Printed headline: Niche Players
Heavily saturated with participants in 2018, the commercial engine aftermarket is perceived as a tough environment for independents, big and small.
Capacity across global shops is tight, and pressures exist around performance for all participants. To alleviate problems around capacity, many engine shops are looking at their processes to enhance turnaround times.
Some of the larger, better-resourced independents such as SR Technics and Turbine Services & Solutions emphasize the importance of lean and flexible shop performance to meet the influx of engine work. Another large independent, Germany’s MTU Maintenance, has looked to add capacity across its shop floors. It plans to add two buildings to provide expanded space in Hanover along with a planned logistics center in Berlin, providing an additional 35% in production capacity.
However, while clearly not without challenges for all concerned, some believe that in comparison to a decade ago, a more positive landscape for some of the smaller-size engine players has emerged, aided partly by the rush in demand for work on legacy powerplant types. This is the view of Holger Lipowsky, a partner at aviation consultancy group Roland Berger, who says independents operating on a smaller scale have been able to find their niches in a demand-driven market where there is enough work for everyone.
“Ten years ago, independent companies were in a difficult position, especially the very small ones which would have faced tough prospects against airline-affiliated MROs and OEMs who were heading toward growth in the aftermarket,” Lipowsky says. “However, since then, the smaller, independent MROs have been quite smart and supported by other market developments such as prolonged demand for legacy engine types. They have found a way of surviving.”
Lipowsky says in the past few years, this prolonged MRO work required for older engine types—predominantly CFM56 and IAE V2500 narrowbody stalwarts—is an area smaller service providers have embraced, as opposed to looking at advanced newer engine programs. “Their [smaller MROs] niche was how can they provide the additional capacity for the prolonged MRO work on those legacy programs,” he says. “The environment is very mingled and there is certainly space for everyone. The industry has found a balance between large airline affiliates, OEMs and independents large and small.”
Neil Russell is chief operating officer at Aero Norway, the Stavanger-based company that specializes in repairs for the CFM56 engine family. He says the MRO’s decision to focus its attention on the narrowbody powerplant is based on a desire for simplicity across its operation. “The CFM56 engine range and models we service have common parts and tooling as well,” Russell explains. “It allows us to keep our operations lean, simplifies our supply chain and focuses our competency rather than diluting this with a different engine type.”
The company was targeting 92 engine inductions this year, but Russell says due to increasing heavy shop visits for the CFM56-5B and -7B, it has had to adjust these plans. Russell says a move away from the older CFM56-3 variant toward the -5 and -7 is taking place, although he believes there is still justification for the company to keep the maturing -3 in its strategy.
“In previous years, we mostly concentrated on CFM56-3 engines, however we see that changing toward -5Bs and -7Bs,” he notes. “You see [how] new engine models like the Leap are changing the operator base and the life cycle of -5s and 7s coming in for shop visits.” Nevertheless, Russell says moving across from -3s to -5s and -7s has not come without challenges. “The supply chain for used, repair and even new material is different to -3s,” he says.
Other smaller-size independents have accelerated movement of their repair offerings toward newer engine types—mirroring moves made by their larger counterparts. Aero Engine Center, a CFM56 and General Electric CF6 repair specialist based near London Heathrow Airport, was among the first independent MRO providers to gain Leap-1A and -1B approval, earlier this year. According to James Cook, managing director of Aero Engine Center, the company has stuck to its core business but will continue to find growth by obtaining the latest engine approvals. Speaking of the Leap, Cook says: “It has proved to be a great asset for the business and has assisted our customers in providing essential support. With the number of Leap engines coming into service, the long-term goal will be to scale up and continue to improve on providing our customers with a service.”
Aero Norway also sees its future as eventually migrating across from CFM56 to Leap engine repairs when shop demand for the CFM56 starts peaking. “We definitely want to get into Leap overhauls as it’s a natural progression for us given the company and the site’s past,” Aero Norway’s Russell points out. “We are independent, we are relatively small compared to the big MROs and feel we can offer a different experience that would benefit the network.”
While the environment has changed and led to smaller, independent repair specialists excelling, Lipowsky of Roland Berger says this could change as the market further develops.
“Smaller independent shops will have a difficult time of being drivers of this new environment,” he notes. “They’ve been following market developments and up to now there has been enough room for them to excel in niche areas such as specific engine types, but the question will be maybe 10 years from now, how this favorable environment will develop?”
More consolidation is one scenario Lipowsky foresees, with smaller shops being acquired or joining OEM engine networks. “The easiest route is for the larger companies to swallow the smaller ones and acquire specific technologies or know-how which fits into their capacity net,” he says. “This won’t necessarily be a bad thing for smaller companies as they will become part of a large network. Rather than being the end of them, it could be a change for them to become an in-built of a larger network while helping to expand a maintenance provider’s capacity.”