In common with many other sectors of the aviation industry, maintenance providers face a balancing act in Asia. While the potential is enormous, the rapid growth of maintenance, repair and overhaul (MRO) businesses in this region is creating a significant risk of oversupply, some industry executives say.
New MRO joint ventures and facility expansions are being rolled out in many parts of Asia. Dramatic fleet growth is projected, but signs are emerging that there could be too much maintenance capacity in the near term, according to speakers at Aviation Week’s MRO East Asia conference. Other challenges they highlighted are a scarcity of trained personnel, the growing influence of manufacturers in the aftermarket, and the transition of airline fleets to new-generation models.
The MRO market is “reshaping itself” and has been “shifting to Asia,” says Vehbi Ozer, Turkish Technic’s strategy planning and projects manager. He predicts that in the near future the Asia-Pacific region will represent the biggest MRO market.
This region now accounts for 28% of the global MRO market value of $64 billion, estimates Francois Dubrulle, president of asset management company The Green Airliner Singapore. Asia has essentially caught up to Europe and North America in terms of market share, he says. The global total is projected to rise to $96 billion by 2025, with the Asia-Pacific growth rate likely to exceed that of the more developed regions.
Rapid expansion is both a challenge and a danger for the Asian MRO industry, notes Daniel Stromski, Haeco’s GM for inventory technical management. He likens the current situation to a “gold rush,” with a wide range of companies setting up new operations or joint ventures in Southeast Asia and China.
Stromski says this is causing worries about the supply- and-demand balance. While Asia represents a great opportunity for MRO providers, the “industry should be careful where it invests,” so it does not “create oversupply of [MRO] capabilities.”
Many governments in the region are subsidizing or helping to establish MRO ventures, says Ian Wolfe, Cebu Pacific’s head of engineering and fleet management. Return on invested capital is not always governments’ top priority in these cases, as they are often more focused on political, strategic or employment objectives, Wolfe says. This creates surplus supply in the industry and disadvantages independent MRO operations.
Wolfe believes the massive aircraft order backlog for Asian airlines could be creating an overly optimistic picture of future MRO demand. He questions whether all of these aircraft will actually be delivered, as airline yields are already under pressure. Many carriers are looking to defer orders or cut their backlogs, Wolfe notes.
One of the biggest concerns with the wave of MRO growth in Asia is finding enough skilled workers, according to Jan Steenbock, vice president for marketing in East Asia for MTU Maintenance. Demand for aviation workers is so high that sourcing them from local populations is becoming harder. Cost advantages for MRO operations in Asian countries such as China are being eroded, says Steenbock.
As in other regions, independent MRO providers in Asia are under increasing pressure from original equipment manufacturers (OEM) offering comprehensive maintenance packages for aircraft, components or engines.
Steenbock notes that challenging times are coming for MRO operators due to the growing presence of the OEMs in the aftermarket. Since competing with OEMs on cost will be difficult, independent MROs have to differentiate themselves from OEMs in the solutions they can offer customers, providing greater flexibility. “A lot [of airlines] don’t want to be one egg in a giant basket,” Steenbock says. Stromski agrees the OEM trend “forces us as providers to be innovative.”
Working on next-generation aircraft types is essential for MRO businesses but also presents them with some challenges, according to Patrick Wong, Haeco’s executive GM for airframe services and material management.
Early entry into the 787 maintenance market was one of Haeco’s strategies, says Wong. He admits it is “difficult to make money” from the 787 and A350 programs at this stage because maintenance volume is still so low. However, MRO operators “can’t stay away from them,” he says.
Haeco has already conducted C checks on 10 Boeing 787s, says Wong. These aircraft belong to customers Jetstar, Royal Brunei and United Airlines. The company also provides line maintenance for five 787 and two Airbus A350 operators.
While Haeco has not yet confirmed any heavy maintenance customers for the A350, it is “working on that” and will eventually provide these services for the aircraft, Wong says. The company’s largest customer, Cathay Pacific, has recently begun receiving A350s.