European MRO providers are facing tough times with the economic outlook uncertain and industry trends making growth more difficult to achieve, prominent forecasters said at Aviation Week’s MRO Europe conference in Amsterdam.
While airlines are expected to spend 5.7% more on their MRO actitivies this year on a worldwide basis, the European market is flat or could contract if economic conditions deteriorate. As David Stewart (ICF SH&E) points out, even over the next 10 years the MRO spend will increase by only around $1.3 billion in Europe. That compares to around $6 billion for China and $4.4 billion in the rest of Asia-Pacific.
The economy is one thing, but there is one key trend that has to get MRO providers concerned: airlines are retiring their aircraft earlier than they have historically done, mainly because the incentive to operate more fuel efficient jets has never been higher than today.
Globally, more than 400 retirements per year have become normal and as David Marcontell, President and COO of TeamSAI, outlines, that figure is to rise beyond 500 in 2012. According to Stewart, airlines have operated A320s for an average 26 or 27 years, but that figure is now going down significantly to little over 20 years and “even younger aircraft are parted out,” he says. “The fleet is getting younger faster,” says Marcontell.
For MROs, that means per unit revenues are declining with older aircraft typically requiring more work.
Independent MROs are also facing new competition with the introduction of new aircraft models such as the Boeing 787 and the Airbus A350s. Their phasing in provides the industry with the opportunity to develop new “MRO supply chain business models,” Stewart believes. But that may also not be good news as “we are moving into a more OEM centric MRO environment.” Even for the big independent providers such as Air France Industries and Lufthansa Technik, that will mean more competition with OEMs raising the question how sustainable current strategies are.