Christopher Doan, vice president, Oliver Wyman
Every 30 to 35 years the aviation industry introduces new technology for the airline and MRO business that disrupts the status quo. We have begun a new cycle of disruptive change with the introduction of new generation intelligent, composite aircraft. Not only does this new generation offer longer maintenance intervals and repair challenges, it ushers in big data capable of supporting health monitoring and prognostics. In the year ahead, MROs will focus a great deal of attention on effectively dealing with the new technology.
Consolidation in the MRO segment was robust in 2015 as scale and global presence become increasing important. This trend will continue in 2016 as the aviation industry anticipates healthy growth in the next decade.
OEMs continue to increase their presence in the aftermarket and take market share from established, independent MROs. The sheer number of new aircraft deliveries (more than 1600 in 2015) is accelerating OEM growth. Small MROs particularly are feeling the squeeze, as OEMs maintain a firm grip on the newer technology and the older technology components retire with the increase in parked aircraft. The year ahead will pose a growing problem for owners of small MRO businesses.
Dave Marcontell, vice-president, Oliver Wyman
While many OEMs are doing very well as a result of the elevated production and delivery levels, their aftermarket groups are starting to feel some pain. Our discussions with OEM executives responsible for aftermarket, and their earnings releases, show that aftermarket sales projections are down -- way down in some cases -- because airline customers are increasingly willing to turn to used serviceable materials and parts pooling solutions instead of buying new parts for their exclusive use. Of course, the industry has always used surplus parts, but the acceptance of using USM has never been broader or deeper.
I expect this will strengthen the independent integrators, who are now focusing on life cycle support, from cradle to grave. OEMs will naturally resist this encroachment, using their traditional strengths of pricing and access to repair and maintenance data, but time, competition, and relentless pressure from operators are on the side of the integrators.
Jonas Butautis, CEO, Magnetic MRO
2015 was a great year for Magnetic MRO. Our newly defined Total Technical Care strategy delivered first strong results, adding 100 percent year on year organic revenue growth for Magnetic MRO. We are thrilled and encouraged by the warm reception of our expanded product range and no-nonsense customer focus by our long standing and new customers.
So although there is a general positive sentiment within MRO industry globally, Magnetic MRO goal is to continuously outperform industry peers through focused execution of our strategic direction.
This year we also saw key industry macro-trends develop even further: OEMs becoming even more active in the aftermarket, capital intensive MRO services locking out independent MROs from new generation technologies, IT becoming centrepiece of any efficient new MRO service.
Magnetic MRO is fully aware of industry macro trends and emerging challenges, but we do not allow them to determine our future. On the contrary, we look at them as opportunities to find our position in this fast changing, exciting, dynamic industry. In a few areas, such as 3D printing, IT development, OEM partnerships, we plan to lead the way. We believe 2016 will be another great year for our company, a year of growth and further development at Magnetic MRO.
Johannes Bussmann, chairman of the Executive Board, Lufthansa Technik
Despite the fact that fuel prices in 2015 have been stable on low-level and flight traffic has increased, many airlines are still under financial pressure and are continuing their efforts to lower costs. The entry-into-service of the A350 has been the latest milestone of the arrival of a new generation aircraft. Together with the A380, 747-8, 787, and soon the A320neo or the 737max, it will replace more and more mature and maintenance intensive aircraft types. Surplus material from phased-out older aircraft is increasingly used by airlines, influencing the repair business of MRO providers.
For the future I see a further increase of competition and consolidation in the MRO market. Due to IP rights and long-lasting service contracts which are sold to the customers together with the aircraft and engines right from the beginning, OEMs will try to dominate the aftersales market for the new aircraft generations. The other MRO providers will have to find new business models and also new ways in their relationship with the OEMs to survive in the long-term.
They have to invest significantly into their workforce, processes, structures, IT, spare parts and toolings to be prepared for the new aircraft generations. This is what Lufthansa Technik is doing. We are investing heavily in the period from 2015 until 2018 to be prepared for these challenges and new trends. Digitalization, big data management and automatization will be some of them in the MRO industry in the next years. Only innovative and flexible MRO providers will be able to follow them and to stay successfully in the market.
Richard Mumford, Partner, Stevens & Bolton LLP
As 2015 draws to a close, it is as well to look at what the year has been like in aviation. It has been a strange year in many respects. It has been a year in which some of the more tangential banks have looked at dipping toes back into the market, only to find that a plethora of alternative financing options have flooded the void that they left after 2008. The market has gone from being difficult due to a lack of finance to being difficult because there is too much finance in some areas.
A wave of cash has brought with it a hunger for deals that have made it a good year to sell mature assets, but a difficult year for prudent buyers. Some of these deals will struggle to make a return for investors, and that may bring with them another overhang of book value issues, the effects of which are still being felt from the recession and which have made trading conditions more difficult. However, the feeling appears to be that this will take some time to shake through and so 2016 may continue in a similar vein.
2015 may well also have seen the beginnings of the next wave of difficult transitions in the twin aisle market following the problems faced with the A340 fleet over the past couple of years. Even with two engines to maintain, the generation of Boeing 777 aircraft that will likely seek refuge in the secondary market apparently face significant turbulence.
In the engine market, a year that began with some significant gloom on the future of mature asset leasing and trading has gradually seen the prospect of a thaw. The trend towards greater control of the market by the major OEMs is showing definite signs of reversing and that will be warmly welcomed by many mature asset traders and operators.
Many will be making their New Year wish that this will continue.