As OEM aftermarket incursion gathers pace, independent MROs are seeing their roles in the commercial aftermarket take on new forms and producing opportunities around engine programs.
At an MRO Europe panel discussion on Oct. 16, representatives from AJW Group, MTU Maintenance, StandardAero and Magnetic MRO discussed the status of independent repair specialists in today’s market and how OEM incursion has impacted their segment.
Gavin Simmonds, chief operating officer at U.K.-headquartered parts specialist AJW Group, which repairs around 1,400 components per month at its Montreal-based AJW Technique business, says the company competes well in OEM-driven PBH programs and now has a role as “the eyes and ears” in areas such as PMA parts and the alternative offerings in the marketplace.
“Some OEMs have a strategy of wanting to work with us. We hold 14 licensing agreements so there’s a merger of thoughts as we operate in a channel they don’t,” he says. “However, there are some OEMs that don’t want to go into this so there is no one-size fits all solution.” Since forming its AJW Technique business, Simmonds says it enjoys around 20% annual growth, and feels that to date, its strategy is working well.
Clinton Kent, VP sales and customer service at U.S. engine specialist StandardAero, which has added to its portfolio after acquiring Vector Aerospace in November last year, says the company works with every major engine manufacturer and has a good overview of changing dynamics with customer agreements. “It’s no secret that most operators are buying maintenance contracts upfronts with the aircraft purchase as that’s when they have the most buying leverage,” he says. “This means that the OEMs are largely responsible for the cost profile of the maintenance and we see it as our customer base shifting from the operator towards the manufacturer.”
Kent says he doesn’t see this changing dynamic being totally widespread across the industry, as operators still prefer to keep their options open. “Some lessors also like to have a vibrant aftermarket, so they can value the residual value of the engine, yet I believe this pivot we are seeing will continue to occur,” he adds.
Leo Koppers, SVP MRO programs at Germany’s MTU Maintenance, the world’s third largest engine MRO by volume producing around 1,000 engine shop visits annually, says the company has upped its participation in engine manufacturer programs and now sees around one-third of its shop visits being conducted under OEM fly-by-hour agreements.
“There is no concern on our side of a growing need from OEMs to capture business,” Koppers says. One of the few engines not served by MTU however is those made by Rolls-Royce, a conscious decision Koppers says is due to the British engine maker holding a captive position in the aftermarket on its products. “We never felt this would be a fair playing field for us so we stuck with Pratt and GE Aviation programs,” he says.
MTU has acquired approvals for new generation engines such as Pratt & Whitney’s geared turbofan, and Kopper says typically, these new products will come with different terms to their more mature predecessors. “New engines are typically done under these types of agreements which is pretty understandable,” he says. “OEMs and airlines want this setting as there are a lot of new and unsecured factors on new engines, which we have seen in the past few years.”
Risto Mäeots, CEO at Magnetic MRO, acknowledges challenges exist for the company and says the company has held a position that independent shops don’t have a right to exist. In its Eastern Europe region, Magnetic MRO is seeing a steady rise in labor costs while competing against OEMs and airline-affiliated MROs backed with greater financial muscle and working in larger volumes.
“We had to start changing as we couldn’t keep selling itself as a cheap labor provider,” Mäeots said. “What we started to do was raise the fact that we needed to be part of OEM ecosystem as we feel their increasing presence every day.” One of Magnetic MRO’s key moves was joining Boeing’s Goldcare network in the summer of 2017, while it has also recently signed a four-year agreements with an airline to work on Airbus A320neo aircraft powered by the LEAP engine.
“The fact that an independent MRO was carrying out a four-year program on a neo aircraft didn’t escape the attention of Airbus so without any push from our side, they approached us to become part of their tailored support package,” Mäeots says. “I think independent MROs have to be part of the manufacturer ecosystem but the question is just how far in do they go.”