MRO industry disruption continues as OEMs increase dominance in hangar

November 1st 2018

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ISSUES CRITICAL TO ASIA-PACIFIC MRO PROFITS Read More »
• Regulate standards across the region and subject them to global benchmarks
• Digital will shape the MRO market of the future as optimized digital MRO programs reduce hangar time and put pressure on labour and costs
• Singapore holds 10% of the global MRO market because it has invested heavily in digital MRO systems
• Graduate more technicians and engineers across the region to operate MRO facilities equipped with next gen technology to address industry staff shortages
• All global MROs are increasing partnerships with Asia-Pacific MROs, especially in South and Southeast Asia, to win greater market access especially with airline-owned MRO subsidiaries
• China and India are investing in their domestic MROs industries. The Mainland’s COMAC is a significant example of such investments
• The MRO Industry must develop a transparent, comprehensive framework for mitigating and managing cyber risk
• Asia-Pacific MROs must ensure they build a corporate culture that supports training, fair salaries and diversity in hiring if they are to stem an industry brain drain to MROs beyond the region.

Major trends in airline MRO that will dictate the hangar of the future are the escalating presence of Original Equipment Manufacturers (OEMS) in the aftermarket sector, MRO aftermarket consolidation, the impact of game-changing technology on MRO operations and the necessity to build industry wide defences against cyberattacks.

In the Oliver Wyman 2018 MRO survey, Tackling Industry Disruption, 69% of OEMs identified the charge of the OEMs into the airline MRO sector as the biggest disruptor to their businesses. Those surveyed also believed OEMs to be the most dominant players in the industry by 2021.

The [MRO] industry expected the OEMs, primarily the engine and component manufacturers, to continue to expand as they benefit from control of their Intellectual Property (IP), the Oliver Wyman authors said. OEM-owned IP can limit choices for components and services. Inevitably, prices have risen in the sector as a result.

Ninety seven per cent of the survey’s respondents reported increases in the costs of materials in the last 12 months and said they feared OEMS would recapture more IP as their MRO business expanded. Airlines faced additional cost pressures as a shortage of skilled technicians was pushing up the cost of labour across the region.

Technician billed rates per hour in 2018, to date, are US$70 in Western Europe, low US$50s in the U.S and Eastern Europe, mid US$40s in China and Latin America and US$43 in South Asia.

Boeing Global Services has a goal of being a US$50 billion a year company, in a combination of commercial and military MRO, by 2026. In 2016, Airbus predicted the OEM aftermarket would increase to US$3 trillion by 2035 with MRO work making up $1.8 billion of the total. The Toulouse manufacturer said the sector would expand by 4.6% a year.

Oliver Wyman wrote that some MROs have or intend to form partnerships with OEMs to ensure component supply. Others are employing Used Serviceable Materials (USM), which is the scrapping out of out of service aircraft and the re-using of their components. Seventy six per cent of survey respondents said USM would increase.

Honeywell Aerospace senior director commercial aviation, Sathesh Ramiah, told Orient Aviation last month that airline MRO is booming in the Asia-Pacific with Airbus forecasting the region would have a total spend of US$660 billion by 2036.

“This has led to growing interests and investments from airlines, OEMs and logistics companies to bolster their capabilities, especially in developing countries seeing a rise in passenger traffic prompted by the penetration of low-cost carriers in these markets,” he said.

Honeywell’s most recent connected airport report confirmed predictive maintenance is a priority for investment by airlines because it offered massive potential for cost savings and improved operations. Data from the report showed nearly 60 percent of airlines are looking to purchase predictive maintenance technologies in the next 12 months and even more are expected to do so further down the road.

Cathay Pacific Airways, the Singapore Airlines Group and Hainan Airlines are among the carriers in the region that are using technology to make their operations more efficient. By leveraging connectivity and big data, operators and maintenance crews can gather real-time data wirelessly from auxiliary power units (APU) and other components and report any potential component failure before it happens. Trials by Honeywell show its GoDirect Connected Maintenance solution can reduce APU-related flight delays by 35% and provide 99% accuracy when predicting part failures.

The Indian national government has made the development of a future gen MRO industry on the sub-continent an investment priority. It has estimated opportunities in the MRO civil aviation and defence sector to be worth US$2.25 billion by 2025.

In a joint venture with Indamer Aviation, AAR is building an MRO airframe shop in Nagpur India that will include upgraded training programs for the Indian MRO’s technicians. While the facility is being built, MRO training of selected Indian staff will be done at AAR facilities in the U.S.

The government allows 100% foreign direct investment for MRO, flight and technician training academies and a ten year 100% tax exemption for airports.