The maintenance, repair and overhaul market is expected to swell to around $35.9 billion by 2004, according to
Doug Birch/LONDON
Think of consolidation within the aviation industry and the frenzied merger activity gripping the aerospace manufacturing sector immediately springs to mind. Yet consolidation is also beginning to change the face of the rather less glamorous maintenance, repair and overhaul (MRO) sector, which - though rarely in the public eye - has found a new dynamism as it anticipates strong market growth.
Valued at $29.3 billion last year, the MRO market is expected to swell to around $35.9 billion by 2004 according to consultants Canaan Group. The increase represents growth of 22.5%, or around 3% annually basis, and presents obvious opportunities that MRO specialists are gearing up to exploit.
In Europe, the changing face of the sector is especially noticeable, with major players embracing a 'big is beautiful policy' as they attempt to secure the worldwide presence needed to compete with global rivals. Growth through acquisition has been adopted as a strategy by specialist third-party-only players, such as Denmark's FLS Aerospace, and by airline maintenance divisions keen to establish themselves as revenue-generating centres in their own right.
FLSA completed its delayed take-over of Dublin based TEAM Aer Lingus in December and is pledged to making a US purchase before the end of this year as it attempts to add a final piece to its global jigsaw. FLSA's Irish subsidiary won contracts worth more than $105 million in the first quarter, with the company as a whole predicting turnover of $400 million for the current year.
Expanding portfolio
Pre-eminent among the airline subsidiaries chasing third-party work is Lufthansa Technik (LHT), which claims a 10% share of the MRO market in which it competes, with a $1.8 billion turnover last year. Having already established European bases at Brussels, Dublin and Shannon, LHT recently expanded its portfolio by taking a majority stockholding in LHT Budapest, a joint venture with Malév Hungarian Airlines. The Dublin and Shannon facilities reflect Ireland's continued attraction to MRO companies. The country has more than 100 mainstream MRO providers, user airlines and aerospace industry manufacturers and suppliers, and continues to attract new business. Pennsylvania-based Air Excellence International, an aircraft-refurbishment specialist, has set up in the Shannon Free Zone, while UPS International purchased Shannon MRO from Aer Lingus. Both investors view their Irish bases as ideal locations from which to develop European business.
Russian operator Volga-Dnepr Airlines has, meanwhile, established a facility at Shannon offering A and B checks for basic engine and airframe overhaul of its Antonov An-124-100 heavylift cargo fleet. The carrier says the base minimises aircraft repositioning costs, and could be expanded to offer C and D checks.
Most of Europe's major MRO contractors are spin-off businesses from airlines, selling skills developed in maintaining their own airline fleets. Although LHT has been the market leader in offering an all-embracing total technical service (TTS), SR Technics, Air France Industries, KLM Engineering and Maintenance, Shannon Aerospace, Alitech, Finnair, TAP and Iberia have all exploited the vertical markets of line maintenance, airframe heavy maintenance, component overhaul and repair, aircraft modifications and engine overhaul that can be combined within the TTS framework.
Engine overhaul remains the more specialist of the disciplines and, despite OEMs (original equipment manufacturers) muscling in on territory that was previously sacrosanct, independent powerplant MRO providers such as Braathens, Alfa Romeo, Lufthansa Airmotive, Snecma, MTU and Volvo Aero Corp continue to flourish while retaining varying degrees of autonomy.
Long-term independence for stand-alone engine overhaulers is in question, however, as the onslaught from manufacturers keen to widen their empires continues unabated.
GE Engine Services, for example, has launched Central European Engines Services, a joint venture with LOT Polish Airlines and, although initially created to maintain and overhaul the airline's CFM56-3 engines, third party work is now planned.
SR Technics is aiming to offer Trent 700 and 500 overhaul when its new A330/A340 maintenance facility becomes operational, although Rolls-Royce and SAir Group have yet to formalise the agreement. The Trent 500 is the sole powerplant for the A340-600 that enters service with Swissair in 2002. Rolls-Royce is looking to establish a European Trent 500 and 700 maintenance base to complement the Trent 800 work it undertakes at Derby in the UK.
While the trend in the area of engine overhaul is away from individuality, the engine component repair market is different. Options for recovering development costs of new engines are limited by the intensely competitive environment in which they operate, and manufacturers must write off these costs over the life of the engine. New parts carry most of this burden and are expensive items for the engine operator to purchase - and for this reason the component repair industry continues to thrive, with a significant portion still independent of OEMs.
One leading European independent, SIFCO, has developed technological advances in engine component repair that allow it to price a 'good as new' overhauled components at 25% less than a factory fresh part from the OEM. Capabilities with regard to engine overhaul, modules, components and brakes are offered by Air France subsidiary, CRMA, while Revima, a division of Sogerma and Air France specialises in the overhaul and repair of landing gear.
A tie-up between MTU and Snecma has created the Ceramic Coating Centre, which specialises in the application of ceramic finishes on civil and military gas turbine engine components. The 50/50 venture between the German and French companies is indicative of the international co-operation flourishing throughout the industry. SAS Components remains a market leader in a number of specialist applications, placing particular emphasis on carbon brake refurbishment.
Enigma in the CIS
In the former Soviet states, maintenance remains an enigma. Regulation of the industry through the CIS Interstate Aviation Committee's Aviaregister continues - and most of the leading MRO providers for Russian built aircraft are listed in the directory. These include BASCO (Bykovo Aviation Services Co), joint stock company Rostov Civil Aviation Factory N412, JSC Rosaero and the Belaviaremont Minsk Aircraft Repair Works.
Although CIS MRO contractors are gradually improving both their facilities and capabilities on home-produced aircraft, engines, components and avionics, a crippling lack of cash is preventing headway being made in the maintenance of Western technology. Despite the growth of independent airlines and the gradual infiltration of such technology into the CIS (the latest attempt at replacing PS-90A engines with the CFM56-5C on Ilyushin Il-76MF transports being one example), the lack of maintenance capabilities relevant to advanced foreign equipment still predominates.
Steps are being taken to remedy the problem. For example, Vnukovo Avia Remont Zavod No 400, which undertakes a complete range of maintenance on Ilyushin and Tupolev aircraft, has applied for JAR 145 status to give it access to the growing Western maintenance market. But it will take hard cash and investment if CIS companies are ever to become major ones in the arena of world aviation maintenance, repairs and overhaul.
Source: Flight International
