The changing dynamic of the UK defence market over the past few years has had a profound effect on the way military maintenance, repair and overhaul (MRO) work is contracted and carried out in the country.
Meanwhile, the publication of the UK's Defence Industrial Strategy (DIS) almost a year ago has highlighted the UK government's desire to focus strongly on through-life support for new programmes as the Ministry of Defence strives for lower costs and better availability of aircraft and other equipment.
Across Europe, it is no longer the case that markets are closed to cross-border competition. As other European markets increasingly follow the UK's lead in defence procurement and maintenance practices, a significant European military MRO market is opening up for exploitation (see graph), according to Counterpoint Market Intelligence (CPMIL).
In its new report European Military Aircraft MRO 2006, the UK-based consultancy estimates that future trends in technology and methods of contracting and carrying out MRO will offset each other, making for a steady level of military aircraft and equipment MRO for the foreseeable future.
The USA is often held up as the ideal target market for defence companies because of its high levels of defence spending, but Europe also has significant potential too. The consultancy estimates that the European military aircraft and equipment MRO market was worth €13 billion ($16.5 billion) in 2005, compared with about €20 billion in the USA.
With defence accounting for a dwindling proportion of European countries' GDPs, governments are turning more and more to the private sector for MRO work. And it is not just large prime contractors, given responsibility for the through-life support of entire platforms, that benefit, says George Burton, director of CPMIL. "Small and medium-sized enterprises [SME] still have many opportunities. Even when primes have through-life support contracts, they are usually directed to place a proportion of work with SMEs."
But there are some barriers to cross-border contract awards that players must face up to if they are to take advantage of the opportunities that will emerge as different countries pursue a similar path towards privately contracted MRO, albeit at varying paces. "The challenge for Europe is to resolve the tension between individual states wishing to retain national capability, versus the requirement for open, cross-border restructuring in the interests of efficiency by avoiding duplication and gaining the benefits of scale," says Burton.
European member states are currently at varying stages in the way they contract and carry out MRO. For example, Turkey and Greece both still rely mainly on state-owned organisations for their MRO work, while in Switzerland, state-owned Ruag does almost all of it. France and Spain mainly direct their military MRO work through the armed forces themselves or state-owned organisations. But the need for competitive pricing is pushing the trend towards cross-border contracts, such as for the French air force's Hercules fleet, which is now being maintained by Portugal's OGMA. The Scandinavian countries appear to be more progressive in their approach, with Denmark privatising the Royal Danish Air Force's main workshop some years ago to form Danish Aerotech. Norway, in particular, has led the way in opening up its military MRO market, especially on new systems. Finland's MRO is carried out predominantly by private contractors, albeit strong national champions, similar to the approach in Portugal, Belgium and Holland.
Although civil and military MRO services have more in common than they used to, such as power-by-the-hour contracts, there is still some reluctance by civil players to enter the military market, because of issues including a perceived culture clash, the complexity and often small size of military fleets, an inability to predict workloads, and the extra investment required on equipment and training.
But these barriers are not insurmountable. The European Defence Agency is pushing for ever-greater external access to European defence markets. Offset agreements have played a part, and will continue to do so - "a powerful lever for winning business using overseas technology", says CPMIL.
For companies that gain an MRO footprint outside their home market, the rewards do not stop there, says Burton. "It is instructive to reflect that the mighty Liebherr started in aerospace by undertaking MRO on other companies' products installed on aircraft in service with German operators."
Source: Flight International