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Further M&As Expected Among MROs

Private equity money has been pouring into the commercial aftermarket in recent years.

Another round of ownership changes are expected in the maintenance, repair and overhaul sector (MRO), driven by high valuations and private-equity (PE) companies reaching the end of their investment cycle.

“We think, in next couple of years, we’ll see a lot of private-equity companies looking to make a return on their investment,” Alton Aviation Consultancy managing director Jonathan Berger told delegates at MRO Europe Oct. 16. “Right now, the whole market is hot.”

He said “tremendous” aircraft-order backlogs are creating steady and predictable cashflow for MROs. This means company valuations, often measured as a multiple of annual EBITDA, are “very high,” creating a ripe market for disposals.

“The average price over the last two years has been 11x [EBITDA]. That is what we call ‘frothy’ in the business; it is very much high-end,” Berger said.

However, Raul Perez - maintenance manager at Spanish LCC Vueling – cautioned MROs against consolidating too far. “Bringing [maintenance] in-house can be a response to heavy consolidation, in line maintenance especially,” he said, urging MRO providers to integrate to lower costs, while also maintaining competition in the market place.

“We need those services. You must try to formulate them so we are left with choice as well,” he said.

In April this year, private equity company Ardian announced plans to acquire a majority stake in Revima, an independent MRO specialising in auxiliary power units (APU) and landing gears.

Also speaking at MRO Europe, Revima group president and CEO Olivier Legrand said acquisitions generate fresh funding for investment in new services, such as predictive maintenance, creating value for the sector.

“What comes with that type of transaction is growth,” Legrand said.

Post-acquisition, Revima plans to expand its geographical footprint. In 2020, the company will open a new Airbus A320 and Boeing 737 landing gear MRO facility in Bangkok, Thailand.

Legrand said Revima is on the lookout for further acquisitions. “We have our sights of potential acquisitions in the US market, or in the wider North American market.”

However, beyond the new Bangkok facility, Revima’s growth will be more focused on adding capability, rather than capacity. Revima is looking at further vertical integration, to grow its expertise and form partnerships with original equipment manufacturers (OEMs).

“Certainly, predictive maintenance is a big one for us. This is only the start of a big adventure I think, an opportunity to consolidate services around that offering,” Legrand said.

Meanwhile, Joramco, which was acquired by Dubai Aerospace Enterprise in 2016, is working to provide a full lifecycle support under its new ownership. “What customers want is far more than we can yet deliver,” Joramco CCO Fraser Currie said. That will partly be achieved through partnerships.

However, while airlines are looking to sign long-term heavy maintenance agreements of up to three years, Joramco wants to spread its risk in the event of a downturn. “We have two or three airlines who would like nothing more than for us to be their MRO,” he said.

“We don’t see any effects of a bubble burst, because we’re serving such a wide geographic market and covering such wide variety of types. You’ve got to be diverse to be able to withstand the next downturn, which is coming.”

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