A shortage of maintenance capacity in the business aviation sector shows little sign of abating, forcing manufacturers and operators to address the issue with investment in new facilities and, in some cases, direct acquisitions of MRO providers. A recent survey by international management consultancy Oliver Wyman showed that 70 percent of operators believe capacity will become more constrained in the coming months as elevated flight hours, labor shortages, supply chain constraints, and brick-and-mortar needs conspire to limit the ability of maintenance companies to deliver services promptly.
What Oliver Wyman described as extremely high utilization rates likely will increase from about 90 percent to 95 percent in the next five years, placing still more pressure on MRO providers to address capacity needs. Already utilization rates have risen by 13 percent compared with 2019 levels, notwithstanding a 5 to 10 percent drop in activity during 2021 and 2022.
According to Oliver Wyman partner Andrei Grskovic, demand continues to outstrip new capacity in terms of annual square footage growth versus aircraft inductions by 100 to 200 basis points. The result is unmistakable: some turnaround times for airframes now range between six and 12 months and from between 50 and 60 days to more than 90 days for engine work.
While several OEMs recently have invested heavily in MRO largely to control expensive parts flow, independent companies don’t always enjoy the financial resources needed to build facilities. As a result, said Grskovic, non-OEMs haven’t managed to increase capacity through infrastructure development to the same extent, prompting them to deploy what he called insourcing strategies.
“I think until you figure out the material shortage and the labor shortage, it's going to be extremely hard to fulfill this with just pure capacity,” added Grskovic. “Meanwhile, you’re getting larger, more complex aircraft, so physical hangar space is extremely constrained.”
Examples of insourcing strategies include NetJets' establishment in June of a maintenance hub at Paris Le Bourget Airport, large enough to accommodate its largest models such as the Bombardier Global 6000 and Challenger 650. Others include Flexjet’s acquisition of Constant Aviation in February and Flying Colours in August, Elevate Aviation Group’s acquisition of Keystone Aviation along with that company’s MRO operation early last year, FlyExclusive’s expansion of its North Carolina facilities as part of a plan to bring 80 percent of all MRO work in house, and Airshare’s move to bring in third-party work at its Wichita heavy maintenance facility. At the 2023 NBAA-BACE, West Star Aviation announced that is buying Jet East from Gama Aviation.
In a recent interview with AIN, Elevate Aviation Group president Randy McKinney explained that his company’s acquisition of Keystone Aviation and subsequent spinoff of Keystone’s maintenance arm to form Elevate MRO presented a two-fold challenge—first to shift its business model from primarily a Part 135 operation to a broader offering encompassing managed clients and third-party operators. “The second piece, on the positive side, was the talent, the people,” he added. “Part of the upside of what we were hoping to buy our way into was a seasoned group of professionals, and we did find that to be very fortunate.”
Asked whether he sees a general trend toward operators such as Elevate acquiring MRO providers, McKinney acknowledged that “there are some opportunities,” but not only as a means to overcome capacity shortages. Acquisitions have increased, in part, because many businesses’ balance sheets now look healthier than ever since the MRO market boom that took place post-Covid, he noted. At the same time, others have overleveraged by borrowing too much money and now can’t find the talent to expand as they had hoped.
“I think some of the consolidation you're going to see as opportunity in the industry,” said McKinney. “It will play out and it will happen because some are in trouble and they need help or some because they’ve put themselves in a great position and this is the moment to go. Companies like us, who are still looking and are active in the marketplace, we’re kind of cherry-picking and looking for opportunities to add a new business line or add something complementary.”
Among OEMs, moves by the likes of Bombardier to take on MRO business have alleviated capacity deficiencies to a degree. The Canadian manufacturer has increased its MRO facility footprint worldwide by 1 million sq ft in the past two years alone, led by its October 2022 opening of a service center outside of Miami that measures 300,000 sq ft.
Separately, Gulfstream this past July opened three authorized service centers in China as part of a global expansion plan that saw it announce in April the addition of 200,000 sq ft of workspace at its Savannah, Georgia facility. Following the Savannah announcement, the company opened a repair and overhaul shop at Farnborough in the UK that will bring significantly more capacity for work on wheels, brakes, and batteries. Other projects either finished or in progress over the last year include the expansion of facilities in Mesa, Arizona, Fort Worth, and Farnborough.
For its part, Dassault plans to add a 175,000-sq-ft facility under its own brand in Melbourne, Florida, that will help prepare it to bring into service the large-cabin Falcon 6X and 10X. Scheduled to open early next year, the facility will accommodate major maintenance and modifications on up to 18 Falcon aircraft simultaneously. The OEM also had added service capacity at its other U.S. sites, including its completions center in Little Rock, Arkansas, and service centers in St. Louis, Missouri, Stuart, Florida, and Reno, Nevada.
While manufacturers see their moves into MRO lending a measure of control and visibility of the supply chain, Grskovic said he doesn’t think the trend can solve the capacity shortage on its own.
“Each of [the OEMs] has the same labor and competitive dynamics for labor as the rest of the MRO industry,” he explained. “So it’s going to be tough to ultimately solve and do this cleanly without solving the labor shortage and the materials and parts shortage…because the entire industry's dealing with that. You can't just throw capacity at that.”
Among the parts of which the supply chain kinks have produced a shortage, Grskovic named engine castings, blades, and vanes as among the most constrained. Other pinch points include tires, carbon brakes, and windshields. “It's across the board, but definitely engine parts because that's always been a problem,” he noted. “It's interesting that all the capacity expansion from the OEMs that we're talking about is on the airframe side; you're really seeing not much expansion on the engine side, which again was historically a capacity-constrained market.”
Grskovic further explained that because the labor part of the MRO business generates relatively low margins on the order of 8 to 10 percent, manufacturers’ motivations for the move into maintenance lay mainly with materials and parts sales, margins from which range from 30 to 40 percent.
“And that’s Bombardier’s strategy,” he said. “They want to go from $1 billion to $2 billion in revenue over the next five years, primarily for parts, not necessarily to do the actual wrench turning.”