Asia-Pacific MRO riding high on airline recovery wave
Asia-Pacific MRO is back to pre-pandemic revenue performance but challenges lie ahead if forecast growth is to be maintained, reports associate editor and chief correspondent, Tom Ballantyne.
A new 10-year forecast of MRO demand in the Asia-Pacific predicts the sector will recover beyond its 2019 peak of US$17 billion to US$18 billion and continue to grow at a compound annual growth rate of 1.8% to 2033. Read More »
India, China and the Middle East will be MRO’s fastest growing regions with India forecast to expand at 12.4% annually followed by China (6.9%) and the Middle East (4.9%).
Consultancy Oliver Wyman, in its Fleet and MRO Forecast, reports the market grew 18% in 2022, to $77 billion, as the global fleet expanded, more commercial aircraft flew and air travel demand rose. “In 2023, MRO spending will reach $94 billion, a mere 2% below the market’s 2019 peak of $95 billion according to our analysis,” Oliver Wyman said.
“Between 2023 and 2033, we expect the market to increase at 2.9% per year and breach $125 billion in those 10 years. It’s simple math, except for the variables that make the outlook much less straightforward.”
While these figures outline a solid recovery in MRO business after the three rocky years plus of the pandemic, an overwhelmed supply chain, inflation and the Russia-Ukraine war, the collective industry still has plenty of challenges to address.
“Like the rest of the global economy, the MRO sector struggles with labor shortages and supply chain disruptions. These present major capacity constraints just as deferred maintenance comes due on fleets being returned to service,” the report warns.
MRO growth forecasts vary, but they all point to a healthy future for the sector. Delaware-based MENAFN (Middle East North Africa Financial Network) projects the global MRO market will be $87.43 billion by 2030, driven by rising investment in aircraft MRO, growth in air travel and an increasing government focus on the aviation sector. In 2023, the Asia-Pacific is expected to account for the largest share of the global aviation MRO market followed by North America, Europe, Latin America, the Middle East and Africa, it said.
“The region (Asia-Pacific) has experienced significant expansion in its aircraft fleet in the past decade, which has increased the demand for engine MRO service providers from the U.S. and Europe to establish maintenance facilities in this region,” MENAFN said. “Also, several airlines have partnered with engine MRO service providers to develop in-house capabilities and reduce overseas maintenance costs. Such developments are driving the growth of the aviation MRO market in the Asia-Pacific.”
Engine MRO accounts for the largest share of the market; both globally and in the region. In 2021, said data provider, Statista, aircraft engine MRO in the region came in at a little above $5 billion. It is forecast to increase to almost $11.5 billion by 2031.
Separately, Mordor Intelligence projects the overall aircraft MRO market in the region will grow from $16.14 billion this year to $21.34 billion by 2028, at an annual rate of 5.74%.
In the Asia-Pacific, 2023 is marking a speedup in fleet recovery in a region heavily dependent on the international segment. “Because of that fact, the Asia-Pacific has trailed other regions in fleet and air demand growth. The Asia-Pacific will see a rise in MRO demand in the early years of the forecast, as maintenance deferred over the last three years comes due,” the consultancy said.
It also anticipates a record number of aircraft deliveries in the next decade even though supply chain constraints are making it hard to meet this year’s targets.
“However, the Fleet and MRO Forecast highlights the significant headwinds the industry faces in the next decade, particularly tight labor markets across almost every aviation job category from pilots, mechanics and ground crew to air traffic controllers,” Mordor Intelligence predicts.
Oliver Wyman’s analysis has identified supply gaps that amount to 18% of the pilot workforce in 2023 and 14% of aviation mechanics. Ongoing production delays, linked to supply chain disruption and higher operating costs, continue to strain growth projections. As well, price increases have touched everything from jet fuel and salaries to aircraft parts putting pressure on airline earnings, it said.
Shortages of pilots, airport ground crews and air traffic controllers received the public’s attention in 2021 and 2022, but “another labor supply imbalance, a shortfall in aircraft mechanics looms”, Wyman said.
“It is primarily a North American problem like the pilot shortage. But we expect other regions to feel the squeeze with both pilots and mechanics as fleet and demand surpass previous peaks,” it said.
Nevertheless, strengthening demand in the Asia-Pacific and China in particular has MRO providers scrambling to expand their shops. For example, a new $8 million GE Aviation Systems Australia facility has opened employing more than 80 people. The expanded facility at Brisbane Airport is its largest in the region. The company maintains propellers, flight management systems, instruments and aircraft power systems as well as maintenance on 737, 787, Q400 and F50 regional aircraft.
Another global MRO leader, MTU, is adding capacity to meet the engine shop visits being booked by customers. “All available shop visits in our (Zhuhai) facility are sold out to near year-end, and this is not just with joint venture partner China Southern,” said chief program officer, Michael Schreyögg, at a briefing at June’s Paris Air show. “It is demand from airlines in the region and from the rest of the world. Demand is definitely big. We have to increase our capacity very quickly.”
MTU and China Southern jointly operate the Zhuhai shop, which services CFM56-5Bs and -7Bs, Leap-1As and -1Bs, IAE V2500-A5s, and Pratt & Whitney PW1100G-JMs. Increasing demand has prompted construction of a second facility in nearby Jinwan. Scheduled to open in 2025 and to ramp up to 260 annual shop visits, it will focus on PW1100G-JMs and V2500 engines.
Construction of the facility’s test cell was fast-tracked, due to overwhelming demand, and opened last June. MTU’s overhaul capacity in China will be full from next year, Schreyögg said. Given MTU generates 15% of its aftermarket revenue from China, investing in a new facility to add overhaul capacity starting in 2025 was an easy decision.
While engine MRO is the largest segment of MRO, Oliver Wyman said demand for airframe MRO is usually resilient because of mandatory calendar-driven maintenance events. “During COVID-19, so many aircraft were in approved storage programs, effectively pausing the calendar for maintenance task intervals and allowing airlines to defer most of the work until their aircraft were back in service. Last year, as these aircraft were emerging from storage the airframe MRO market grew from $17 billion in 2021 to $20 billion in 2022. In 2023, the market is forecast to dip slightly to $19 billion, the consultancy said. The small decline is driven by fewer aircraft returning from storage in 2023 than in 2022, reducing demand for service checks and maintenance.
Line maintenance, driven by utilization and calendar time and comprised of check schedules recommended by manufacturers and required by regulators, is predicted to increase $13 billion, up 16% from 2022 and representing a full recovery to pre-pandemic 2019.
The component market, to some degree dependent on scheduled maintenance, is primarily driven by increases in fleet size and utilization. As airlines did with engine MRO, they deferred some component maintenance during the pandemic by harvesting more costly components from stored aircraft.
As aircraft returned to service, component maintenance began to recover. In 2023, it is expected to achieve its 2019 level and grow 2.1% annually, to $23 billion by 2033, Oliver Wyman predicts. “While the component MRO segment is parts from nose to tail of the aircraft, certain components represent a larger portion of the market, including auxiliary power units, avionics, landing gear and wheels and brakes. These categories will account for nearly 50% of the component market in the forecast period,” it said.
Overall in 2023, the MRO market will be close to is 2019 peak and surpass pre-pandemic levels in 2024. Two trends are driving the recovery: increases in airline narrow-body fleets to meet domestic demand and catch-up in deferred maintenance on aircraft being brought out of storage.
|Russia-Ukraine war exacerbates component shortages; boosts PMA sector
The airline MRO sector has not escaped the impact of the Russia-Ukraine war. The conflict is seriously affecting critical supply chains. Parts availability continues to pose a challenge to the market, analysts unanimously agree.
After the outbreak of the pandemic in March 2020, airlines began defraying costs by harvesting used serviceable materials (USM) from retired aircraft. The practice burned through inventory, cannibalizing aircraft and taking advantage of green time - the extra weeks, months or years of use left on parts they could retrieve.
Along with the financial disorder in commodities markets caused by the war and sanctions imposed on Russia by the U.S. and other Western nations interrupted Russian shipments of raw materials including titanium, aluminum, nickel, oil and gas. Aerospace manufacturers have had difficulty obtaining metals and the entire industry continues to face higher prices as global inflation and fuel prices recently reached levels not seen for years.
When COVID restrictions were eased and demand returned, lead times on new and repaired components lengthened, sometimes by as much as a year, and workforce constraints became more conspicuous. With the tight supply, the cost of parts soared, putting additional financial pressure on MRO shops already scrambling for workers.
The parts shortages also encouraged airlines and MROs to pursue alternatives to salvaging parts and reducing costs, including more parts manufacturer approval components (PMA). PMAs are Federal Aviation Authority-authorized replacement or modified parts produced by manufacturers other than the original producer.
Repair stations also are incentivized to create and utilize repairs approved by Designated Engineering Representatives authorized by a regulatory authority to oversee aircraft repairs on parts that are not supplied by the original manufacturers.