Expect More Horizontal And Vertical Integration In MRO Market

Entry into service of new commercial airliners, along with growing stream of data from aircraft and parts, creating challenges and opportunities for MRO providers.

l“Align, grow or be left wishing you would have redesigned your strategy to adapt with the ever-changing environment.” VAS Aero Services’ new CEO Tommy Hughes told me this a few days after starting his new job, which correlates to H.I.G. Capital selling its majority stake in VAS to former minority stakeholder American Aero Group.

By realigning with American Aero, which is more willing to invest in VAS, the parts and logistics provider gains $250 million in capital through the ownership change to seek newer-generation commercial and regional aircraft and engine assets. Its previous owners were less willing to make such investments.

Expect more aligning—or realigning—to occur in the market, especially on the component side. Carl Glover, vice president of AAR’s engine group, points out that the parts market has witnessed a lot of consolidation in the last 12-18 months, and he predicts more vertical and horizontal integration.

Bill Correll, president and CEO of CFM Materials, says the spares market is “extremely competitive” and more players have capital to invest, so coming to the table with money in hand is not as big of a differentiator as it used to be. He also anticipates more market integration, pointing to GA Telesis purchasing the Finnair engine shop and AerCap buying AeroTurbine.

Lufthansa Technik CEO Johann Bussmann tells me he believes that because engine OEMs are controlling the majority of the aftermarket at the point of a powerplant’s sale, “cooperation between bigger MROs and OEMs becomes more important.” That is one of the reasons Lufthansa Technik and GE Aviation signed a memorandum of understanding in June to create a joint-venture engine overhaul center for the GEnx-2B and GE9X, which power the Boeing 747-8 and 777X, respectively.

This will be the second engine overhaul MRO joint venture for Lufthansa: its Trent 500, 700 and 900 joint venture with Rolls-Royce, N3 Engine Overhaul Services, has been operational since 2009.

At a recent conference, Rolls-Royce, Rockwell Collins and Airbus executives all said they expect to see more partnerships with aftermarket providers; because they “don’t have a monopoly on good ideas,” partnership is necessary to right-size MRO capacity, and monopolies do not allow for growth.

OEMs’ increasing aftermarket role isn’t new, as I had discovered when I wrote in April 2009: “One of the biggest issues brewing for MROs is increased competition from OEMs, which is manifesting itself in charges for technical support and access to technical information—in addition to straight competition in the aftermarket.”

Which takes us to intellectual property (IP) protection and data usage in MRO. How the aftermarket adapts and finds new ways to make information more useful for prognostics—and starts connecting dots to make it more valuable—will be game-changing.

As this occurs, it will create new opportunities for people and companies to add value to MRO services.

In this ever-changing environment, what is your company doing to align and grow? Or will it be left wishing? 

Keep up with Shay at AviationWeek.com/mro and on Twitter @AvWeekLeeAnn

TAGS: Software
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