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AUGUST 2021

Special Report: MRO Asia-Pacific update

Asia-Pacific airlines shift to parts repair from component replacement

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August 1st 2021

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Asia-Pacific experts at global aerospace components and MRO conglomerate, AAR Corp. believe the region’s commercial aviation recovery will begin early in 2022. Read More » “We have seen a glimpse of hope for China and in Taiwan and India with increased activity in an uptick for business in the current quarter,” AAR’s vice president sales Asia-Pacific, Colin Gregory, and senior vice president strategic growth development and business development, Rahul Shah, said. “We have started to gear up for the increased opportunities by deploying the right investment and resources available to us,” they told Orient Aviation earlier this month.

“The recovery will depend on how fast each country vaccinates its population. The earlier they achieve 70%-80% in vaccinations travel will bounce back sooner for those countries. Except China, which has air traffic demand above pre-COVID-19 levels, countries like Australia, New Zealand, Taiwan, Brunei and Singapore have a good chance of achieving herd immunity with South Korea, India and Japan next in line. Acceptance of the IATA Travel passport initiatives in these countries will boost travel and utilisation of aircraft and therefore MRO,” they said in written answers to Orient Aviation.

“The reduction of commercial passenger air travel to near zero shortly before our fiscal year began and the persistently depressed levels of commercial traffic throughout the year tested our industry and our company to a degree that was previously hard to imagine. At AAR, one of our values is to “Find a Way, Every Day”. That has never been more important than it has been in the last 16 months. We are emerging from the crisis as a stronger more focused company,” Gregory and Shah said.

“One example is a reduced dependence on Power-By-Hour for component support of airlines. We have shifted to a ‘Time and material’ concept with exchanges and loans to support airlines in the AOG situation and in their operations,” they said.

“There also is an increased Used Serviceable Material (USM) requirement for both air frame and engine parts as airlines strive to save money on MRO.

“Historically in the parts business, the primary aftermarket focus has been engines and we expect to see the most opportunity for us in the sector to continue to be supplying engine parts, not overhauling engines, but supplying engine parts in most cases to shops that performed the overhauls.

“And again, there is a tremendous amount of cost savings opportunity for customers when they want to overhaul engines by using aftermarket engine part materials as opposed to buying new from the OEMs as 70% of the cost of overhauling engines are the parts.”

With the advent of COVID-19 across the globe, AAR consolidated multiple facilities, made permanent reductions in fixed and variable costs, exited or restructured several contracts in under-performing commercial programs and completed the divestiture of some unprofitable businesses.

“We believe USM, thanks to likely increased user adoption of aftermarket material, will grow back to pre-COVID levels. In particular, we created a partnership with Fortress to supply USM on the CFM56-5B and -7B engine types and we expanded our distribution relationship with GE subsidiary Unison. We also have entered into a 10-year agreement with Honeywell to be an exclusive repair provider for certain 737 MAX components. Most recently, we signed a multi-year agreement with United [Airlines] to provide 737 heavy maintenance at our Rockford [U.S.] facility,” AAR said.

Several scenarios have evolved in airline MRO in response to the pandemic. “Airlines are in cash-conservation mode, deferring MRO, leveraging green time engines, burning inventory and considering alternative material choices parts (USM, PMA, Part repair) to avoid maintenance events,” Gregory and Shah said.

“They also are leveraging big data from aircraft health monitoring & predictive maintenance to improve reliability and reduce costs. Partnerships are being created with OEMs, MROs and distributors for end of aircraft life strategies and sunset aircraft to reduce costs and better predict cash flow.

“Additionally, there is a trend towards repairing rather than replacing parts or to substitute with USM which impacts repair sales, and evaluating MRO outsourcing versus in-sourcing to reduce costs and competitiveness.

“But we are optimistic the significant recent increase in U.S. domestic leisure flying is both enduring and a leading indicator of a return to business in international travel. We’ve seen a nice recovery in heavy maintenance and expect that performance to continue. We have established programs to train skilled technicians, which serves us well.

On the parts side of the business, the AAR team and their colleagues forecast the USM market has the potential to exceed pre-COVID levels. Their prediction is based on customer responses that indicate there will be an increased acceptance of USM in the aftermarket in Asia, Europe and the U.S. “Obviously, we need to make sure we have material to supply them, but we see the potential for even greater growth out of that business over the next couple of years,” Gregory and Shah said.

Very bullish on aircraft new parts sector
“On new parts, we remain very, very bullish on that business. We have announced a number of new distribution agreements in the last couple of years. There are more in the pipeline that we plan to announce. That business, as we add more parts, both on the defense side and the commercial side, we definitely see growing beyond pandemic levels.”

 

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