The past year has seen several significant moves involving OEM activity in the commercial aviation aftermarket. In the airframe segment, closer ties were forged between its biggest players. Boeing, orchestrating much of the current aftermarket waves with its lofty ambitions of generating $50 billion in services revenues within the next 10 years, formed a joint venture with Embraer to acquire 80% of its airframes and services programs, while also completing its acquisition of parts distributor KLX Aerospace and venturing into used serviceable materials.
Airbus, meanwhile, has grown its Skywise customer base to more than 60 airlines some 20 months after its launch and last year estimated that its services division grew by 18% in the consecutive years 2016-17. Airbus also acquired Bombardier’s troubled C Series program in late 2017, which it later renamed the A220.
The engine segment also has seen its fair share of activity. The CFM International-International Air Transport Association ruling that took effect in February is expected to generate greater competition in the CFM aftermarket segment, where the CFM56 supports the world’s largest engine MRO market with a value estimated at $226.4 billion by Aviation Week’s MRO and Fleet Forecast data. The agreement also covers the new-generation Leap engine, a program still in its infancy. While the deal was largely welcomed by MRO providers and engine lessors, doubts remain as to whether it will result in any significant long-term changes.
Other key segments, such as components and modifications, have seen a series of mega-mergers. In November of last year, United Technologies completed its acquisition of Rockwell Collins, merging it with UTC Aerospace Systems to form Collins Aerospace.
But while such moves have led to concerns over the monopolization of the MRO market, Jonathan Berger, managing director of Alton Aviation Consultancy, believes its impact so far has not been too harmful. “To date, increased OEM control has not had the apocalyptic impact some industry observers have speculated about,” he says. However, he thinks the long-running debate about which party owns data generated from an aircraft is more prescient than ever. “There are definitely increased, and justified, concerns with regards to OEM strategies to monetize aircraft operational data and how OEMs will leverage their market position and power,” he adds.
Allan Bachan, vice president at ICF, sees OEMs making more incursions into the engine and component spaces than the airframe segment, with manufacturers in the latter trying to sell more single support packages. “Airframe OEMs are focusing more on single one-stop shops, focusing on the life cycle of the aircraft, depending on the manufacturer for support including fleet service management offerings,” he says.
Berger believes the recent merger and acquisition (M&A) impact has been positive overall for the MRO industry. “Weaker players have been absorbed, excess capacity has been removed, assets are being better utilized, and shareholders are enjoying greater return on their investment,” he says. In the parts specialists segment, he believes more M&A activity is forthcoming. “The component MRO segment remains quite fragmented and will continue to experience consolidation,” he predicts.
One prevailing belief has not changed: There is plenty of work to go around. Aviation Week forecast data projects this, with the 2019 value of the MRO segment of $73.2 billion expected to grow to $95.7 billion by 2028. Yet independent shops need more than ever to generate greater efficiencies by embracing new technologies in areas such as digital record-keeping and data analytics. “The ability to leverage technology is sure to be the linchpin for independents to succeed, and those that fall behind and don’t invest won’t be in business much longer,” Berger predicts.
Bachan says that MROs, particularly independent ones, must respond to OEM aftermarket growth by forming partnerships in areas such as intellectual property development. “[MROs] have more experience than the OEMs, so they have to find out how they can capitalize on that experience and tailor packages that they can now sell or have joint-venture relationships with OEMs,” he says. Bachan cites SIA Engineering as a good example of this. “They have joint-venture relationships with engine providers as well as the large airframe manufacturers, so that’s one effective response,” he says.