Third-party MRO players in the Asia-Pacific region see a number of challenges in the coming years, ranging from increased OEM involvement in the industry to more assertive customers. Still, they are optimistic about the opportunities available to them, and are taking steps to create new lines of profitability. Most important, they are confident of their relevance as the world’s aircraft fleet and airlines evolve.
It is clear that the MRO market is huge, and will only grow. This makes it highly lucrative both for the OEMs and existing market players. A recent study done by ICF International indicates that the MRO market will grow from $62 billion in 2014 to $90 billion by 2024, with the industry representing between 10-15% of the total cost of ownership of an aircraft. It believes that more fuel efficient types could also enjoy longer service lives, creating opportunities for MRO work.
The fleet numbers tell it all: Boeing predicts 26,730 new aircraft will be needed globally over the next two decades, of which 38% will be needed in Asia. Airbus predicts 32,585 new aircraft deliveries out until 2035. Airbus adds that Asia-Pacific will also become the most important air travel market in the world, with 36% of the world’s RPKs by 2034.
In discussions with Flightglobal, senior executives at Asia-Pacific MRO firms listed three key challenge areas. Newer, advanced aircraft will require fewer man-hours during heavy checks, with tasks previously earmarked for heavy maintenance now taking place on the flight line. Added to this is an increased desire from the OEMs to provide comprehensive aftersales support, and the perennial challenge of finding trained staff.
Norbert Marx, general manager at Guangzhou Aircraft Maintenance and Engineering Co (GAMECO), says the “significant drop” in man-hours can be attributed to more maintenance work moving toward line maintenance “in a preventive and predictive manner.”
He adds: “There is irony in the situation that causes our business to be inversely proportionate. MROs want to sell man-hours, but big data allows all parties involved to analyse and draw the right conclusions to make smarter MRO decisions that decrease man-hours.”
Air Works’ managing director, Vivek Gour reckons the fall in MRO man-hours began as early as 10 years ago, due to far less intensive work on new-generation aircraft: “We are seeing gaps between checks increase from between nine to 12 months, to 15 to 18 months today. MRO activity has also been pushed down to A and B checks.”
Gour, however, sees a silver lining. Due to the surge in aircraft numbers in Asia-Pacific, there will be ample capacity in the region to enable supply to cope with demand. ST Aerospace also echoes a similar sentiment. Its chief operating officer, Jeffrey Lam, says that MROs need not worry because demand for maintenance needs will inevitably increase with global fleet size.
OEMS MUSCLE IN
That said, although fleets are growing, OEMs and engine makers are increasingly signing support deals directly with airlines, cutting independent MRO providers out of the loop. In June, for example, Thai Airways International signed a long-term service support contract with Rolls-Royce for the Trent 1000 engines that power its six Boeing 787-8s. In the same month, Rolls-Royce expanded its agreement with Singapore Airlines to cover nonroutine on-wing engine maintenance to include aircraft-initiated line, engine change and staggered checks.
In June, Boeing said it had revived its GoldCare aftermarket support product and has expanded its coverage to aircraft other than the 787. Boeing has expanded the integrated solutions product to cover other aircraft types. It has secured deals to service 777s and 747-8 Freighters, and will offer the product to operators of the 777X and 737 Max. This coincides with improved sensors being deployed in aircraft, which can help predict maintenance issues with components before they become a problem.
ST Aero’s Lam says that as an independent MRO his company acknowledges the increasing threat from OEMs but feels it still must work closely with them. “Their technical data is very important, which is part of a larger supply of technology. We also want to be part of their network to provide services.”
Marx adds a warning for the airlines: “It is critical for airlines to maintain options in the future. OEMs are not strong with line maintenance, but when more third-party MRO business closes, OEMs can afford to dictate price since alternatives are gone. It will be too late then for airlines.”
Perhaps the other big challenge is the sheer number of technicians that need to be trained up in the coming years. The Boeing Pilot and Technician Outlook predicts that Asia-Pacific will need up to 238,000 new technicians from now till 2034, of which China will require around 44.5% of the total. This is followed by Southeast Asia which will need around 60,000 technicians.The challenge for MROs will be to generate a constant pipeline of new people.
Gour says Air Works has kept its workforce of technicians familiar with older aircraft, and worked with local institutions to hire fresh trainees to work on new-generation aircraft. “As we receive maintenance work from aircraft as old as 30 years and new-generation ones, there need to be different groups of experts. The difference in maintaining different-generation aircraft is like night and day, hence the required expertise on both areas.”
Over at ST Aero, Lam adds that one of the company’s key areas of focus is to groom its pipeline of continuity, whilst diversifying its operations to ensure capacity. “We do this by establishing overseas facilities, allowing us to grow whilst maintaining manpower. The best scenario will be to grow revenue without growing headcount by too much.”
FRESH OPPORTUNITIES
Despite the changing trends in MRO work and competition, companies have turned to non-MRO work to ensure a steady stream of revenue that helps to augment and diversify their business.
GAMECO and ST Aero see strong potential in passenger-to-freighter conversions capabilities.
At the Paris air show this year, ST Aero announced its completion of the critical design review for its Airbus A330 P2F conversion programme, and also secured EgyptAir Cargo as a launch customer for the -200 variant in 2016. ST Aero said it was targeting converting between 250 and 300 aircraft for the programme.
GAMECO also expects the first A321 P2F conversion to be completed by the end of the first quarter of 2016. The project is part of an investment programme that sees the purchase of end-of-lease A320s that are sent for refurbishment and sold back onto the Chinese and Asian markets.
Meanwhile, GMF intends to place extra focus in cabin refurbishment, given that cabins tend to have a five-year cycle. “It is a product that will help the airline refresh their aircraft,” says GMF AeroAsia chief executive Richard Budihadianto.
To stay in the game, companies tell Flightglobal that their success is dependent on three broad categories: quality, turnaround times and competitive costs. With revenue a key cog in their business, airlines appreciate less ground time and would be willing to pay more for higher quality and faster turnaround times to expedite their flight operations.
Despite having good infrastructure, the Asia-Pacific region is also blessed with cheap labour costs compared with Europe and the Americas. Low fuel costs have added an extra impetus for carriers to fly their aircraft to the region for MRO work. However, MRO firms in the region say they will have to work harder to provide more value-added services to remain attractive.
“Europe will still control the big data, but that is easily transferrable even as they close their labour-intensive work and move [capabilities] to this region,” adds GMF’s Budihadianto. “They just cannot compete with us in terms of cost.”
Source: Cirium Dashboard
