Shark photo Creative Commons

The MRO M&A Market Is Like a Game Of Poker

The aviation MRO market is very fragmented despite recent consolidation. Will the M&A trend continue, and if so, in what areas?

Printed headline: Poker Face

In many ways, MRO mergers and acquisitions constitute their own form of industry-predictive maintenance and how it affects the health of the sector. An intelligent deal involves gathering data and looking at what might happen, not only for MRO providers but for aviation as a whole. In the words of former Apple CEO John Sculley: “The best way to predict the future is to invent it.”

Sometimes predicting the future involves taking a step back. “If you’re thinking about what’s been impacting the aftermarket, it’s not mergers and acquisitions [M&A] in MRO, it’s mergers and acquisitions in the broader aerospace sense,” says David Stewart, a partner at consultancy Oliver Wyman.

Visualize a pie chart of the component-MRO spending for the Boeing 777 by supplier. “It’s massively fragmented,” says Stewart. “There are lots and lots of different OEMs providing parts for the 777.”

Creative Commons

“You can be a very big shark in your marketplace, but it’s the piranhas which will take you apart,” says British Telecom Chairman Iain Vallance.

Put that chart to one side. Now create one for the Boeing 787. Significant supply-chain consolidation—such as Hamilton Sundstrand, Goodrich, Rockwell Collins and B/E Aerospace all coming together as Collins Aerospace—means just a few companies are involved in 70-80% of the MRO spending for 787 components.

“Suddenly, those component OEMs, because they’ve consolidated at OEM-level, can come up with a compelling offer. They own a significant proportion of the aftermarket for the 787 in terms of their access to the parts,” Stewart explains.

While this is “absolutely right” for their businesses, he says, this limits component-MRO options on some of the newer airframes: “There’s tons of choice on the huge fleets, on the Airbus A320 and the [Boeing] 737, because that supply chain has been around forever. It’s more a new-aircraft platform problem.” 

Struggle For Independents

Together with other major deals, such as Safran and Zodiac Aerospace, this consolidation makes it harder for independent MROs to compete. As show business performer Dean Martin once said: “When your opponent’s sitting there holding all the aces, there’s only one thing left to do: Kick over the table.” In MRO, the table is a metaphor for the old way of doing business.

As part of that shift, independent MROs are joining forces with OEMs. “You’re clearly seeing, on the engine side and on the component side, more OEM alignment,” says Ken Herbert, aviation analyst at Canaccord Genuity. “There’s always going to be a market and demand for independent MROs. Clearly, that’s being pressured these days by OEM involvement on a number of levels, but independent MROs are not going to be extinct anytime soon.”

Why Acquire?

In the aftermarket, companies such as StandardAero and Magnetic MRO, to name just a couple, have changed hands in recent months. Herbert sees at least three high-level drivers behind this consolidation: OEM involvement, geographic expansion to tap growing demand and access to intellectual property—particularly around data and new technologies. “I think these are three of the key reasons we’ve seen a lot of M&A activity within MRO so far, and I expect that to continue,” he notes.

Oliver Wyman

David Stewart, partner at Oliver Wyman

Like Stewart, Herbert sees United Technologies’ acquisition of Rockwell Collins as “incredibly significant on a lot of levels.” He also flagged TransDigm’s $3.6 billion acquisition of Esterline as “transformational” for that part of the industry.

Herbert’s comment is significant, because not all areas of MRO are at the same stage of consolidation.

“Engine MRO consolidated a long time ago, because the engine OEMs needed capacity, so they ended up buying a lot of the independent MROs. Now you’ve reached a stage where the engine OEMs, through their facilities or partners, probably on average have a 50-60% market share,” Stewart points out.

Component consolidation is happening at the OEM level, but Stewart says the component-MRO sector remains massively fragmented. Historically, Lufthansa Technik and Air France Industries KLM Engineering and Maintenance (AFI KLM E&M) have been acquirers in this space. “You’ve literally got thousands of ‘mom and pop shops’ out there. You will see more consolidation there,” he says.

Airline Backlash

Stewart believes there is still plenty of component-MRO choice, but that sector needs to be careful about repeating what happened in engine MRO, especially on newer aircraft.

He cites the International Air Transport Association’s recent competition complaint against CFM International’s MRO policies as a warning bell. “They [the component MROs] are not anywhere near that yet, but one has to be conscious of making sure the airlines believe they still have choice. If you think about the impact of consolidation, that’s your end-game in terms of where you can max out, because the customer starts pushing back about the lack of alternative supply,” says Stewart.

This brings to mind a comment by British Telecom Chairman Iain Vallance: “You can be a very big shark in your marketplace, but it’s the piranhas which will take you apart.”

Airlines have bitten back, but are they really anti-consolidation? M&As yield larger suppliers, with the kind of scale that has the potential to pull down costs.

Richard Brown, independent consultant

“Customers, whether an OEM or an airline, actually want to deal with fewer suppliers. A lot of them have been embarking on supplier reductions, wanting to go to one-stop shops, so supply chain consolidation has probably been a good thing overall,” notes Stewart.

Herbert agrees that airlines are sending mixed messages. They voice concern about reduced competition leading to higher prices while putting pressure on suppliers to be more efficient. “Customers want larger suppliers. They try and push more cost onto them. That’s driving a lot of the industry to get bigger and bulk up,” he says.

Airframe Disparity

M&A opportunities are often about finding a gap that needs to be filled. “There’s probably a tightness of capacity now in airframe MRO in Europe. People have got out of the business, because quite frankly it’s not a very attractive business. Margins are not very helpful in Europe because of the high labor costs,” Stewart says.

Over the last 10 years, the focal point for MRO deals has been the higher-margin engine and component aftermarket. “A lot of investment went in there, and they kind of forgot this airframe stuff,” Stewart observes. “Because there’s been limited investment, I believe there’s actually a shortage of [airframe] supply at the moment in Europe, because people’s attention was elsewhere. That may not cause M&A. That might cause investment in additional capacity.” 

Independent aviation consultant Richard Brown agrees airframe maintenance is a challenging business. “There are many examples of airframe-maintenance facilities in the world [that] have expanded but aren’t busy. Building the hangar is easy. Creating a successful business with long-term repeat customers and base volume is harder. The barriers to entry are low, yet airports and investors across the world still aspire to build hangars. Hangar mania continues to be alive and well,” Brown says.

Stewart clarifies that the tightness in airframe MRO is geography-specific. “We’re still a long way away from anybody worrying about the lack of supply in airframe MRO. It’s not a lack of supply, it’s a lack of capacity, but only in Europe. If you segment the market—engine, airframe, components—there’s still tons of customer choice available in most parts of the world, apart from engines.”

Likewise, there is scope for further consolidation in logistics and distribution, building on Boeing’s recent KLX Aerospace Solutions acquisition.


With aviation demand tracking at 4-5% growth and an unusual “13-year super upcycle,” compared with the normal seven years, Stewart says the appetite for deals remains strong.

“Your typical investors in this space have got familiar with it and are quite happy to reinvest, because they’ve had that growth, and they haven’t had a downturn,” he explains. This investor happiness is further boosted by favorable capital markets and supply chain fragmentation, which creates scope for deals.

Stewart estimates strategic buyers make up around two-thirds of MRO M&As, with private equity (PE) accounting for the remaining third. “In terms of the volume of deals, 90% are midmarket—less than $600 million—so yes, you get the big deals, but a lot of the volume is driven by lots of smaller deals.”

There is a lot of market hype about harnessing “fancy new technologies,” like predictive maintenance and 3D printing, Stewart says, but he points out that a large volume of MRO M&As are about buying into mature technologies and services to tap long-term growth, rather taking a risk with something new. 


All three experts agree there is more to come. “We have seen a significant acceleration in the last year and a half, and I expect that to continue into 2019. It’s hard to say if it will continue at exactly the same pace, but I expect it to remain robust, definitely,” predicts Herbert.

Philippe Jacob/Safran (top), Magnetic MRO (middle) and StandardAero (bottom right)

Significant supply chain consolidation means fewer companies make a larger portion of new aircraft platforms.

He picks Heico as a likely acquirer. “I expect them to continue to selectively make acquisitions. It’s been a key part of their growth strategy, and I expect that to move forward,” he says. Likewise, while AAR has not historically been very acquisitive, he sees scope for it to do more. He also sees larger integrated MROs, like AFI KLM E&M and Lufthansa Technik, as buyers.

Stewart sees the pace of MRO M&As remaining strong and vibrant, with plenty of potential targets and private-debt cash, but he disagrees that activity is speeding up. “I wouldn’t say you’d see a massive acceleration or deceleration,” he says. “The bit that’s very active at the moment is the PE part.”

Over the last six months, Oliver Wyman has received lots of calls from private-equity firms looking at due diligence. “One would expect people like Arlington Capital, AE Industrial, Apollo and Liberty Hall, who regularly invested in aviation assets, to continue to be actively looking at aviation assets because it’s their business. On the OEM side, strategic buyers will be regularly looking out for those assets as well,” Stewart says.

Like Stewart, Brown sees scope for further PE deals, but he also voices some caution. “Some acquisitions have been highly priced—a sign of competitive private equity chasing too few deals. Time will tell if the high multiples paid generate the returns and rationale expected during the due-diligence period,” he says. 

Brown also expects some action among the airframers. “If Boeing and Airbus are really serious about growing their MRO capabilities, I would expect to see them make a splash into the MRO world in a big way sooner or later," he says. “Could we see a major integrator MRO, e.g. AJ Walter or Lufthansa Technik, be acquired by an airframe OEM?

“If one airframer made a splash by acquiring a major multi-product MRO, it would be a game-changer. Not only would they gain MRO data on their own aircraft, but they also get to understand MRO costs on competitors’ aircraft. However, they’d also gain a non-OEM sales force that really understands MRO,” Brown says.

Human Capital

People are becoming increasingly important. “We’re in a really unique situation right now, where labor is very tight across the industry,” says Herbert. “I don’t know if that’s driving a lot of M&A thinking right now, but I know it’s at the back of people’s minds as they look at opportunities. Just getting access to more labor, or labor in a different region, or a different country, is attractive and a key factor in the equation right now. You didn’t hear nearly as much about that 5-10 years ago.”

Like Brown, Herbert sees airframers as potential MRO acquirers: “I expect Boeing to continue to look to make acquisitions within the broader service space, and MRO could be one they would certainly look at. You’re seeing a significant competitive push there, which is driving a lot of other reactions and changes in the marketplace.”

Just like predictive maintenance, M&As should not be seen as forming a bid for control. M&As can bring fragmentation into focus, harness new technologies, cut costs and improve overall industry health. There is room at the poker table for everyone. 

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