What worries the aviation MRO companies today?
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The aviation MRO (Maintenance, Repair, and Overhaul) industry is responsible for the maintenance and repair of aircraft to ensure they are safe and reliable to operate. The COVID-19 pandemic has significantly impacted the industry, resulting in a decrease in air traffic and reduced demand for MRO services. As the world recovers from the pandemic, the industry is expected to bounce back. However, aviation MRO companies are facing various challenges that are causing concern. In this article, we will discuss the top worries of aviation MRO companies.
Rising material and labor cost
According to the Oliver Wyman report, 97 percent of respondent reported increases in material costs - something they attributed largely to OEMs. MROs overwhelmingly attribute this additional operating expense to annual OEM material price increases and restrictions they place on the direct sale of OEM-designed parts because of their IP ownership, the report states.
As it looks now, this is a trend that is expected to continue. According to the Oliver Wyman survey, the majority of executives feel OEMs will continue to grow through imposing greater usage restrictions on existing IP and licenses.
Workforce Shortage
The cost of labour is also increasing—due in part to a lack of labour supply, driven by an ageing workforce, coupled with a dwindling supply of newly educated ready to take on a role as a maintenance technician. Without a stark change, this trend can be expected to continue for the foreseeable future.
The highest wages can be seen in Western Europe at $70 for the average billed airframe labour rate, the lowest amount could be seen in South Asia at $43. In the US and Eastern Europe, it’s in the mid to low $50s, with China and Latin America dolling out rates in the mid-40s. In other words, the current landscape is, as the Oliver Wyman report indicates, a very competitive, global marketplace.
Further OEM expansion
The heightened presence of OEMs in the aftermarket is not exactly new, it has been a reality for the MRO industry for the past several years now. As of late, however, OEMs within the MRO sector have seen immense growth and have ambitions for even more.
Companies, such as Airbus and Boeing have set tremendously ambitious goals for themselves—Airbus set a goal to double their aftermarket spending by 2035, adding up to a total of $1.8 trillion by 2035, or annual growth rate of 4.6 percent. Similarly, Boeing set the goal of tripling its MRO revenue over the next decade. The ability for OEMs to rapidly seize market share in the aftermarket is thanks, in large part, to their hold on intellectual property (IP). Primarily true of engine and component manufacturers, at the moment, MROs are fearful of the very possible scenario that OEMs try and recapture even more IP, using it as leverage in a push for even greater market share.
Financial Challenges
The aviation MRO industry is capital-intensive, and MRO companies require significant investments in equipment, training, and maintenance to remain competitive. The COVID-19 pandemic has had a significant impact on the financial health of MRO companies. With the reduction in air traffic, airlines cut back on maintenance spending, resulting in reduced demand for MRO services. The slow recovery of air traffic has further impacted the demand for MRO services, leading to reduced revenue and profitability.
The financial challenges facing MRO companies are further compounded by access to capital. Financial institutions are tightening their lending standards, making it difficult for MRO companies to access the capital they need to maintain operations and invest in new technologies.
Technological Advancements
The aviation industry is constantly evolving, with new technologies and processes emerging regularly. MRO companies must keep up with these advancements to remain competitive. However, the cost of implementing new technology can be a concern for MRO companies, particularly for smaller companies. Additionally, the lack of industry standards for new technology can create uncertainty and additional costs for MRO companies.
The implementation of new technologies can also require significant investments in training and infrastructure. For example, the adoption of predictive maintenance technologies requires significant investments in data analytics and software, as well as the training of technicians to use these technologies effectively.
Sustainability
The aviation industry is facing increasing pressure to address environmental concerns, and MRO companies are not exempt from this trend. MRO companies must comply with regulatory requirements while balancing the need for sustainability with profitability. Many MRO companies are investing in sustainable practices to reduce their environmental impact, such as the use of more fuel-efficient engines and the adoption of sustainable practices in their operations.
The adoption of sustainable practices may require significant investments in infrastructure, such as the installation of solar panels or the use of electric-powered ground support equipment. However, these investments can help MRO companies reduce their operating costs over the long term.
Supply Chain Disruptions
MRO companies rely on a global supply chain for parts and materials, and disruptions can impact their operations. The COVID-19 pandemic has exposed the vulnerabilities of the aviation supply chain, with many MRO companies experiencing delays and shortages of critical parts.
MRO companies need to build a more resilient supply chain to mitigate the impact of future disruptions. This may include developing relationships with multiple suppliers, increasing inventory levels, and implementing new technologies to improve supply chain visibility and flexibility.
Regulatory Compliance
MRO companies must comply with a complex set of regulations governing the aviation industry. The cost of compliance can be significant, particularly for smaller companies with limited resources. The regulations can also change frequently, creating additional costs for MRO companies as they work to keep up with the latest requirements.
To remain compliant, MRO companies must invest in training and education for their employees, as well as new technologies to support compliance efforts. MRO companies must also maintain records and documentation to demonstrate compliance with regulatory requirements.
Cybersecurity
Cybersecurity has become a global problem, with implications in a number of different industries. Experts estimate that there are around 300,000 professional hackers worldwide, costing global economies more than half a trillion US dollars annually. The MRO industry, with access to major airlines and engine component parts makers, makes a perfect target. While MROs themselves might only be an entry point, their position in the large, intricate and global supply chain of airlines makes it possible to go through them to cause real damage—potentially even to international commerce. While the carriers and OEMs may sometimes be the ultimate targets of the cybercriminals, hackers may decide that access through a vendor in the MRO supply chain may be easier to achieve. Ultimately, MROs will need to closely consider their cyber security—not just for their own sake, but for the industry and global economy as a whole.
Geopolitical Instability
Geopolitical instability can create significant challenges for the aviation MRO industry. Political tensions, sanctions, and trade disputes can impact the global supply chain and disrupt operations for MRO companies. In addition, changes in regulations and trade policies can create uncertainty for MRO companies, making it difficult to plan for the future.
MRO companies must have the flexibility to adapt to changes in the political and regulatory environment. This may require them to develop new relationships with suppliers, expand their operations to new regions, or adjust their business strategies to align with changing market conditions. Additionally, MRO companies must maintain strong relationships with their customers and suppliers to ensure that they can navigate geopolitical challenges as they arise.
Ageing Aircraft
The average age of the global commercial aircraft fleet is increasing, and MRO companies must adapt to the changing needs of their customers. Older aircraft require more maintenance, and MRO companies must invest in the technology and expertise to service these aircraft. Additionally, the demand for newer, more fuel-efficient aircraft may reduce the demand for maintenance on older aircraft, creating additional challenges for MRO companies.
To remain competitive, MRO companies must invest in the training and development of their technicians to keep up with the latest maintenance practices for older aircraft. They must also be prepared to adapt to changes in the market as airlines continue to upgrade their fleets to newer, more fuel-efficient models. MRO companies must balance their investments in older aircraft maintenance with the need to stay competitive in a rapidly evolving industry.
Industry Consolidation
The aviation MRO industry is undergoing a period of consolidation, with larger companies acquiring smaller players to gain market share and expand their offerings. This consolidation can create challenges for smaller MRO companies, as they may struggle to compete with larger, more established players.
To remain competitive in a consolidating industry, MRO companies must focus on developing unique capabilities and niche offerings. They must also invest in technology and process improvements to reduce costs and increase efficiency. Additionally, smaller MRO companies may consider partnerships and collaborations with other players in the industry to expand their offerings and gain access to new markets.
Consolidation can also create opportunities for MRO companies, particularly those with strong capabilities in specific areas. MRO companies that can differentiate themselves through their expertise or unique offerings may find themselves in high demand as larger players seek to expand their offerings and gain a competitive advantage.
Conclusion
The aviation MRO industry is facing various challenges that are causing concern. The COVID-19 pandemic has significantly impacted the industry, resulting in decreased demand and financial challenges. MRO companies must adapt to changing customer needs and regulatory requirements while balancing the need for sustainability with profitability. The industry is also becoming more competitive, with new entrants and industry consolidation. To remain competitive, MRO companies must invest in new technology, attract and retain skilled technicians, and build a resilient supply chain. Despite the challenges, MRO companies are optimistic about the future and are working to address these concerns.
