Maintenance Overhaul and Repair Industry Outlook.
By Dave Wright, VP of Business Development at Co-Operative Industries Aerospace & Defense.
The Maintenance, Repair, and Overhaul (MRO) industry is undergoing major changes and shifts in their business models. Driven by consolidation, internal growth, mergers, and acquisitions the industry finds itself evolving in multiple directions and on multiple levels.
The principle / Tier 1 OEM’s continue to swallow up their rivals, greatly reducing the number and variety of capable shops available to the operators. According to Aviation Week’s 2019 Fleet & MRO Forecast, the overall commercial after-market will increase at a compound annual growth rate (CAGR) of 3% over the next 10 years and generate $862.3 billion in MRO services. Once a subsection of the airlines, MRO has become an industry unto itself. Smaller niche shops now find themselves supporting two distinct customer levels within the same industry – both carriers and MROs.
The larger fleet operators have increased their on-site capability by building internal strength while leveraging off their own fleet requirements, as well as pursuing additional 3rd party work which they contract in. This has proven to be a successful strategy as some major airlines have seen their market share and profit margins grow significantly. Delta Tech Ops, as an example, expects to see $800 million in revenue for 2019 – that following a 15% increase in 2018.
International operator team alliances are also changing the landscape, as governmental sovereignty evolves through activities such as BREXIT and trade sanctions. Bulk operator Request for Proposals (RFP) packages are now a standard in controlling vendor sourcing. Although this allows streamlining, the RFP process to some extent (at least for the operators), it tends to cut out many smaller specialty / niche shops focusing on a particular ATA chapter. With that, each aftermarket group must hunt in many different sectors (Engine MRO’s, Airframe MRO’s, brokerage markets and large mega OEM’s such as UTAS).
We also see the continued commercialization of the defense market. New entry platforms such as the P-8 and F-35 do not go “Aviation Logistics Center (ALC) generic” as past platforms have. Commercial repair exchanges and repair contracts are finding their way into the large ALC’s like Tinker, Warner Robins, and Hill. This allows non-military repair centers to pick up the workload as those ALC’s adjust to smaller workforces and new processes. Platform warranties are also now being written in a manner that discrepant equipment “must be” returned to the OEM for rework or exchange. This furthers the competitive pressure on MRO operations.
Hope for the Smaller Repair Centers
At first glance these activities may appear as a threat to smaller repair centers, but in reality, these changes may very well result in new opportunity and potential for well positioned and forward-thinking repair organizations. Companies with niche or technically specific capabilities may be in a position to partner with the larger organizations. They can provide their unique expertise as a service while allowing the larger organizations to continue focusing resources and manpower on their own strengths.
Key Activities and Organizations to Watch:
- Large OEM regional support centers (TAESL) – now Delta Tech Ops for Rolls Royce engine support
- Airbus America’s – Mobile Ala.
- Boeing – Charleston, SC
- Defense ALC platform support transfers as a result of BRAC (Base realignment and closure).
- UTC Aerospace Systems and Rockwell Collins merger
- StandardAero acquisition by the Carlyle Group
About Co-Operative Industries Aerospace & Defense (CIA&D):
Co-Operative Industries Aerospace & Defense (CIA&D) is an AS9100:D and ISO9001:2015 registered company based in Fort Worth, Texas. The company manufactures electrical wiring harnesses, interconnects, ignition leads, and flexible conduits for airframe, engine, ground support equipment, aerospace, defense, and space applications. In addition to manufacturing capabilities, Co-Operative Industries also provides Part 145 repair services such as check & test, overhaul and repair, and S/B incorporation for many of the aircraft wiring harnesses in service today (FAA No.: OI0R891N, EASA: EASA.145.5897, CAAC No.: F00100406).