A continuous global aviation fleet growth does not necessarily entail significant developments in the MRO market. Over time maintenance requirements per aircraft tend to decline because each generation of commercial aircraft or business jets is engineered to require less and less maintenance than the preceding one. This tendency has progressively changed over the last couple of years as the increasing financial pressure on airlines has forced them to seek ways to further reduce costs. According to FL Technics Jets, the MRO business is changing rapidly and the aviation industry growth will continue to generate new challenges for the MROs operating according to a one-stop-shop principle.
20 years ago after the Eastern European region opened up for partnerships with and investments from the Western organisations, many MROs were established based on calculations made with lower labour cost in mind. Over the last few years the labour rate advantage in the region has become marginal; however, according to the FL Technics Jets experts, it is still a highly important factor and, compared to Western MRO organisations, companies can still save up to 30%-35%. Nevertheless, the Eastern European market is expanding dramatically, and in no time the price differences between Eastern and Western European MROs will be the thing of the past.
‘For instance, the price on the final invoice for the common c-checks provided in Bulgaria and Germany looks practically the same. Due to elaborate Western European IT systems, c-checks are performed within 5 days; the same service in the Eastern MRO companies can take up to 8 days. From the perspective of price, each MH costs a Western organization about EUR70, while in the East the same MH costs only EUR36-40. Despite this obvious price difference one must take into account the time that an aircraft spends on the ground – usually the owner ends up paying the same price”, - says Darius Saluga, the CEO of FL Technics Jets.
FL Technics Jets experts emphasize that the growth in MRO activities will not follow the same trends as the entire aviation industry. With new aircraft entering the market there will be even more pressure on improving cost and performance indicators. According to the Bombardier Business Aircraft market forecast, over 60% of all new business jet orders are intended for replacing currently owned aircraft. Needless to say, each new generation of aircraft is more sophisticated than its predecessor.
According to Aerospace Global Report 2011, the engine manufacturing outlook seems positive. As airlines all over the world are faced with extreme pressure to lower the emissions and minimise environmental harm, experts anticipate ample demand for greener and more fuel-efficient engines. Over the next 20 years this demand is expected to reach 141,000 engines estimated at over USD800 billion.
Especially reliable CFM 56-5 and -7 engines, which power A320 and NG 737, GE Passport for Bombardier Global 7000/8000 or PW 617F-E for Embraer Phenom 100, enables aircraft to run considerably longer without the need of any servicing. For example, the B737 NG requires roughly half the scheduled man-hours compared to the predecessor classic B737 types. Moreover, the current average life of an aircraft is 25 years, while the older types would have retired much earlier. However, modern replacements offer better fuel efficiency. As a result, retirement ages are reducing and it is possible that the average lifespan could reduce to 15 years.
Furthermore, the trend of airlines outsourcing MRO work to continue - around 90% of engine MRO, 30% of line maintenance, 85% of component support and 75% of heavy airframe maintenance support is outsourced. Not only price, but turnaround time and quality of maintenance are key factors in an airline's decision to select an MRO provider.
‘As concerns the major MRO trends the global aviation maintenance industry has excess capacity yet the obsession with building new hangars remains strong. In our opinion, Europe is over-crowded with hangars and there is absolutely no point in building new ones, especially in the same region and only for commercial aircraft or business jets. Instead MROs must focus on completely utilizing of the existing ones”, - says D.Saluga.
According to D.Saluga, a great example is the commercial aircraft MRO provider FL Technics, operating fully packed hangars in Vilnius and Ukraine thus successfully minimising time gaps between each provided aircraft maintenance service. Another rule of thumb when aiming to fully utilize the potential of maintenance facilities is to avoid building hangars in the already well-stocked markets. That is why FL Technics address the most promising regions. Currently the company is in the final stages of preparations for building hangars in Ulyanovsk, Russia, where the company has already established a considerable client base and extensive favourable connections. According to FL Technics Jets, their business philosophy is clear: Firstly, fill all hangars with aircraft; Then, and only then, depending on the market demand in the region, you can build new hangars. Hangars in new regions make sense only if you already have clients.
‘Everyone wants to have their own hangars, especially for different types of aircraft, but does anyone make a proper comparative cost-benefit analysis if filling the same hangars with both commercial and business type aircraft? Has anyone attempted to estimate how many engine shops are needed at the moment, for example in Malaysia? In Kuala Lumpur about 100 engines are repaired every year. They are recovered for 10 K cycles allowing an aircraft to fly for another 8 years. But these aircraft will not be in the market after 2-3 years. Despite this easily obtainable information there are still way too many engine shops in the market. Instead of focusing on establishing own hangars or shops companies should direct their attention towards searching for the best financial solutions, developing the necessary technical know-how, increasing cost-effectiveness and perfecting customer service.’ – explained D.Saluga.
Airlines are increasingly looking for one-stop-shop solutions based on a long-term commitments to certain providers. However, while the global MRO industry tends to shift to more capital-intensive business models, the Eastern European MROs may face the danger of being under-cashed for successfully entering the market of premium value NG aircraft and establishing operator-wide deals. It may be very difficult to compete for large, fleet-wide deals against the Western MROs that are commonly backed by global MRO brands, or large financial institutions that offer a mix of financial and maintenance solutions.
‘Many nowadays companies struggle financially. There are countless examples when a client requires c-check services, but a provider does not even have money to pay for the needed part or component – they are forced to ask the customer to provide it. Another example is when a financially well-off company acquires another party’s running engines. They pay $300 M and lease the same engines to the previous owners. In the future the financial instruments will influence more and more MROs, including those servicing commercial aircraft and business jets”, - noticed D.Saluga.
The Eastern European MROs are at the crossroad. They can either catch the new exciting wave of new technologies and platforms whilst supporting them with major investments, or stay behind and focuse on small to medium local operators, often operating older types of aircraft. Access to cash for shifting technologies, ability to offer attractive maintenance and financial solutions as well as true customer focus will determine the winners of this highly competitive gameplay.
Another no less important question to ask is ‘where to from here?’, i.e. which of those local MROs will continue to play the role of back-offices to global MRO networks, which ones will develop their own identities and product ranges, and which ones will simply disappear from the MRO landscape. The region can still offer plentiful opportunities, even greater as compared to the decade ago, when the region was ‘discovered’. However, it calls for much more hard work, more investments, and a highly innovative approach. Otherwise achieving real tangible results and competing against the existing regional players equals to mission impossible. The current MRO market is largely controlled by the OEM, operators as well as independent and airline third party companies. A number of national airline carriers have withdrawn from the business entirely and are currently in the role of subcontractors only. Some airlines separated MRO operations from air passenger carrier business, others have continued doing in-house work as integrated organisations.
‘In the last several years the competition has become even more aggressive. Everyday airlines sign long-term, full-support agreements with the OEMs and some large MRO groups are able to offer maintenance contracts at cut-throat prices thus effectively acquiring considerable market share. Moreover, the new-generation aircraft types require overwhelming investments and intensive engineering efforts for establishing all the necessary repair capabilities. These new aircraft are very high-tech, in that sense they are like flying sets of software. The difficulty here lies in the fact that manufacturers are largely in control of the software and core processors.” – comments D.Saluga.
According to the Aerospace Global Report 2011 data, as technologies are becoming increasingly sophisticated and the OEMs are more than ever focused on their core competencies, efficient MRO management requires more specialized services. Compared to the 1970s-80s, when the U.S carriers used to manage more than 80 percent of their aircraft maintenance in-house, the current comparable figure is only around 20 percent.
The obvious question here is whether in order to survive in the future market the third-party maintenance providers need to form partnerships. Independent maintenance companies in particular have come under increasing pressure from both the original equipment manufacturers and large, airline-affiliated MRO groups to be squeezed out of the aftermarket.
All in all, the MRO business is changing rapidly. Most customers prefer one-stop-shop solutions in both commercial and business type aircraft maintenance markets. Therefore MROs must develop expertise in core activity areas, implement cost reductions and new efficiencies, adopt supply chain innovations, focus on reliability and dependability; expand market offerings and geographical reach, pursue full-service capabilities and identify value-oriented innovations.