Airbus, Boeing maintenance push forces incumbents to rethink strategies

Singapore (Reuters): A push by Airbus SE and Boeing Co to capture more of the $ 77 billion global commercial aircraft maintenance, repair and overhaul (MRO) market is leading incumbents to seek partnerships and explore new business lines to stay competitive.

Airframe and engine manufacturers are stepping up sales of packages that supply customers with maintenance, engineering and parts. That poses a direct challenge to independent MRO companies like US-based AAR Corp, Singapore’s ST Aerospace and SIA Engineering Company Ltd. and Germany’s Lufthansa Technik.

Billions of dollars worth of business is at stake. Consulting firm Oliver Wynam estimates that MRO spending will rise to $ 114.7 billion a year over the next decade as the global jet fleet grows.

Boeing, which earned about half of its $ 14.6 billion in services revenue in 2017 from commercial jets and the remainder from defence, is aiming to more than triple that number in as little as five years. It signed nearly $ 1 billion worth of services contracts during the Singapore Airshow this week.

Airbus reported an 18% jump in commercial services revenue to about $ 3 billion in 2016, with the 2017 numbers yet to be released, said Laurent Martinez, head of Services by Airbus.

He said that as Airbus grows its services business, less-efficient independent MRO companies might find themselves left in the cold.

“That is the nature of competition,” he said, citing contract victories like a deal covering the Hong Kong Airlines A350 fleet announced during the airshow. “There was strong competition, and we led the pack and were selected.”

Joint Ventures 

As competition heats up, MRO companies such as Singapore Technologies Engineering Ltd’s ST Aerospace division and Singapore Airlines Ltd offshoot SIA Engineering have formed joint ventures with airframe and engine manufacturers, including Boeing and Rolls-Royce.

The partnerships potentially increase their access to business, but the gains are not certain.

“An airline could be a Rolls-Royce customer ... and our joint venture will have to compete for the work from Rolls-Royce, even though Rolls-Royce is a shareholder,” SIA Engineering CEO Png Kim Chiang said.

But the partnerships between manufacturers and MRO companies demonstrate there may still be room for independent businesses that have already established strong local footprints. And some airlines prefer working with an MRO provider that can service mixed fleets of Airbus and Boeing jets. “I think there is space for everybody to play if - and I’ll give you a caveat - an MRO continues to differentiate through efficiency,” Boeing Global Services CEO Stan Deal said. “Those MROs that do, I think there will be plenty of space for them. Those MROs who ... become complacent, I think you will see those MROs tend to falter.”

New business lines

Indonesian MRO Garuda Maintenance Facility AeroAsia is promoting “reasonable prices” as a key selling point as competition grows, said its director of base operations, Rahmat Hanafi.

In higher-cost Singapore, which controls 10% of the world’s MRO market despite having a far smaller percentage of the global jet fleet, the MRO companies are looking to diversify into new business lines.

SIA Engineering is servicing Embraer SA regional jets and is looking to add Bombardier Inc. It is also seeking new airline partners for joint ventures similar to its arrangement with Cebu Pacific in the Philippines, Png said.

ST Aerospace is stepping up passenger-to-freighter conversions and has launched seat-manufacturing and aircraft leasing businesses. It has five aircraft in the leasing business but wants to expand to 50 within three years, said ST Aerospace President Lim Serh Gee.

ST Aerospace says focusing on mid-life aircraft whose leases have ended, rather than working on new aircraft, offers an opportunity to expand.

The idea, the company said, is to reconfigure the cabin in its shop with seats it has manufactured, sign a maintenance contract with the airline and later potentially handle the plane’s “end of life” with a passenger-to-freighter conversion or scrapping it for parts.

“It is the whole value chain I’m trying to capture,” Lim said.