Outsourcing of heavy maintenance is expected to outpace the recovery in the MRO market in the Americas, which is set to remain sluggish

The maintenance, repair and overhaul (MRO) industry, in the Americas and elsewhere, is hoping to see the beginnings of a modest recovery this year, one to two years ahead of the aircraft manufacturers themselves, as airlines respond to growing demand by catching up on deferred maintenance and upgrades and removing aircraft from desert storage. But as last year showed, recovery can be elusive and fragile.

In late October, analysts Back Aviation Solutions and Strand Associates (SAI) revised their MRO world market forecast downwards by over 4%, to 8.5% below their 2002 figure, after the SARS virus, the Iraq conflict and other factors postponed the expected airline recovery. Back and SAI expected the world MRO market to be worth $34.6 billion last year, down from its original forecast of $36.1 billion and its estimate for 2002 of $37.8 billion.

Cautious approach

The companies see encouraging signs that the industry is starting to recover, but do not expect the market to return to its 2001 peak of over $42 billion before 2008. The recovery will be slow, they say, because airlines are being cautious about adding capacity as demand returns. Relatively few of the 1,600 jets in storage at the start of 2003 had been returned to service by the year-end, and many had been permanently retired.

While older, more maintenance-intensive, commercial aircraft have been removed from service and replaced with newer models still several years away from heavy maintenance, the MRO industry is expected to receive a boost as stored aircraft are returned to service. Most of the aircraft were parked in the desert when they came due for heavy maintenance - which will have to be performed before they can re-enter airline service.

The decrease in heavy-maintenance requirements that resulted from the post-11 September capacity reductions and fleet changes is expected to be reversed over the next five years as the large number of aircraft delivered in the late 1990s come due for their first heavy checks. Back and SAI forecast that heavy-check hangar days, which fell from just under 20,000 in 1998 to just over 10,000 in 2002, will bulge to over 27,000 in 2008.

Goodrich, one of the major players in commercial aircraft MRO, says the ageing of the Airbus and regional jet fleets will drive aftermarket growth. The proportion of the Airbus fleet aged five years or older will grow over 14% annually during the next five years, while the regional jet fleet will pass the five-year watershed at almost twice that rate, the company calculates. This will drive demand not only for airframe maintenance, but also engine overhauls and component repairs.

Airbus itself expects the value of non-engine maintenance activity for the North American fleet to reach at least $800 million a year by 2007, an increase of 150% from the 2002 level. This is prompting a number of third-party providers to gear up for Airbus maintenance, while EADS - 80% owner of Airbus - is building up the fleet support capability of its EADS Aeroframe Services joint venture with Northrop Grumman in Lake Charles, Louisiana.

Heavy maintenance

While Back and SAI forecast the MRO market will grow at slightly more than 4% a year over the next five years, the proportion of heavy maintenance outsourced by airlines to third-party providers is expected to increase at a higher rate. Heavy airframe maintenance and modification accounts for around 30% of the MRO market and was worth $10.2 billion last year, with about 50% of the work outsourced, they estimate.

Back and SAI forecast the heavy maintenance and modification segment of the market will grow to around $12.7 billion by 2008, of which 60% - $7.6 billion - could be outsourced. This represents an almost 50% increase in the market available to third-party vendors, say the companies. Although engine and component suppliers control more of their aftermarket business, the overall outsourcing trend is increasing and could be as high as 68% by 2008, say Back and SAI.

The trend towards outsourcing is particularly marked in the USA, spurred on by the growth of low-cost airlines. In a July 2003 report, the US Department of Transportation's Office of Inspector General (OIG) calculated that the US major carriers increased their spending on outsourced maintenance from $1.5 billion in 1996 to $2.5 billion in 2002, driven by cost savings of 30-40% from lower labour rates at third-party providers.

While some US airlines have consistently outsourced at least 60% of their maintenance costs for the last five years, including America West and Southwest Airlines, the OIG found more carriers following suit. Delta Air Lines, for example, doubled the percentage it outsourced from 19% in 1996 to 38% in 2002. According to the report, maintenance outsourcing by US majors in 2002 ranged from 33% for United Airlines - up from 19% in 1996 - to 79% at Alaska Airlines.

Explaining the increase in outsourcing, the OIG cites in-house labour rates for complete airframe work as high as $83/h, compared with $45-47/h for the same repair at a third-party provider.

One repair station in Mexico charges about $40/h for airframe repairs, the report notes. The increase in outsourcing, and the potential for more work to move outside the USA, prompted the OIG to recommend enhanced safety oversight of the 650 foreign and 4,600 domestic repair stations certificated by the US Federal Aviation Administration.

Calls for training

There have also been calls for the FAA to require standardised training for maintenance technicians, as it already does for flightcrews and dispatchers. The US Professional Aviation Maintenance Association is calling on the industry to push for training regulations to increase professionalism and reduce maintenance errors.

Meanwhile, analyst Frost & Sullivan, in its latest report on the North American commercial and military aircraft and engine MRO market, warns that better training is required to attract new mechanics into the industry. The company says airframe and powerplant mechanics are choosing to work in the automotive and computer industries, and blames the aviation industry's outsourcing and cost cutting. Frost & Sullivan predicts the trend of outsourcing heavy maintenance to lower labour-cost areas will continue.

Source: Flight International