MIAMI—Continuing maturation of emerging markets and shifting business philosophies are behind a surge in aerospace investment in the U.S., with the Southeast standing out and aftermarket companies contributing to the trend, ICF International Vice President Kevin Michaels says.
“You’re seeing [new] heavy maintenance facilities in the Americas,” Michaels told MRO Americas delegates on April 15. “We’re going to see more widebody maintenance done in North America.”
Michaels pointed to about half a dozen new MRO ventures either set up or announced in the last few years, such as the long-anticipated entry of Lufthansa Technik, which is slated to open a new facility in Puerto Rico and has announced customers. Counted among these new MRO ventures are two new AAR facilities, including a greenfield project in Rockford, Illinois; Aviation Technical Services’ new Moses Lake, Washington, and Kansas City, Missouri, facilities; and ST Aerospace’s new hangar in Pensacola. He says that in 2012-13, no country saw more heavy MRO facilities announced or established than the U.S.
The “rightshoring” of work—including MRO heavy maintenance—has been predicted for some time. Among the drivers: rising labor costs in places like China, which has grabbed a disproportionate share of heavy checks from airlines in mature markets, and rates for U.S. labor at third-party MRO facilities that have hovered around $50-55 since the late 1990s, ICF International data show. Since then, comparable rates in mature Asian markets rose to almost $50, from around $30, while rates in emerging Asian markets have climbed from the mid-$20s to the mid-$40s.
This is driving a mindset change that places the lowest costs behind other factors, such as being close to your customers. For equipment suppliers, this means setting up shop to support new production lines in places like Charleston, South Carolina, where Boeing is building 787s, and Mobile, Alabama, where Airbus plans to start rolling out new A320s in 2016. This has helped drive investment in the Southeastern U.S. by suppliers like GKN and Safran.
For MRO providers, it means being where your customers are—and the North American fleet, while not growing much, is still the largest among the world’s regions. It will remain so for several more years, until growth in Asia-Pacific markets pushes that region into the top spot, sometime around 2020.
“Companies are investing in activities in the places, globally, where they work best,” Michaels says. “You’re not in the head-long effort to find the lowest costs. It’s a much more nuanced few to where investment is gong to take place in the years ahead.”
Asia-Pacific’s projected growth means that investment will continue in places like China, Singapore, and India. Asia-Pacific’s fleet size is projected to increase from 6,400 today—second, behind North America’s 7,420—to nearly 11,700 in 2025, Cavok data show. But even anemic growth in North America—Cavok’s numbers show the region’s fleet growing by just 700 aircraft by 2025—will still leave a sizable fleet in need of support.
Add in the new manufacturing facilities from Airbus, Boeing, and a few others, and North America’s draw for suppliers and aftermarket providers should remain strong.
One major aftermarket sector that is not shifting much is component support, Michaels notes. The propensity toward pooling means that the most important factor in setting up effective component support is a convenient, efficient transportation hub. Places like London, Miami, and Singapore are prime examples of places where spares pools can be located to deliver parts quickly throughout airline networks.
“We’re in an asset-management era now. We’re in an era of rotable banks,” Michaels said. “A great transportation hub is key. [Suppliers] probably need service centers in the major parts of the world, but where they go is about transportation hubs, where it’s easy to get in and out.”