Independents day?

It should be no surprise that aerospace OEMs are moving into the aftermarket: who wouldn’t want a slice of a growing multi-billion-dollar market?
Boeing has been frank about its ambitions to more than triple its aftermarket business over the next decade to as much as $50 billion a year; Airbus’s goal is $10 billion by 2025.
While this may worry independent MROs, industry observers suggest taking that big a slice of the total market may be unrealistic.
The big two civil airframers have the advantage of being able to package after-sale services with an aircraft sale and to undercut MROs on price.
Operators appear to be split over the choice between dealing with a single entity or going direct to multiple OEMs through their accredited suppliers.
But MRO is also a service industry and it’s not just about price, as AMAC chief executive, Kadri Muhiddin, pointed out. In his view, independent MROs have a number of key advantages, starting with trust. “Once that’s established, why would a client want to go elsewhere?”
Organisations such as AMAC have an agility that larger enterprises cannot match. “While other people are still thinking about something, we’ve done it,” said Muhiddin. “There’s no bureaucracy.”
The economies of scale, so important in manufacturing, can have the opposite impact in MRO. “If someone has a portfolio of $40-50 billion, a customer with a job worth $500,000 is lost,” said Muhiddin. “He gets the feeling the big company doesn’t really care about him.”
Market projections underline the positive story for independents. David Stewart, partner at global management consultant firm, Oliver Wyman, says the current ‘super-cycle’ of aircraft deliveries means airlines are making money, which “flows down to the supply chain, including MROs”.
Speaking to the Farnborough International News Network (FINN) at MRO Europe, Stewart said MRO market expansion would top the 3% projected annual fleet growth. “The MRO market, which is $77 billion today, will rise to more than $100 billion in 10 years’ time, growing at a slightly higher rate of 4%.”
Oliver Wyman’s annual supply chain survey showed MROs are turning a wary eye on the prime contractors and their services strategies. Engine and component OEMs have been active in the aftermarket for some time, and now the airframers are saying they’re going to grow their services side.
“They’re going to grab market share from somebody, somehow,” said Stewart.
But Kevin Michaels, president of consulting firm AeroDynamic Advisory, told Reuters that Boeing “has to be agile and cost-competitive enough to win business from established players. They need to be entrepreneurial. That’s a challenge.”
Partnerships work for both interests. Mansoor Janahi, acting chief executive of Abu Dhabi’s Turbine Services & Solutions (TS&S) says in the Middle East there’s a gap in the market for partnerships between OEMs and MROs. Speaking at MRO Asia, he said: “OEMs are focused on many different things and they need hungry and capable partners.”
OEMs may control intellectual property and the sale of parts, but independent providers have important roles to play by investing in MRO capacity on behalf of OEMs. About 65% of TS&S’ business is OEM-based.
On the same conference panel, Fraser Currie, chief commercial officer at Joramco, said the perceived OEM threat isn’t making much impact. Besides, he said, customers operating the three aircraft types – Airbus, Boeing and Embraer – that the Jordanian MRO serves “would have to have their aircraft serviced in three different locations if Joramco wasn’t an independent provider.”
Older types “remain our bread and butter,” he is quoted as saying. For newer aircraft, strong links with OEMs were essential.
MTU Maintenance senior vice-president, Leo Koppers, speaking at MRO Europe, said his company benefits from OEM aftermarket programmes by joining them. MTU has approvals for new generation engines including Pratt & Whitney’s geared turbofan.
Koppers said about a third of the engine work coming into MTU’s shops in Germany is related to OEM power-by-the-hour (PBH) agreements.
Elsewhere, Koppers said lifecycle optimisation made a compelling case for the independents. “The MRO provider can look after your assets during the entire revenue service, and potentially beyond,” he said.
Mature engines, in particular, benefit from the “creative solutions” that an MRO can offer, ranging from repair options, customised builds, leasing, teardown for parts and more.
“It’s about getting the best out of your engine at whichever point it is in the lifecycle.”