessential spending, reducing executive compensation, furloughs and unfortunately, reductions in our workforce."
But Holmes expressed hopes those cuts could be softened, telling analysts: "We've been in a dialogue with the government about potential aid to preserve our workforce."
The company has been working actively in conjunction with Lake Superior College to increase the number of certified aircraft mechanics in the Northland.
"We want to make sure that to the extent that there is a decrease in demand and technicians are let go from various companies, including ours, that as other industries recover faster than aviation might we don't lose those technicians to other industries, and we want to make sure that we preserve that heavy maintenance capability in particular in America," Holmes said.
The stock market has recognized the challenges AAR confronts, with company's share price tumbling 60% from February to the end of March.
As federal authorities consider how to help the aviation industry through this difficult period, Holmes said: "A bailout or aid package needs to address more than just the airlines. It needs to address the broader aviation services industry, because companies like ours, particularly around heavy maintenance, are a vital link in keeping the aircraft in the United States flying."
Other players in the MRO industry also have been lobbying for government aid. A March 17 letter from the Aeronautical Repair Station Association to the Trump administration and to congressional leaders said: "Our industry has long been suffering from a severe and well-documented technician shortage and maintaining a highly trained workforce is critical to ensuring the long-term stability of the entire U.S. aviation sector."
AAR operates five MROs in the U.S. and two in Canada.
"Right now, we have a fair amount of work in the hangars. They're largely full, but we anticipate a meaningful decline in that work as we head toward the summer," Holmes said.
There could be winners and losers as AAR restructures. Holmes talked about the likely prospect of "consolidating facilities to further reduce costs."
However, the chances of AAR pulling out of Duluth to potentially consolidate work elsewhere may be diminished by a 20-year lease agreement the company signed last summer with the Duluth Economic Development Authority, which owns the facility.