AP&M Europe: Aftermarket outlook

By June 1, 2018 January 16th, 2020 General News

The global airline industry may be forecast to achieve a record profitability in excess of US$38 billion this year (according to IATA forecasts), but expert analyst Richard Brown of consultant ICF labelled it a “spotty picture,” with the North American sector leading the way in 2017, while Africa and the Middle East regions “struggled” to make money.

Brown highlighted that North American carriers are leading the way in terms of profitability, forecast to make just under half of the profit (at $16.4bn) in 2018, followed by Europe which is forecast to have $11.5bn and then Asia-Pacific at $9bn. But his main focus was on the aftermarket outlook for the MRO (Maintenance, Repair and Overhaul) sector at the AP&M summit in London last week.

The global MRO market is expected to grow at 4.6% per annum to $118bn by 2027, growing to $140bn in 2037. Regionally, he argued North America and Europe are growing quite slowly but that the Asia-Pacific market is growing faster, at 6.1% in terms of MRO spend (10 year Compound Annual Growth Rate). The Asia-Pacific region is also forecast to generate 38% of MRO demand by 2037.

Discussing MRO demand in Western Europe, the $13bn market in 2017 is forecast to grow by 2.1% per annum to $16bn by 2027, growing to $17bn in 2037. He suggested this low growth rate was because Western Europe is a mature market, and while there are plenty of aircraft on order in the region, these are often for replacing existing aircraft – so it is more of a re-fleeting market.

In Eastern Europe and the CIS (Commonwealth of Independent States), the MRO market is expected (in constant terms) to double over the next 10 years to around $12bn by 2037.

Going Digital

Brown highlighted data analysis as a trend to watch, especially in diagnostics, which would be particularly beneficial for airlines with a highly utilised fleet so they can better plan maintenance and prevent AOGs.

He argued: “Big data should lead to reduced MRO costs for airlines and turn the unpredictable into something predictable.”

Digitisation could enable airlines to save $5bn a year through lower fuel, maintenance and delay costs, he said.

In a panel discussion on ‘Maintenance and Procurement Strategies – Ensuring Efficiencies in the Supply Chain’, Sedef Yazan Erkanal, senior technical supply specialist at the airline SunExpress, similarly highlighted predictive maintenance as a strength to the industry.

The Turkish carrier, a joint venture between Lufthansa and Turkish Airlines, is organising health checks and predictive maintenance activities in advance of the visit season or before base maintenance.

David Bruce, vice-president MRO at DHL Supply Chain, argued that the physical supply chain solutions in the industry are immature: “Airlines have concentrated maybe more on the passenger experience and inside the cabin, but from my perspective the physical supply chain solutions aren’t that up to date, and that’s holding some organisations back, which they openly admit.”

As a result, he continued, there is growing interest from airlines in outsourcing to try and play catch-up.

The OEM presence

Many panellists, particularly from independent MRO companies, spoke of the impact of OEMs (original equipment manufacturers) increasingly looking to join the aftermarket industry.

Kaarle Karp, logistics manager at Magnetic MRO, said: “OEMs are coming more aggressively to the market and are trying to get a bigger part of the aftermarket.” He revealed that when Magnetic MRO changed shareholders, gaining a new Chinese strategic investor, several OEMs expressed interest in acquiring it.

Mike Cazaz, president and CEO of aviation asset management company Werner Aero Services, said: “OEMs are getting very dominant to the point that some of them have monopoly in some departments, not sharing some of the data with embedded MROs and growing like crazy, but the growth doesn’t always mean that it is a good thing.”

He suggested that the service level goes down as “some of the OEMs are not equipped with the technology or personnel to grow at the rate that they’re growing.” He continued: “Sometimes that is an advantage to someone like us when airlines get very frustrated and let us deal with them,” but added that a disadvantage is the way MROs are treated by some OEMs.

Paul Salwik, head of supply chain, technical operations for Norwegian Air Shuttle, also argued that this was a consequence of OEMs joining the aftermarket, as “They do not understand the customer, or do not want to understand the customer, and have no customer interface.”

He suggested that in order to offer a competitive advantage, independent suppliers should understand the customer need, and provide customised solutions.

 

Image: Richard Brown, principal at ICF, provides an outlook on the aviation aftermarket, reviewing the challenges and trends for the MRO industry.