Despite acute manpower shortages and supply chain constraints, the maintenance, repair, and overhaul (MRO) segment is looking ahead to a brisk decade to compensate for shortfalls caused by Covid-19, according to leading forecasters.
In a 10-year forecast published in February, consulting firm Oliver Wyman estimates the world's commercial fleet will expand by 33 percent to more than 36,000 aircraft. “Aviation’s global aftermarket, which provides the MRO to keep the fleet flying, expanded 18 percent in 2022 and is expected to grow another 22 percent this year, topping $94 billion—a mere 2 percent below its 2019 peak,” the report said. “By 2033, it will reach $125 billion—a compound annual growth rate of 2.9 percent.”
Mike Stengel, principal of Michigan-based AeroDynamic Advisory, also expressed a bullish outlook for the MRO business. “Despite all the macro challenges faced in 2022—omicron, Russia-Ukraine, rolling lockdowns in China—demand in the commercial MRO segment really started to hit its stride in 2022 as the ‘hangover’ effects of green-time engines [with little remaining time to overhaul] and inventory burn-down started to subside,” he told AIN.
However, the industry quickly ran into several challenges, including tight labor availability, constraints across the supply chain (partly driven by tight labor availability), record price increases, and teething problems on new-generation engines that resulted in lower-than-expected reliability or time on-wing.
“Slower-than-expected deliveries prevented older aircraft from being retired; instead, they continued to operate longer and demand more maintenance,” he said. “The delay in retirements has in turn delayed the supply of cost-effective used or serviceable material (USM).”
Looking to 2023, he said the industry continued to cope with the same challenges, although some signs of improvement have appeared lately. “Inflation appears to have peaked, actions are being taken to address labor and supply chain bottlenecks, and aircraft deliveries continue to—slowly—improve,” he said. “No one is expecting all of these problems to be solved this year.”
Third-party MRO providers, such as Lufthansa Technik and counterparts in China and Singapore, have all kept busy carving niches and finding ways to serve international markets, noted Stengel.
“It’s hard to compare all of the major MRO providers on a like-for-like basis because they’ve all defined a focus area for themselves,” he explained. “Lufthansa Technik is perhaps the most ‘global’ MRO integrator in terms of geographic exposure and breadth of services, Singapore continues to be the destination of choice to serve customers outside of China, and Chinese MROs of course focus primarily on serving Chinese customers.”
Stuart Hatcher, chief economist at the UK's IBA consultancy, cited evidence showing that the success of MRO, and even more pointedly, cargo, offset Lufthansa Group's dismal airline division performance, which saw an operating loss of €300 million ($322 million) in 2022.
In general, a concentration of services to fewer vendors has left the remaining incumbents stronger. “An example of this was SR Technics exiting the component power-by-the-hour (PBH) market,” Stengel continued. “Moreover, with airlines so thinly resourced, they will likely rely more heavily on their MRO vendors, which may mean more outsourcing.”
While supply chain constraints in the aftermarket relate mainly to engines, the segment is coping with several inter-connected challenges—including the aforementioned new engine teething problems, lower reliability/time on-wing for new engines, and strong demand for overhauls on mature engines—that all soak up shop visit capacity and demand for new material, Stengel concluded.