Maintenance repair and overhaul companies are starting to feel the brunt of decisions by airlines to park aircraft and slash capacity to sustain their business as fuel costs remain at record highs.
Denver-based TeamSAI consulting estimates total spend on commercial MRO in 2009 will fall by $1.3 billion compared with earlier estimates.
The company’s annual forecast released during the first quarter estimated total global spend for 2008 at $45.1 billion, with 2009 spend reaching $46.8 billion. As carriers began announcing reductions in operations 2009 projections have fallen to $45.5 billion.
North America accounts for roughly $1 billion of the $1.3 billion drop, says TeamSAI. Company CEO Chris Doan tells ATI in North America spend by airlines on airframe work will fall by $250 million over the next year. Engine maintenance is estimated to fall by $650 million, and component spend should drop by roughly $170 million.
The reduction in 2009 maintenance spend estimates is driven by the parking of more than 500 older, less fuel efficient jets. Doan says that while TeamSAI believes “a good many” of those aircraft will remain grounded, 25%-40% could be resurrected whenever the current downturn ends. He reasons at that time new aircraft will not be immediately available.
MRO firms are already feeling the pressure of cuts by North American carriers in particular. On 10 July Canadian MRO ACTS says it is temporarily suspending 650 of its 3,700 positions. AAR Corp has moved quickly to replace its business from United Airlines after that carrier opted to remove 94 classic Boeing 737s from its fleet. Two heavy maintenance lines previously dedicated to United aircraft at it Indianapolis facility have already been filled, and the company today said it has secured a customer for the third line.
Some MROs are seeing success in their attempts to replace business abandoned by US majors opting to park rather than maintain older aircraft. Those companies are securing more military maintenance contracts for aicraft such as the C-130, says Doan.
One less-publicized opportunity for North American MROs is favorable labor rates created by the weak dollar. Doan points out that current hourly rates of some European MROs of €75-€80 convert into roughly $100, compared with hourly rates charged by North American maintenance providers of $50-$52.
Doan believes North American MROs need to start marketing that labor rate advantage, and a few are just beginning to do that in an attempt to secure business with foreign operators.
Few predictions have emerged as to exactly when the current sag in business opportunities will end. But Doan does not rule out some consolidation in the industry, while “some MROs are in a weakened state”. Doan believes now is an ideal time for anyone who has “a little extra cash available” to think strategically about the future.
Source: Air Transport Intelligence news
Source: Flight International
