An overwhelming concentration of MRO growth over the next decade will occur in emerging markets, say analysts at the Aviation Week MRO Americas Conference & Exhibition. However, increased labor costs and high charges for ferrying aircraft to foreign countries for maintenance may eventually provide a good opportunity for North American MROs in the long run, and third-party MROs may actually see increased opportunities as OEMs strive to take more control of maintenance.
According to ICF SH&E Vice President Kevin Michaels, current global MRO spend for the commercial aircraft market, including jet and turboprop aircraft, is about $50.9 billion. He says the current fleet of 25,870 aircraft will grow by about 1,000 aircraft per year until 2021, led by passenger traffic in the Middle East and the Asia-Pacific regions.
The MRO industry will grow at a compound annual growth rate of 4% throughout the decade, reaching a total of $76 billion in 2021, according to ICF SH&E’s forecast. Largely driving this growth are the modifications, engine and component segments, yet Michaels says that airframe heavy maintenance will grow at a slower rate of 2.7%, due to new aircraft renewing the global fleet.
TeamSAI’s model for calculating MRO growth and spend between 2012 and 2022 does not include turboprop aircraft or Russian aircraft, so the numbers cannot be directly compared to the ICF SH&E presentation. However, the two companies agreed on main maintenance trends throughout the forecast.
Chris Doan, chairman and CEO at Team SAI, says that global MRO spend for the commercial market will be up 5.7% in 2012 from 2011, totaling $49.5 billion. Demand will grow to $59.5 billion in 2017 and then to $68.4 billion in 2022 at a compound annual growth rate of 3.3% throughout this period. This estimate is down from the $69 billion value that TeamSAI estimated for 2021 a year ago, which reflects changing fleet mix and the increased efficiency of newer aircraft, says Doan.
The engine MRO segment is coming down by 1.6% but will continue to be the largest segment of MRO value at 46% throughout the forecast period. The rate of component maintenance will grow as fast as engines closer to the end of the forecast.
Doan and Michaels both agree that MRO demand is shifting away from North America, especially to the Asia-Pacific regions and the Middle East. Michaels says that China, for example, will see a $6.3 billion increase in MRO spend by 2021, compared with only a $1 billion increase in North America.
However, Michaels says that the trend of sending aircraft from the Americas to Asia for heavy maintenance will not stay forever and will reverse itself or reach a plateau by 2021, and the Southeastern United States will be a region to watch for viable MRO opportunities. Michels says that for North American MROs, “the game isn’t over.”
“In an era of high fuel costs, rising labor costs in China and more competitive labor costs in North America, we’re seeing that this migration of heavy maintenance to Asia will peak,” says Michels, who explains that these changes are making it less economical for North American MROs to send aircraft to Asia for maintenance visits.
Doan says that while there could be more opportunities in North America in the future, the growth in this region will be slow. He explains that the North American fleet will shrink until 2017 and then start to grow again, despite the overall growth of the global fleet.
“The Americas growth, it really represents not a very pretty picture from the standpoint of what’s happening to MRO,” says Doan. “It’s not a growing market—it’s one that is going to have to be focused on very carefully from the standpoint of strategy.”
Doan says that a “real game changer” shaping North American MRO is how American Airlines emerges from bankruptcy and addresses any proposed layoffs. Consolidation among North American MROs is imminent.
“There will be a new wave of consolidation, especially in North America,” says Doan.
Demand in emerging economies will present a need for more MRO infrastructure in those areas, says Michaels, which could be a good opportunity for third party MROs looking to partner with OEMs to create licensed service centers in those countries. The service centers allow OEMs to determine standards for how MRO is carried out and save money by using an existing facility.
This also gives OEMs an opportunity to create standards for how maintenance is carried out in those facilities in growing markets, which will slow PMA penetration. Michaels says that PMA penetration for engines and components will slow to about 3% by 2018, which he believes is due to continuing pushback from lessors on using these parts. PMAs for interiors and lower-tech parts will drive much of the growth in this area instead.
Doan and Michaels agree that OEMs will wield influence by becoming more involved in increasing their revenue from services, exemplified in Boeing’s Edge program and Airbus’ flight hour services contracts for A330s, A340s and A380s. Michaels sees OEMs becoming MRO players within five years, and Doan says that independent MROs understand that.
“The OEMs have become much more aggressive and interested in the total airplane market, not just manufacturing,” says Doan. “In order for the independents to interface well in that environment, they are starting to tighten relationships with those OEMs—a much more cooperative world is starting to develop.”
Michaels says that lessors will also increase their involvement in MRO, first through asset management made appealing by the amount of aircraft retirements. He says that 80% of surplus material comes from parted out aircraft, and it will likely stay that way for the rest of the decade. Michaels thinks that lessors will move downstream to provide maintenance in tandem with the aircraft themselves, which could take on the form of wet leases.