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Good morning! It's Thursday, December 21st. Delta Airlines has been investing big into TechOps, a repair shop that generates $1B a year and is now the key to Delta’s competitive edge.

THE FEATURE

Delta's High-Flying Side Hustle: $1B in Aircraft Maintenance

Delta Airlines is the world's largest airline by revenue and market cap.

It's no surprise that Delta generates the vast majority of its $50.6B in annual revenue from flying people across the globe. However, one of its ancillary businesses has seen exponential growth in recent years. 

Delta TechOps is a full-service aircraft maintenance provider that makes ~$1B annually and is projected to hit $5B in revenue in the next few years!

So, What's the Business?

Delta TechOps opened in 1960 and exclusively serviced Delta Air Line's fleet of 79 aircraft and 9 jets. 

It was only in 1983 that TechOps began renting shop space out for third-party repairs, and it took another decade for its third-party business to account for 25% of the shop's workload. 

But in 2019, Delta invested big into TechOps with $100M in funding for a 150,000-lb thrust test cell. This made big headlines as it is the world's largest engine test cell, making TechOps the best-equipped aircraft maintenance center. 

It's no coincidence that 2019 was also the first year that TechOps did more third-party engine maintenance, repair, and overhaul work than they did for Delta engines (they weren't just renting out shop space anymore). 

Delta's COO, John Laughter, hasn't detailed the margins and profitability of the TechOps business, but we can assume it's very lucrative. The maintenance, repair, and overhaul (MRO) business is known for having high margins because it involves high-tech repairs done by specialized technicians and requires extensive time and investment— which lets Delta charge hefty fees for TechOps' work.

In 2018, TechOps' revenue was $700M. After building the thrust test cell in 2019, revenue increased to $800M. Today, TechOps generates approximately $1B, and Delta has clear plans to quickly grow to $5B a year through further investments and expansions. 

 The Innovation: Partner with Original Equipment Manufacturers

Any third-party aircraft sent to TechOps is worked on by TechOps technicians. This is unusual because independent shops are usually not permitted to work on aircraft engines designed by other companies. However, since TechOps has possibly the world's best MRO shop, manufacturers are now partnering with them.

Delta now has 25-year MRO contracts with original equipment manufacturers (OEMs) like Pratt & Whitney, GE Aerospace, and Rolls-Royce.

How They Win: Get Your Competitors to Pay You

Pratt & Whitney, GE Aerospace, and Rolls-Royce are the world's top three aircraft engine manufacturers. 

As such, TechOPs OEM partnerships have put Delta in an enviable position among competing airlines. Who makes Jet Blue's engines? Pratt & Whitney. Who makes Southwest's engines? GE Aerospace. So, when competitors need repairs on their aircraft fleet, their only choice is to turn to Delta's TechOps and pay their hefty fees. 

Key Observation

Delta Airlines is the world's largest airline, but industry titans are prone to stagnation and decline if they don't find a competitive edge.

Delta rose to the top, invested resources to create a world-class aircraft repair shop, and partnered with OEMs to force competitors to use it.

Although TechOps is still considered an ancillary business for Delta, its importance can't be overstated. It's created an additional revenue stream for the company that's fueled by its competitors, which is quite the trick to pull off.

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