With airlines in North and South America rapidly renewing their fleets, the region's maintenance providers sense an opportunity

Graham Warwick/WASHINGTON DC

Widespread renewal of airline fleets with new, lower-maintenance types does not spell disaster for the commercial aircraft maintenance, repair and overhaul (MRO) sector. In fact, many of the major players see opportunities in the airlines' drive to become more efficient.

This is underlined by Boeing's current market outlook, revised for the first time last year to include a forecast of global demand for aviation services. With services estimated to be worth $2.6 trillion over the next 20 years, compared with a forecast $1.5 trillion in new aircraft deliveries, this had the dramatic effect of more than doubling the value Boeing places on the commercial aviation market.

Boeing's forecast is based on its estimate, extrapolated from actual figures reported to the International Civil Aviation Organisation, that the world's airlines' operating expenses totalled $330 billion in 1999. Of this total, the manufacturer calculates that 26.4% - $87 billion - was spent on "support products and services".

Maintenance-related activities, ranging from line servicing through component repair to major modification, accounted for the majority - $62.9 billion - of these expenses, Boeing calculates. While the manufacturer is using such figures to justify its aggressive move into the aviation services sector, they also serve to put a rough order of magnitude on the size of the global maintenance-related market.

For example, according to Boeing's figures, airlines spent $18.5 billion on heavy aircraft maintenance in 1999. The manufacturer expects this market to be worth $588 billion from 2000 to 2019, and to be generating annual revenues of $43 billion by 2019 .

Airline in-house maintenance shops perform about 75% of the work, "but outsourcing to third-party providers, including major airline engineering and maintenance businesses is increasing", the manufacturer concludes.

BFGoodrich Aerospace supports this view. The Everett, Washington-based MRO unit of the company's Aviation Services division handled a record 500 aircraft last year and is "very optimistic moving into this year," says Phil Rosnik, vice-president sales and marketing. "We see continuing demand from airlines which traditionally have not outsourced."

One reason, Rosnik believes, is that North American airlines, while adding new aircraft to their fleets, are trying not to grow their maintenance labour forces. "Their fleets are growing faster than their employment," he says. As a result, overflow from in-house maintenance shops is being outsourced.

Outsourcing predominantly involves the older types in an airline's fleet. "Traditionally, airlines start maintaining new aircraft in-house, but we are seeing overspill," says Roskin. With the rapid growth of the Airbus fleet in North and South America, BFGoodrich is looking at investing in the capability to perform heavy maintenance on European aircraft types. While most of the Airbus narrowbody work is being performed by in-house airlines such as United and Northwest, "there is growing demand for Airbus widebody work and we are seriously looking at entering the market in the next year or two", he says.

Sogerma, the MRO subsidiary of 80% Airbus Industrie shareholder European Aeronautic Defence and Space (EADS), has moved to meet US demand for Airbus maintenance by forming a joint venture with Northrop Grumman. EADS Airframe Services is located at the US manufacturer's Lake Charles, Louisiana, military aircraft modification centre.

Sogerma owns 81% of the venture, which complements Barfield, its US Airbus avionics maintenance subsidiary. The centre expects to induct its first aircraft in March or April. For Northrop Grumman, its 19% stake in the commercial venture offers to offset the projected decline in workload at Lake Charles as the conversion of ex-airline Boeing 707s to E-8 Joint Surveillance Target Attack Radar System airframes slows to one a year.

Engine overhaul

Airlines spent $8.4 billion on off-wing engine repairs in 1999, Boeing estimates. Traditional-ly performed in-house by airlines, these activities are increasingly being contracted out and the engine makers themselves "have aggressively pursued this market", says the manufacturer, noting the trend for manufacturers to form joint ventures with airline in-house engine shops. Boeing forecasts the engine repair market to be worth $268 million over 20 years, with annual sales growing to about $20 billion by 2019.

Airframe component repair is a large market. Airlines spent an estimated $12.3 billion in 1999, about half the work being done in-house and most of the rest by original equipment manufacturers (OEMs). Boeing expects this market to be worth $394 billion to 2019 with annual revenues growing to almost $29 billion.

Worldwide spending on parts required for airframe and engine repairs totalled an estimated $8.1 billion in 1999 and is forecast to be worth $257 billion over 20 years and to grow to almost $19 billion annually by 2019.

"Major OEMs still dominate this market, but competition from distributors of used parts has been increasing," Boeing says. The number of entities with parts manufacturing authority (PMA) to produce alternatives to OEM components has grown to a "measurable proportion" of the market", the company notes.

This trend has ignited controversy in the USA, with the engine manufacturers lobbying for tighter regulatory controls on PMAs as non-OEMs move into core engine components, particularly rotating parts (Flight International, 24-30 October 2000).

Citing safety concerns, but motivated also by the business threat posed by lower-cost PMA components, General Electric and Pratt & Whitney have jointly petitioned the US Federal Aviation Administration to bolster regulations governing PMAs. This drew a sharp response from leading non-OEM parts supplier Heico Aerospace, accusing the engine manufacturers of raising safety concerns to protect their monopolies on replacement parts (Flight International, 21-27 November).

Modification market

A growing sector of the aviation services market surveyed by Boeing is major aircraft modification, including cabin reconfiguration, cockpit upgrades, hushkitting and freighter conversions. This market was worth $1.8 billion in 1999, Boeing calculates, and is valued at $43 million over 20 years, with annual revenues almost doubling to $3.5 billion by 2019.

This is a slower rate of growth than forecast for other sectors of the services market. Boeing cites two reasons: the satisfaction of demand for hushkits and "moderate" near-term demand for widebody freighter conversions.

Overall, prospects for the passenger-to-freighter conversion market look good, fuelled by demand for air cargo. Boeing itself has attacked this market aggressively, building on the success of its 747, DC-10 and MD-11 modification programmes. In the last 18 months, the company has launched 737-300/400, 747-300, 757and 767-200 freighter conversions.

While 747 modifications will continue to be performed by Wichita, Kansas-based Boeing Airplane Services, the company has teamed with BFGoodrich and Taiwan's Inter-Continental Aircraft Services on the 737 freighter; Israel's Bedek Aviation and Singapore Technologies Aerospace's US arm on the 757; and Aeronavali of Italy on the 767.

The 737 programme is BFGoodrich's entry into the freighter conversion market. "We are looking for a launch customer and prototype this year," says Roskin. The rapidly-growing aircraft modification group now represents 20-25% of the MRO unit's business, he says. Work is split 50:50 between the traditional "tube change" business of airliner cabin reconfiguration and corporate aircraft completions. The company is outfitting the Bombardier Global Express and Boeing Business Jet.

In summary, the North American MRO sector looks to be in good shape. BFGoodrich anticipates growth this year and is looking to expand, possibly internationally. Aviation Sales has sold off its non-MRO business and paid down its debt, its North Carolina-based TIMCO maintenance subsidiary is busy and the company appears poised to resume its expansion. Pemco Aviation Group has restructured around its Alabama-based commercial and military MRO facility and announced plans for expansion this year. Some smaller operations are still struggling, and a few have folded. But the strong keep getting stronger.

Source: Flight International