SIZE OF AVIATION MARKET & MRO SCOPE, OPPORTUNITIES
The Maintenance, Repair, and Overhaul (MRO) sector, which ensures the availability and airworthiness of aircrafts, is of critical importance to global aerospace and defence industries. MRO activities virtually form the backbone of the industry and is estimated to reach around $61 billion in annual revenue.
According to verifiedmarketresearch.com aircraft MRO market was valued at USD 45.12 Billion in 2022, and with a growth rate of 3.65% CAGR (2023 -2030) the projected figures are pegged to reach USD 62.25 Billion by 2030.
Closer to home in India, based on industry reports, the country is hailed as the seventh-largest civil aviation market in the world. It will rank third by 2026, (only after the US and China markets), as predicted. Now consider the immense demand, and the subsequent scope for expansion and opportunities for the MRO business in India!
With recovery in 2021 in the commercial aviation space, there has been an uptick in aircraft deliveries. For instance, both Airbus and Boeing together delivered 951 aircraft in 2021, vis-à-vis 723 in 2020. Furthermore, with increase in air travel to pre-pandemic levels expected by 2024, and with ongoing fleet upgrades and network planning by airlines, the mood remains upbeat. So do the order books of OEMs. End 2021, Airbus and Boeing reported aircraft delivery backlogs of 7082 and 5136 aircrafts respectively. Now with these deliveries starting to commence, various stages of maintenance would be required from MRO providers.
The India Market
According to a Deloitte study, the Indian MRO industry size is expected to increase from US$ 1.7 billion in 2021 to US$ 4.0 billion by 2031, at a (CAGR) of 8.9 %. With more than 1000 aircraft on order, one can expect 200 to 300 comprehensive maintenance checks annually.
In comparison, the expected global CAGR is 5.6 percent.
IN-HOUSE MRO ACTIVITIES GIVING WAY TO THIRD-PARTY PROVIDERS
Some airline struggling with cost of resources like tooling, labour and land, have done away with in-house maintenance activities, while some took to MRO servicing of aircraft of other carriers, as profit centres. Then again, with the entry of low-cost carriers there has been a heavy reliance on vendors to provide MRO services. This cost-saving method was adopted by several airlines just to remain afloat as also competitive.
With fleet expansion seeing some movement, demand too has arisen for maintenance services. To strike a healthy balance between capacity adjustment and meeting customer demand, MROs relied upon mergers, consolidations, partnerships and alliances, in order to expand. Thus, the MRO business too adopted a competitive stance, like carriers.
EXPANSIONS & PARTNERSHIPS – WAY TO GO
The aircraft MRO business seems to be evolving, with more and more airlines seeing the benefits of outsourcing such critical services. Initiatives such as outsourcing by airlines, and MROs winning contracts with original equipment manufacturers (OEMs) have stood MRO providers in good stead. One must be mindful while running an MRO business that cost and service excellence are the driving factors for airlines to select their respective MRO providers.
Roland Berger research finding said about the post pandemic situation, ‘recession as the most likely outcome’ and predicts ‘consolidation as the solution’. So be it. The MRO sector will continue to embrace consolidations and partnerships to accelerate their organic growth.
Some fine examples of these developments are:
- United Technologies, Rockwell Collins and Raytheon all merging to form a formidable entity – Raytheon Technologies.
- Zodiac Aerospace’s absorption into Safran is a reflection of strengthening positions through integration, as also capturing value-chain coverage.
Investment firms too have contributed to the MRO growth story:
- The Carlyle Group’s strategy of ‘Buy and Build’ brings smaller and similar companies under their flagship umbrella brand ‘StandardAero’.
Aircraft OEMs on the other hand have focussed on acquiring specific businesses like aftermarket parts sale, as an extension of their capabilities and competencies.
CONCENTRATION OF MROs GEOGRAPHICALLY &
GROWTH OF SERVICE HUBS
While most continents and regions around the globe offer MRO services, a higher concentration of the business remains in Asia, Europe, and the Americas.
According to forecasts, air transport MROs will set up an increasing number of MRO ‘service hubs’ spread internationally. This development comes on the heels of rising air travel and cargo transportation, and this alone can justify investing in these regional hubs.
According to the above Mordor Intelligence infographic, MRO spend in the Asia Pacific region by airlines will be higher and the industry is expected to bounce back to pre-pandemic levels the fastest. Late 2022 as forecasted.
GROWTH OF SERVICE HUBS
Asia-Pacific Region
The Asia-Pacific region will witness the fastest growth over the next decade, with good demand for narrow body aircraft. Again, with 1/3 of the world’s commercial aircraft concentrated in this region and growing, this is an encouraging regional growth story, leading many reputed MRO players to set up service hubs. Some such entities are:
- In 2020 Pratt & Whitney GTF the global engine maintenance arm of the aircraft engine manufacturer spread their network by setting up two new MRO service providers in China.
- Aircraft Maintenance and Engineering Corporation (AMECO) (a JV between Air China Limited and Lufthansa Airlines) and MTU Maintenance Zhuhai Co. Ltd (a JV between MTU Aero Engines and China Southern Airline Company Limited) established a new hub for GTF’s MRO network for maintenance and servicing PW1100G engines for the Airbus A320 Neo aircraft family.
With low-cost labour availability in markets such as Vietnam and Thailand, opening up of MRO facilities as service hubs, become an attractive proposition. Optimism abounds this region.
Middle East
At the 2019 Aircraft Interiors Middle East (AIME) and MRO Middle East event held at the Dubai World Trade Centre, and given consistent growth in the Middle East, partnerships were considered the big idea in innovation at these meets.
Latin America and Africa
In the Latin American and African markets, recovery remains slow with the effects of the corona virus pandemic lasting longer in those regions.
Europe and North America
Another factor impacting the travel sector and in turn MRO services is the adoption of a hybrid work culture and remote working. Hence, business travel across Europe and North America is expected to be much slower. 2024 is when the European and in 2025 the North American markets will see an upward trend.
In the short term, MRO companies are resorting to the usual cost-cutting measures, cross-utilising workforce, cash conservation and postponement of investments. However, in order to recover fully, in the mid-to-long term, MROs need to wake up to realities like takeovers and industry consolidations.
TOP PERFORMERS AND THEIR PARTNERSHIPS
1. AAR Corporation:
The U.S.-based AAR Corporation is the largest independent MRO provider in North America, serving a global consumer base. In February 2018, AAR Corporation announced a joint venture with Indamer Aviation – an MRO facility expansion to increase its footprint in India.
2. ST Engineering:
ST Engineering ranks among the largest defence and engineering groups in Asia. In June 2019, ST Engineering announced a partnership with Honeywell through which ST Engineering will act as a licensed repair centre for Honeywell components.
3. Lufthansa Technik AG:
Lufthansa Technik AG — a part of Deutsche Lufthansa AG — is a leading provider of maintenance, repair, and overhaul services for aircraft, engines and components. In March 2020, Lufthansa Technik and Safran Landing Systems entered into an MRO partnership agreement for A380 landing gear.
4. HAECO, Hong Kong:
Hong Kong Aircraft Engineering Company Limited (HAECO) is an aircraft engineering and maintenance company specialising in providing airframe maintenance, structural modification, non-destructive testing, and cabin reconfiguration services. Working out of its 27 hangars in six locations in the United States, Hong Kong, and Mainland China, in November 2018, it became a fully-owned subsidiary of Swire Pacific.
In December 2019, HAECO announced its partnership with Ramco Systems the global software specialist for advanced aviation solutions in Hong Kong, Xiamen, and Jinjiang.
5. GE Aviation, USA:
GE Aviation — is a leading aircraft engine supplier, offering engines for the majority of commercial, military, and business aviation jets and turboprop engines and components.
In November 2019, Sanad Aerotech — a leading engine Maintenance, Repair, and Overhaul (MRO) solutions provider, announced a partnership with GE Aviation for next-generation narrow and wide body aircraft. MRO services include work on the GEnx-1B engine and overhauls on CFM International’s LEAP engines for GE.
WATCHPOINTS FOR MRO companies on an expansion mode:
While entering partnerships, MRO providers must assess which partnership will help achieve fruition leading to developing cutting edge capabilities and offerings. Also, for supply chain optimisation, choosing locations or stockists for stocking critical components around the world must result in achieving a quick TAT (turn- around time), without having to run up major capital expenditure while moving men and machinery, parts and components.
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Reference Credit:
- Modorintellegence.com
- Deloitte
- Frost and Sullivan
- Roland Berger
- Reftek.com
- Straits Research
- Connected Aviation Today
