Huge Market for MRO in Asia

In a report, TeamSAI, an aviation consulting firm, has forecast that Asia will be the largest maintenance, repair and overhaul (MRO) market by 2024 and that the Middle East will double by 2024, driving majority of the growth. The report pegs the global MRO market size at $58 billion to $87 billion by 2024. This is a natural corollary of fleet acquisition which is going to happen at a scorching pace in the Asia-Pacific region as economies such as India and China emerge as economic powerhouses. Aircraft acquisitions are astounding in the region with AirAsia (Malaysia), IndiGo (India) and Lion Air (Indonesia) placing recordbreaking orders for aircraft in the recent past. More planes translates into more maintenance activity, though the modern aircraft downtimes have come down substantially.

MRO Picking Up in India

The MRO industry has been quite active in South East Asia and the Middle East, while India which is a huge market, has lagged behind considerably, though there are signs of the sector coming up fast in the near future. The growth of the MRO industry in India has been impacted by a number of factors. Firstly, as MRO ecosystem does not exist in India, the lessors prefer to fly out their aircraft to Singapore, Malaysia, Dubai or even Sri Lanka. The MRO Association of India has been quoted as stating that leasing companies and financial institutions are apprehensive about how to complete the eightyear heavy maintenance check and re-delivery checks in India. A KPMG report has pointed out that merely five to ten per cent of the MRO work of domestic scheduled carriers is carried out in India, with the rest outsourced to third party service providers outside the country.

Air India MRO Facility

The situation may change a little bit with the MRO facility of Air India at Nagpur going operational soon. Built by Boeing at a cost of $107 million, the Nagpur facility the commissioning of which has been delayed by three years, will be state-of-the art. The facility can accommodate three widebody aircraft such as Boeing 777 or Airbus A380 at any given time. Air India is also building an engine MRO unit along with General Electric for $89 million, next to the airframe MRO facility for which it has acquired 20 hectres of land.

With OEM dominance, the independent MRO facilities stand at risk, some of which are already reworking on their business models

Meanwhile, Air India recently inaugurated another MRO facility in Hyderabad developed by Air India Engineering Services Ltd (AIESL), a wholly owned arm of Air India. The Air India unit can conduct a check every 125 flight hours, B check every four to six months and C check every 20 to 24 months. The Hyderabad facility at the Rajiv Gandhi International Airport is spread over 9,000 square metres and will provide MRO services to Air India’s fleet of 125 aircraft. The facility will provide base and line maintenance, component and material support, aircraft engine and technical training services on all major aircraft.

Yearly Spend Up

The MRO industry in India is slated to grow to about $1.6 billion yearly spend in the next 10 years from its current size of about $800 million. The potential to tap this market is huge. Consulting firm KPMG has estimated the current market at around $700 million. With airlines in India expanding their fleet size, the domestic MRO industry is all set to grow. The report pointed out that merely five to ten per cent of the MRO work for domestic scheduled carriers is carried out in India with the rest outsourced to third-party service providers outside the country.

South East Asia Leads

Meanwhile, countries in the region such as Singapore, Dubai and others, are benefiting from the lack of MRO infrastructure in South Asia, i.e., India, Pakistan, Bangladesh and even Sri Lanka. It is estimated that there are over 80 MRO entities in South-East Asia with Singapore leading the charts. In the light of MRO activity in India, these companies will soon have to rework their strategies to attract airlines and also remain competitive. TeamSAI has noted that the MRO industry in South East Asia, which benefited from original equipment manufacturers (OEM) support will now have to tap into not just the domestic market but also the overseas market.

TeamSAI Director, David Hygate has said, “Each generation of aircraft brings with it the promise of enhanced reliability. We see major checks on modern aircraft at eight to 12 years rather than four to six years for the older types and this will doubtless get even better for the Boeing 787 and A350. But although the number of aircraft is growing, this does not directly mean an increase in MRO events. The opportunities to profit from this, however, are rather limited unless you are allied with one of the OEMs, as most new engine orders are accompanied by long-term service agreements with these companies. Alliances with General Electric, Pratt & Whitney, Snecma or Rolls-Royce are the key to this market, unless you can ally with one of the major airline-related shops that can still leverage their buying power to extract work from the engine primes.” With OEM dominance, the independent MRO facilities stand at risk, some of which are already reworking on their business models. For example, Singapore-based ST Aerospace has shifted from military contracts to commercial contracts which now comprise 70 per cent of an average $1.4 billion revenue.

Lufthansa Technik Philippines is also a dominant firm in the field and has recently finished the construction of its third and largest hangar, capable of work on the A380. The company has already started an A380 cabin modification project and is now seeking certifications to perform C-checks.

OEM Centric

TeamSAI states that the MROs in South East Asia will have to work carefully alongside OEMs to capitalise on global growth forecasts, which see the MRO market share shifting distinctly towards the East. Hygate has stated “Today, the MRO market for jet airliners is worth around $54 billion. In 10 years time, TeamSAI predicts this will reach almost $73 billion, with engines the largest and fastest-growing segment. Training will become more important as the appetite for new staff grows and technology will probably be deployed in the form of distance learning and computer simulations. Organisations that recognise the value of training and are prepared to invest in this resource should cope best.”

China’s MRO Industry

The Chinese MRO market is expected to double in size from $5 billion in 2012 to $10 billion by 2022, with an annual growth rate of about seven per cent. Consultancy firm ICF International has estimated that China’s MRO market will have an annual growth rate of about seven per cent, compared to the under two per cent in the established MRO markets of North America and Europe. With fleet acquisitions including regional aviation happening at a rapid pace, thanks to the some of the government initiatives, the average age of fleet has come down in China, predicting steady growth in heavy maintenance. Presently, engine maintenance comprises 38 per cent of China’s MRO market, component maintenance accounts for 22 per cent, line maintenance is 20 per cent, heavy maintenance is 16 per cent and modifications cover 10 per cent. Of all the foreign MROs involved in the build-up of China’s MRO industry, one of the busiest has been Singapore’s ST Aerospace, which has partnered with Chinese airlines and government aviation bodies in regions across the country.

The Asia-Pacific fleet will grow by 3,500 aircraft through 2023. The Asia Pacific MRO spend is set to grow by $11 billion by 2023, growing at 5.3 per cent CAGR, well above the global average of 3.9 per cent. This growth is driven by the strong growth of the fleet in the last decade. Thus Asia-Pacific has emerged to become the leading aviation market with the region’s fleet comprising roughly 25 per cent of the global total and the regional MRO spend valued at approximately $16.4 billion according to figures from ICF International.