Is Middle Eastern in-house engine MRO on the road to overcapacity?

Due to the on-going rapid fleet expansion process in the region, the engineering divisions of airlines based in the Middle East as well as third-party MRO providers have been building up their engine overhaul capabilities. Moreover, the local players are ambitious enough to project the possibility of not only becoming independent from the providers in Europe or Asia, but also of grabbing the slice of the global aftermarket. However, despite the expansion of the Middle East-based airlines, some experts believe that the new facilities may prove to be incapable of attracting sufficient number of customers in order to survive.

Carriers in the Middle East have been rapidly expanding their fleets for a couple of years now, placing record orders for new aircraft in order to meet the rising demand for air travel in the region. Currently, Emirates alone has a fleet of 200+ aircraft with a solid book of firm orders for 385 more. Naturally, the upcoming shift towards newer generation aircraft indicates that, in a few years’ time, the market share of the popular current generation engine series might slowly start shrinking, giving place to newer powerplants.

Such market dynamics and successive growth in demand for the appropriate MRO support have prompted the engineering divisions of local carriers and independent MRO providers to significantly expand their facilities. For instance, Emirates is currently building an overhaul shop next to the engine test cell at Dubai International Airport whilst Abu Dhabi Aircraft Technologies (a member of Mubadala MRO network) has recently launched a $150 million-worth overhaul shop for General Electric GEnx and Engine Alliance GP7200 powerplants. The latter facility is expected to support about 200 overhauls per year. Moreover, Turkish Technic also opened an engine overhaul shop together with Pratt & Whitney at Istanbul's Sabiha Gökçen airport back in January 2010.

Meanwhile, according to the industry experts, currently the joint venture is operating nowhere near its capacity limit. The facility is designed for up to 300 engines a year - about two thirds CFM56s and one third V2500s - but it only handled about 70 powerplants in 2012. Moreover, the growth in the engine MRO industry in general has been challenged by a lower than expected number of shop visits for much of 2013, which can be attributed to both the improved performance of new powerplants and the fact that more and more airlines tend to defer their maintenance services.

Despite the fact that most of the aforementioned expansion projects are partnerships with engine makers, the OEMs have expressed their doubts whether all the new shops will find enough clientele to make operations viable. For instance, in 2013 Pratt & Whitney decided to close the facility in Norway because of overcapacity. The representatives of GE Aviation Services have also stated the manufacturer is unlikely to set up its own facility in the Middle East because of a worldwide overcapacity for CF6, CF34 and CFM56 overhaul versus shop-visit demand by a factor of 2.5 to 3. In addition, considering the fact that such third-party MRO groups as Air France Industries KLM Engineering & Maintenance or Lufthansa Technik are also trying to gain a foothold in the Middle East, the survival of the newly-established shops is definitely in question.

“Many of the new entrants in the Middle Eastern engine MRO segment heavily rely on the futuredemand, generated by the expanding local fleets. Nevertheless, winning the third-party work will also be crucial, as with the exception of Emirates, not a single airline has a fleet that is large enough,” says Andrey Baydarov, Chief Engine Analyst at FL Technics. “However, most of the new products are tied by long-term support agreements with OEMs. In addition, there is a range of the already well-established independent MRO providers in Asia and Europe providing support for various products, including PW4000-100/112 and CF34-8/10 engines. For this reason, new Middle Eastern market entrants may have a hard time attracting this kind of work. The fact is that the global engine MRO market can be easily served from its European facilities, as shipping powerplants from Middle Eastern customers accounts for only a small percentage of the total overhaul costs. Therefore, since outsourcing to a comprehensive, single-source solution could offer incremental savings, the newly established facilities are likely to really struggle in order to survive.“