Air Transport World

A business in need of repairs.(maintenance, repair and overhaul services)(Industry Overview)

Fueled by continued weak demand and excess capacity in the air transport sector, providers of maintenance, repair and overhaul services are evolving their business models and offerings in an effort to grab a larger slice of a shrinking pie.

Kevin Michaels, a principal and cofounder of Michigan-based AeroStraregy Management Consulting, says the overall size of that pie this year is estimated to be about $34 billion--about 11% of an airline's expenditures. Consolidation is on everyone's lips as the field remains divided among the original equipment manufacturers--primarily in the engine and component support sectors--airlines themselves, and independents or third-party providers.

Of concern to all sectors is that growth in maintenance spending, which generally corresponds to growth in ASMs, continues to be stagnant or negative. As of July, ASMs were down 2% in the US and 1% worldwide versus the same period last year, according to the Air Transport Assn. and IATA respectively. The bleak results come on the heels of bad news last year as well: Michaels estimates that US carriers trimmed MRO-related spending by 8%-12% between 2001 and 2002, twice as deep as the curs made by European airlines. Spending in Asia actually rose 2%-5%, although this year's SARS outbreak certainly will impact near-term requirements as many aircraft were grounded for weeks. Spending in Latin America, Africa and the Middle East fell 5%-10%.

The loss has been good and bad for MRO suppliers. Bad because despite the slowdown, airlines last year took delivery of 600 new aircraft in a market where traffic already was depressed, resulting in a 15%-20% drop in utilization, says aerospace consultant John Walsh of Maryland-based Walsh Aviation. That meant fewer flight hours and reduced or delayed maintenance demand. Given the choice of which aircraft to fly, airlines naturally choose the more efficient newer ones, sending the others to dry storage in the desert and cutting a lucrative source of heavy maintenance work. According to Airclaims data, there were more than 2,000 aircraft in storage as of last January, about 1,500 of which were Stage 3 compliant and could be called upon to fly again at some point. …

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