Aftermarket Relationships Evolving, JVs Expected To Proliferate

Relationships between industry companies are evolving as greater importance is placed on asset residual values.

Are relationships in this industry long-term—or transient? In the aviation aftermarket, the answer is both.

How many MROs and OEMs compete against each other for some work but partner with each other on other projects? It’s frankly a tangled web.

Ian Wolfe, senior adviser-engineering and fleet management for Cebu Pacific Air, told MRO Asia Conference attendees that relationships—such as those between leasing companies, airlines and MROs—are evolving as greater importance is placed on asset residual values.

“There’s a lot of confusion and uncertainty on where the airline, MRO and OEM relationship might end up,” and the combination of MRO and OEM can be tricky and complicated, especially when dealing with things such as lease returns and reconciling power-by-the-hour contributions, he said.

Given this, and the fact that OEMs are playing a bigger role in the aftermarket, “what does this mean for independent MROs? That’s a serious question,” he stated.

Wolfe stressed that airlines want choices and flexibility when it comes to selecting service providers. So a healthy market needs independents—either singularly or through joint ventures, which he thinks will continue to proliferate—especially in the Asia-Pacific region.

A great example of this is SIA Engineering Co. (SIAEC) in Singapore, which has 25 joint ventures and subsidiaries in nine countries. On Nov. 4 it released its first half 2014-15 earnings and reported that more than 50% of its profits—S$59.7 million [$46.3 million] of S$95.6 million—came from joint ventures, although that  S$59.7 million is S$28.9 million lower than the same period last year. SIAEC attributes the drop largely to extended on-wing engine performance and accelerated retirements of older engines, which decreased earnings at two of its joint venture engine shops by 39%.

However, SIAEC is working on productivity improvements to offset rising business costs and reports that the group will “stay the course in pursuit of value-added collaborations with strategic partners.” In SIAEC’s case, its relationships are longer-term.

Haeco, which purchased Timco Aviation Services earlier this year, rebranded Timco as Haeco Americas as part of its effort to create a singular identity of deep capabilities across its international network and operate more as one entity for its customers. That’s different from just a name switch.

In an industry where airline maintenance contracts can be broken pretty easily, this time of change will shuffle some partners—but I expect the collaborations and innovations to exceed the short-term plays. 

—Lee Ann Tegtmeier


A version of this article appears in the December 1/8 issue of Aviation Week & Space Technology.


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