Air Transport World

Maintaining balance: MRO providers face overcapacity, tough pricing, but are hopeful for the future.(MRO)

Three years of airline industry turmoil and restructuring have left their mark on the maintenance, repair and overhaul aftermarket, where suppliers are scrambling to stay abreast of the changing needs of their airline customers while coping with tough competition and excess hangar capacity, itself a result of some of those changes. MRO spending remains depressed compared to pre-9/11 levels and is not expected to recover until 2007, according to Lufthansa Technik, while the high cost of fuel is flowing down from airlines and translates into even tougher price demands on the supplier base.

Yet there also are grounds for optimism, say experts, who cite gradually improving market conditions and an inevitable rise in demand for engine and heavy maintenance services as aircraft that were delivered in the boom years prior to 2001 reach maturity. New opportunities are emerging as airlines shed what they define as noncore operations, such as hangars and inventory management. And, in one way or another, much-needed consolidation is occurring, for example, SR Technics' purchase of FLS Aerospace (ATW, 6/04, p. 60) and the merger of Air France and KLM that also brought together Air France Industries and KLM Engineering & Maintenance. In North America, Singapore Technologies Aerospace closed its DalFort Aerospace subsidiary last year.

AeroStrategy, a consulting firm that closely tracks trends in MRO, forecasts that the market will grow at a compound annual rate of 5.3% through 2013, at which point it will be worth $60 billion, up from $35.8 billion in 2003. Kevin Michaels, a principal with the firm, cites a particularly pertinent fact: More than 5,000 Stage 3 aircraft are not yet five years old. Many of them will experience their first heavy checks and engine overhauls in 2004-05. "There is no doubt the MRO market is in recovery," he tells ATW. "The empirical evidence for that is the aftermarket revenues of the OEMs and suppliers that are publicly traded. …

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