Labour rates in Asia stimulate competition in developed markets

MRO outsourcing has been relatively long recognized by airlines as one of the major ways to cut down on OPEX. However, offshoring aircraft maintenance and repair services to the emerging markets, particularly to Asia, might soon prove to be less economically viable than it has been for several years now. The main culprits behind the change are the growing local demand and the increasing presence of OEMs in the global market. The rising demand and the service prices, as well as the new players in the market are not only stimulating competition, but are also prompting MRO providers in the developed markets to consider the best ways of maintaining proper qualification of the regional MRO specialists.

The outsourcing of maintenance services, which account for around 17% of total aircraft operating expenses, has become a universally recognized necessity. As TeamSAI estimates, currently 84% of all MRO work is being outsourced and the percentage is steadily rising. There are many factors contributing to such a trend, the cost of maintaining an in-house maintenance team being one of the most important ones. Thus, if engine and component repair segment is currently being mainly controlled by OEMs, many carriers tend to move the heavy and base maintenance work to the emerging regions, primarily in Asia, as they offer approximately 30% cheaper yet efficient services. However, the narrowing gap between the MRO labour rates in the developing and the developed markets is bringing to consideration more factors than just the economic benefits.

“Asia-Pacific economies keep showing strong growth and the region’s share of the global GPD is expected to increase from 28% to 36% by 2032. Moreover, the situation with the qualification of MRO personnel in the region is steadily improving due to newly developing joint MRO ventures and training facilities. Thus, the rise in the MRO labour rates was only a matter of time,” shares Kestutis Volungevicius, the Head of FL Technics Training. “It’s estimated that the salaries paid to technicians in the emerging markets will almost reach the level of those paid in the developed regions relatively soon. As a result, it is highly likely that in the nearest future outsourcing maintenance to Asian countries won’t be economically justifiable. What’s more, since the fleet renewal process is especially rapid in the emerging markets, their own MRO capabilities might be just enough to satisfy the local demand, so the work from the developed regions will have to migrate back home.”

The process of global fleet renewal not only brings challenges to aircraft manufacturers, but is also changing the global MRO market landscape. Firstly, there is a growing presence of OEMs in the region to consider, since major manufacturers have an understandable interest in providing the necessary maintenance services themselves. As a result, TeamSAI reports that almost 85% of all component MRO services are already being outsourced to OEMs, with a similar success in the engine repair market. Under such circumstances, smaller independent MRO providers will not only have to adapt their capabilities for the needs of new technologies, but will also face the need to compete with the industry giants offering comprehensive solutions.

“If the increasing business of Asia-Pacific MRO providers seems almost effortless, the MROs in the developed countries must come up with solutions which are attractive enough for the ever more demanding carriers. And if cutting down MRO costs prove to be no longer an option (since the value of shop visits will probably rise, despite the longer intervals), the MRO capabilities, the turn-around-time and the quality of work are the factors requiring most attention,” explains the Head of FL Technics Training. “While optimization through automatization is a useful decision, it must be remembered that aircraft maintenance is still largely a human skills-based service. This raises the issues of not only having the necessary human resources, but also finding the adequately qualified training personnel in order to maintain and raise the qualification of maintenance staff. Investments in qualified manpower are absolutely necessary for any MRO provider wishing to remain competitive, especially in the economically challenging times.”