THE MRO MARKET IN 2010

Dino D'Amore
By Dino D'Amore December 13, 2010 11:48

THE MRO MARKET IN 2010

Maintenance repair and overhaul (MRO), it is big business, worth some $45 billion and represents 12-15% of an airline’s cost base.

Although many airlines do their own line maintenance, 60% of the world’s carriers outsource heavy work in an effort to lower costs. Huge investments in infrastructure, facilities and parts require a great deal of capital and for the most part an airline cannot achieve cost effectiveness, even so it is estimated that about 30 to 50% of MRO work is third party. So while some airlines are getting out of MRO, others believe they can find economies of scale by bulking up the amount of work they do and keeping MRO in house. So why does an airline keep MRO in house? These airlines that keep MRO in house will argue that it is an integral part of the overall business plan and that a third party provider would not be able to understand the complete operational environment at any given time.

So it is clear that for third party MRO to expand in many cases it must adapt to be more than just a maintenance and parts supply partner; be more involved in the day to day running of an airline; able to know what is going on at any given time and recommend solutions.

Moreover MROs need to reduce costs, this can be done by suppliers working together more to purchase parts but it is also clear that more cooperation than that is currently taking place, at least in the European market. At this time some major MROs are cooperating on staffing at various locations so that they are in effect in a joint partnership. Some majors have laid off staff at certain bases because they are using the staff from a competitor to keep contracts running. In some cases an engineer will be servicing a number of aircraft in a day under contracts with two or more separate MRO providers. The sharing of staff has left a large number of engineers on the jobs market but it has also drastically cut the cost base of the provider.

Now that airlines are increasing capacity once again MROs will be looking to a much improved 2011. But the real problem for the sector has always been over regulation. Audits are killing the industry and with the FAA trying its best to introduce new draconian measures it can only get worse before it gets better, although it should be noted that the efforts of IATA to highlight and deal with the problems may prove to bear fruit yet. Many investors, who have always noted that the sector is a solid bet, are now worrying that the long-term future will require mergers. Investors are looking at the plans around the globe to lower the age of fleets, lower retirement ages and of course they have taken note of the amount of new aircraft on order and the lower maintenance requirements of the same and they are worried. Aircraft maintenance will always be needed (of course), the question is will there be overcapacity in the market by the end of the next decade? One investor of note told Aviation News last week that an MRO can only be a serious prospect in the long term if it is global with strategic hubs that can service just about anything in the air, that for one narrows the list. The other problem for MROs in the future is their environmental impact and mitigation of the same, this will become a talking point during 2011.

Dino D'Amore
By Dino D'Amore December 13, 2010 11:48
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