The battle for the US$114bn MRO market

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The global aviation market may have just experienced its most profitable period ever, but with mega airline mergers and acquisitions and the increased proliferation of low-cost carriers on both short and long-haul flights, airlines are now having to focus more than ever on their bottom line – and that means their core business processes. As airlines start to focus on serving their passengers and optimizing the customer experience, they are also looking to outsource one of their biggest cost areas – the maintenance of aircraft. This is opening up huge opportunities for service providers.

The latest Oliver Wyman study forecasts continued growth for the MRO industry until 2028, with the value set to rise to US$114bn globally – a jump of nearly 50% over 10 years. In particular, countries in Asia and the Middle East will see a significant hike in MRO spending as regional air passenger demand continues to grow, while the established duo of North America and Europe will witness a steady increase.

This growth is driving a shift in the focus of original equipment manufacturers (OEMs) to target in-service support contracts. OEMs have the experience in designing and building aircraft and are using this position to unlock more revenue through aftermarket services and compete with independent MROs.

OEMs step up to the plate
OEMs are in the unique position of being able to change the original maintenance program written for each aircraft. By having full control, from design to manufacture and in-service operations of an aircraft, the OEMs can paint a complete picture of the asset and use this data to analyze performance.

Because OEMs have this data and design the aircraft maintenance procedures, they determine when work must be done – be it every 25,000 cycles or every 12 years, depending which comes first. As a stakeholder, OEMs can gather enough reliability data to change maintenance plans, removing the need for unnecessary maintenance work.

Distinguished services offer MROs a competitive advantage
Despite this seemingly dominant position, it isn’t by any means a clean sweep for the OEMs to become the de facto in-service support providers. OEMs don’t have the same track record of working for leading international airlines as independent MROs, and those trying to break into new contracts have had trouble getting maintenance information from the airlines, so they must prove they can repair and maintain aircraft as cost effectively throughout their entire lifecycle.

MROs have a wealth of experience in terms of how an aircraft can be repaired or what happens when the aircraft leaves the factory. The larger MROs are also able to go head-to-head with the OEMs as they have the labor pool, capabilities and information to do so – companies such as ST Engineering Aerospace and HAECO do as much airframe maintenance work as the other top 10 global MRO providers combined.

OEMs are trying to find a way to build up and compete with independent MROs, especially in Asia, where companies are taking advantage of a growing market and cheaper maintenance prices. But independent MROs still hold a valuable position, especially if they can differentiate themselves from the competition.

Key differentiators to remain in the game
MROs can use this head-start, not only to differentiate themselves from OEMs, but other MRO competitors as well. There are three specific areas MROs must focus on to win more aftermarket service contracts:

1: Diversify services

OEMs want to be the ‘one-stop shop’ for all maintenance work, but MROs are proving much better at catering for the changing needs of airlines. MROs are much more flexible and can expand and diversify their capabilities to take on a lot of the work airlines want to outsource, including fleet management and line planning, and adapting to new aircraft types. New composite aircraft mean heavy or line maintenance work isn’t happening as often, so MROs are starting to offer management and planning capabilities while still focusing on smaller checks and repair jobs. That’s not to say that the OEMs won’t provide this level of service in the future; however they will need to compete with the MROs’ established relationships.

2: Anywhere, anytime

In a highly saturated aftermarket, efficiency is key to maintaining customer relationships. Airline expectations increase year-over-year in terms of how quickly aircraft are repaired and how well costs are controlled. Improving maintenance operations with the help of new technologies will help MROs stave off competition from OEMs.

HAECO is a perfect example. Unlike most OEMs, and even other MROs, which have aircraft-on-ground teams to go and help stranded aircraft, the company’s mobile capability means a remote team can work on complex composite materials used on new and advanced aircraft regardless of location. If an airline has a damaged aircraft stuck in a remote location, they could take a maintenance team with the capability to repair that aircraft out in the field. Technicians can access electronic task cards, receive job assignments, create non-routine task cards as well as sign off task cards electronically through mobile devices. This ties mobile expectations and maintenance together, with a team that can work anywhere, anytime.

3: Offer choice – full or in part service

Another differentiator for MROs is the price point. Airlines trust OEM products, but their pricing has not always been the primary benefit for airlines. Many airlines don’t want to be locked into expensive full-service contracts. Because OEMs offer overall maintenance packages rather than smaller repair jobs – which might include heavy maintenance, line maintenance and supply chain – airlines are wary of what the full lifecycle costs will be. MROs on the other hand have proven they can return an aircraft back to service as quickly and safely as possible for minimum expense.

The aftermarket battle continues
In the short-term, OEMs will still try to persuade airlines to move to their ‘one-stop shop’ maintenance model but will come under increased competition as independent MROs ramp up their offerings. In the long-term, we’ll see an increase in the number of OEMs acquiring or forming joint ventures with MROs as well as an increase in the number of independent MRO groups, aimed at protecting independent service providers against the dominance and offerings from the OEMs.

But M&A activity alone will not be enough. The building of new capabilities, capacities and partnerships will be key in keeping up with the pace of change from independent MROs, OEMs and the wider commercial aviation market. By demonstrating greater traditional maintenance service efficiency and expanding to new offerings, MROs will not only be able to compete with OEMs, but outshine them.

About the author:

James Elliott is director of the MRO product line for the aerospace & defense business unit at IFS. With experience spanning the airline, defense, OEM and MRO market verticals, Elliott has worked with aviation organizations on the selection and implementation of next-generation maintenance management IT. Elliott is an expert on the impact of technology on maintenance operations as well as the business processes that affect positive change.

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