ISSUE ONE
2011
MRO GLOBAL
w w w. a v i a t i o n n e w s - o n l i n e . c o m
www.teamsai.com
TeamSAI provides consulting and technical ser vices to aviation industr y clients including airlines, MRO’s, corporate /fractional operators, OEM’s, airpor t authorities, and investment banks around the world with a focus on strategy, operations improvement, cost reduction, safety, cer tification, and supply chain.
CONTENTS 4
THE MRO MARKET IN 2011 A review of the past 12 months in the MRO market and a look at what’s ahead for 2012
16 Who combines the data? Amalgamating two or more data systems is a costly and time consuming affair Swiss Aviation Software has the solution
22 More MRO for your money MRO Global looks into the maintenance providers market.
32 Smoke and mirrors The PMA parts market has enormous potential for growth if it can fight back against the OEMs.
44 Solving lessor issues Ideas about how to handle third-party maintenance contracts
47 More than an afterthought Inventory management planning from Inform
50 Pulled apart Kellstrom shares how it intends to retain its share of the fragmenting parts market.
MRO GLOBAL 2011 EDITORIAL TEAM Victoria Tozer-Pennington
[email protected] Philip Tozer-Pennington
[email protected] Kaleyesus Bekele
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54 MRO Americas
Annual subscription: £250 / €250 / $300
62 MRO Americas Directory
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ADVERTISING SALES
66 A320-family maintenance MRO Global surveys the best maintenance providers for A320-family aircraft
John Pennington
[email protected] Philip Tozer
78 MRO Europe
[email protected] PRODUCTION AND ONLINE
90 MRO Europe Directory
Dino D’Amore
[email protected]
94 High-tech, low maintenance Boeing designed the 737NG with a reduced scheduled maintenance in mind
Kathy Alys, subeditor DIGITAL ISSUE Digital version production by
98 MRO Middle East 105 MRO Africa
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108 MRO Middle East/Africa Directory
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110 A340 maintenance MRO Global examines the history of the A340
Company number: 7351543 Copyright 2011 Aviation News Ltd Airline economics (Print) ISSN 2045-7154
117 MRO Asia-Pacific
Airline economics (Online) ISSN 2045-7162 Printed in England through Ben Chater Printing
121 MRO Asia-Pacific Directory
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2 Airline Economics: MRO Global 2011
www.airlineeconomics.co
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KEEPING YOU IN THE AIR
www.elfc.com
MRO GUIDE
MAINTENANCE REPAIR AND OVERHAUL
M
aintenance repair and overhaul (MRO) is big business, worth some $46.9 billion and represents 12-15% of an
airline’s cost base. Although many airlines carry out their own line maintenance, 60% of the world’s carriers outsource heavy work in an effort to lower costs, for the 40% who keep line maintenance in-house huge investments in infrastructure, facilities and parts are required it is no wonder then that many airlines have been unable to make it work on a cost effective basis.
4 4 Airline Economics: MRO Global 2011
Some 30% to 50% of MRO work is estimated to be completed by third parties. 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. Airlines with their own in house MRO argue that it is an integral part of their overall business plan and that a third party provider would not be able to understand the complete operational environment. For third party MROs to expand, in many cases they must adapt to be more than just a maintenance and parts supply partner. They must become more involved
in the day to day running of an airline so they know what is going on at any given time and recommend solutions. MROs also need to reduce costs: This can be done by suppliers working together to purchase parts, but more cooperation is needed than is currently taking place, at least in the European market. Some major MROs are cooperating on staffing at various locations so that they in effect establish a joint partnership. Some major firms have cut jobs at certain bases because they are using employees from a competitor to keep contracts running. In some cases an engineer will be servicing a number of air-
www.airlineeconomics.co
MRO GUIDE o3UHYLRXVO\DQ052ZDV MXGJHGRQWKHVHUYLFHLW SURYLGHGDQGLWVFOLHQWRUGHU ERRNJRLQJIRUZDUGWKH\DUH QRZDOVREHLQJMXGJHGRQWKH VWUHQJWKRIWKHLUILQDQFHVDQG ILQDQFLDOEDFNLQJp craft in a day under contracts with two or more separate MRO providers. The sharing of staff has resulted in a large number of engineers flooding the jobs market but it has subsequently drastically cut the cost base of many MRO firms and relieved some pricing pressures for MROs. During 2011 airlines increased capacity once again and MROs have forecast a much improved picture for this year, however the latter months of 2011 are seeing dramatic cuts to schedules across the globe as airlines react to yet another sharp slowdown and plot a course for winter 2011/2012 that forecasts passenger numbers below that of 2009. Another problem for the sector has always been over regulation. Audits are hurting the industry and, with the FAA trying its best to introduce new draconian measures, it can only get worse before it gets better. However it should be noted that the efforts of the Air Transport Association to highlight and deal with the problems may yet bear fruit. The MRO sector is reactionary, fitting services with client needs or perceived needs. The problem is how do you perceive the needs of a client, or potential client when the client has no clue whatsoever as to what tomorrow may bring? At the close of 2011 and into early 2012, the only thing that is certain is that liquidity, especially within the European sphere, is drying up, banks are laying off staff, business are having problems raising capital and politicians seem willing to continue kicking the can down what is left of the road to fiscal collapse. Although unemployment within most geographical zones is holding flat or even reducing, this silver lining does not mean that business travel is secure – it is not. Unemployment within the all-important financial services sector is increasing rapidly throughout just about every region other than South East Asia and Australasia, although even the latter has signs of weakness. So as financial services executives
www.airlineeconomics.co
either cease to fly or take a one-way trip to Hong Kong or Mumbai, over capacity on major routes is at this time a real and present danger. It can also therefore be assumed that re-fit orders for aircraft to have revamped or extended premium seating, as seen in 2010, is now a thing of the past at least for the next fifteen months and maybe more depending on the possibility and nature of any sovereign defaults within the Eurozone during the same period. Previously an MRO was judged on the service it provided and its client/orderbook, going forward they are now also being judged on the strength of their finances and financial backing. Any company at this point wishing to refinance will have to look to investment which may also lead to MRO market consolidation, something that would indeed be welcome at this time.
Source: TeamSAI Consulting
What to watch out for in 2012 The acquisition of TIMCO by SR Technics was, and maybe still is, on the cards. This would be a good move for SRT but everyone is a little bit afraid of what is happening in Zurich at the moment. Nobody really understands what direction the Mubadala group wishes to go. Heavy maintenance out of Switzerland with a cost base in Swiss francs (CHF) has been crippling for the MRO. Only timely and decisive Swiss government intervention saved the day, but the pressure is still on. It would be a challenge for Mubadala to look for new business opportunities in the near future with SR Technics under pressure. That said opportunities are bound to present themselves. SR Technics is not alone but simply an example, even the mighty Lufthansa Technic is feeling the pressure of late. Everyone is very cautious. The smaller MROs have their market niche and they have a stable customer base, but for the big MROs the current market and 2012 outlook is a challenge at best. The MRO industry outlook currently shows that in 2011, global MRO spend will be up 10.8% over 2010, to $46.9 billion. Global growth is expected to maintain a 3.9% CAGR through 2021 seeing the current $46.9billion industry grow to one worth some $69 billion, within these figures the engine repair market is the segment with the highest growth rate, in part this is due to new aircraft requiring less maintenance as per design specifications. It remains to be seen if this will be the case.
*/2%$/052)25(&$67 727$/9$/8(%
$69.0
$12.4 $56.4 $9.9
$46.9 $8.7
CAGR 4.1% $32.6
CAGR 3.8% $27.1
$21.6
$12.5 $10.1
$8.6 $8.0
$9.3
2011
2016
HMV&Mod
Engines
$11.5
2021 Compenent
Line
MRO in 2011 Fleet 2010
19,675
+ Deliveries
+ 1,076
- Retirements
- 396
- Stored
- 152
Fleet 2011
20,203
Source: TeamSAI Consulting
QUICK VIEW FACTS: MRO in 2011 Global MRO spend will be up 10.8% in 2011, to $46.9B. The drivers of the year-over-year change are important to understand.
Fleet change alone drives a 3.2% increase, due to fleet renewal Utilization increase drives market up a small amount (utilization up 1.5% for the year driving 0.4% for market) Component increases outpace declines to airframe and line for a small net increase of 1.0% Engine MRO drives a significant 6.4% increase And last, labor rates have eased down ever so slightly.
Source: TeamSAI Consulting
Airline Economics: MRO Global 201155
MRO GUIDE The global business cycle has a strong influence on MRO activity as it does with most areas of aviation and the last few months of this year could change the 2011 outlook sharply. 2010 marked a notable leveling of capacity. ASMs declined 1% in 2010 (mostly long-haul traffic). But the 1% decline in capacity has taken a dramatic toll on the associated MRO business with 2010’s MRO market down 7.5%. With airlines now able to adjust very quickly to global events and economic changes, it is time that MROs acted in the same manner. For the remainder of 2011 and into 2012, a pattern mirroring that of 2009 will emerge with the world fleet continuing to grow but with aircraft being parked; newer, less maintenance intensive aircraft will show their influence, with the contribution of the older vintages in decline as retirements accelerate. Meanwhile, younger vintage aircraft have significantly lower unit costs and in just under two years there has been a significant shift in the share of the younger vintage fleets which in turn has resulted in the average MRO cost per aircraft per year falling by some US$300,000. 2010 should have been a tipping point as fleet size and utilization increased to meet demand, but the economic health of the globe of late has lead to a return to fleet contraction whilst at the same time
MRO costs per aircraft continue to fall rapidly. It is a worrying time indeed for the MROs. So is the MRO sector ripe for investment or is it a bit of a minefield? Overcapacity and OEMs are marching into the aftermarket very heavily and there is the ongoing war between the PMA, DER and OEM strategies. SR Technics managed to pull in some very heavy weight investors to help them in the form of Mubadala Development Company. Airline Economics asked Chris Doan, CEO of Team SAI, what his experience was in trying to secure investment into the maintenance market. “The playing field is somewhat interesting,” he says. “It is cautious but private equity seems to have a fair amount of interest in the sector. They recognise the potential of consolidation, the fragmentation that exists. That is the key. It is not vying to make it grow because there are a lot of minefields that have to be navigated today but to bring appropriate businesses together into a bigger platform that has a very purposeful end. It is an interesting play. We are starting to see a little bit of that play out.” Investors do worry that the long-term future for the MRO industry will require mergers but this is also one of the attractions. Investors are looking
4,500,000
$50.0
4,000,000
$45.0
$40.0
3,500,000
$35.0 3,000,000 $30.0 2,500,000 $25.0 2,000,000 $20.0 1,500,000 $15.0 1,000,000 $10.0 500,000
$5.0
0
$0.0 2005
2006
Source: TeamSAI Consulting
2007 ASM (M)
2008
2009
2010
2011
Total MRO ($B)
&$3$&,7
