Aircraft Maintenance Repair and Overhaul Market Study. - OBSA

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Executive SummaryA. IntroductionThe study was required to enable the Sponsors ofGlasgow Airport, Renfrewshire Council, Scottish EnterpriseRenfrew and BAA Glasgow, to gain a thoroughunderstanding of the current and prospectiveEuropean aircraft maintenance, repair and overhaul(MRO) market. This understanding will allow themto take a systematic approach to the possible developmentof a new major MRO facility at GlasgowAirport.The last section of this study focuses on specific aspectsof the UK market that have particular relevanceto Glasgow Airport, but in principle the general marketanalysis could be applied to the establishmentof a new MRO facility at any of the airports in theregions of the other STRAIR partners. In that case,one would need to undertake additional analysis ofthe relevant market as well as possible additionalfactors and considerations. The analysis of thesefactors and considerations is not within the scope ofthis report, but it is safe to say that the broad conclusionsmay well apply to locations with similar labourand other cost levels as the Glasgow region.B. Outline of the StudyThe study begins with an outline of the air transportindustry’s growth prospects. The next two sectionsexamine the main issues involved in managing theMRO business and survey the current market in Europe.The final section explores some specific issuesrelating to the development of a new MRO facilityspecifically at Glasgow Airport.Air Transport Industry ForecastMSP Solutions has prepared its own growth forecastof the aviation industry. This estimates the numberof aircraft by various categories until 2035. The forecastwas developed using three steps:• A macro-economic forecast is developed using USDepartment of Energy assumptions for GDP growthand oil prices.• Traffic forecasts were then derived, using incomeand price elasticity factors.• Demand for aircraft was then calculated from thetraffic forecast.The forecast covers the global fleet size. The numberof aircraft based in Europe is also forecast in somedetail by the various aircraft categories.The global fleet is expected roughly to triple to 44,000aircraft and the European fleet to nearly double. Inspite of the shift towards larger aircraft, more thanhalf of the aircraft in service in 2035 will be narrowbodies.This situation arises as availability of adequateflight frequencies is still judged to be critical,even in the maturing markets.A sensitivity analysis is also included in the study,using more cautious assumptions including the impactof steadily increasing oil prices. The resultinggrowth rates are roughly half of the mainstreamforecast. Nevertheless air traffic still manages todouble by 2035 and fleet size increases to nearly24,000, a still substantial growth rate of 60%.While the global fleet will continue to grow (even inthe alternative scenario) this does not mean thatthe MRO market will also grow. Over time the maintenancerequirements per aircraft are tending todecline because each generation of aircraft is engineeredto require less maintenance than the precedinggeneration.MRO Business IssuesMRO activity was initially the domain of the airlineswith very little work outsourced to independent providersor manufacturers. This situation has progressivelychanged over the years as increasing financialpressure on airlines has forced them to seek waysof reducing costs. Specialist MRO providers have developedwho can use the volume of their businessand specialisation to do the work at lower unit cost,often by choosing locations with lower labour andset-up costs.A number of national airline carriers have withdrawnfrom the business totally by subcontractingwork. Other airlines such as Air France have separatedthe MRO operation from their airline businessand transformed their engineering and maintenanceactivity into separate specialist companies. Finally,some airlines have continued doing work in-housein an integrated organisation.The traditional role of the MRO provider is alsochanging with much more of a total support functionrather than a one-off approach to the work.Increasingly, airlines are looking for a one-stopsolution based on a long-term commitment to theprovider. A good recent example of this was the 10-2STRAIR Aircraft Maintenance Repair and Overhaul Market Study. Glasgow International Airport.
year agreement between SR Technics and easyJetfor total engineering and maintenance support ofthe easyJet fleet.The continual financial pressures in the air transportmarket, coupled with the introduction of lowcost carriers, has forced further change on the existingMRO providers, with a reduction in prices anda transfer of work to lower cost providers and countries.In geographical terms, there is a developing trendto move into China, the Far East and South Americain pursuit of lower labour costs. In the survey carriedout as part of the study, most MRO providerssaid that the concerns over service quality in theseemerging areas were gradually receding. Within Europethere has been a move to lower cost countriesin Central and Eastern Europe; e.g. Poland and Hungary.The development of new technology aircraft, coupledwith pressure on the manufacturers to reducemaintenance tasks, has resulted in a very significantreduction in both work scope and work frequency.This has resulted in a sharp fall in the MRO load as awhole, leading to some under utilisation of existingresources.In the UK there is a surplus of MRO resources atpresent, with some providers unsure and othersquite optimistic about the future prospects for theIndustry.Consolidation of MRO providers in Europe continueswith a few dominant providers buying into others ortaking them over entirely. These larger providers arealso expanding into both Eastern Europe and the FarEast, again to take advantage of economies of scaleand lower labour costs.MRO Opportunities at GlasgowThis section considers the challenges that will haveto be overcome to develop an MRO facility at GlasgowAirport. These include the barriers to entry and thekey success parameters, as well as characteristicsof the Glasgow region that would make it attractivefor a new MRO provider to enter the market. Incentivesare also briefly examined in this context, to theextent that they are available.MSP Solutions conducted interviews with seniormanagers from a selection of five airlines and MROproviders. These interviews highlighted the primaryconcerns of the MRO business as downtime, qualityand cost. There is considerable interest in findingnew solutions, especially by utilising MRO facilitiesin Asia where labour costs are lower and adequatequality can now be assured.There is, at first sight, only limited support for utilisingan MRO facility at Glasgow. This may be duein part to the potential participants having had littletime to consider such a move seriously.There would however be some interest in the prospectof moving into a purpose-built facility. So farMSP Solutions can find little evidence of any willingnessto invest major capital to develop a facilityin Glasgow – or in any other UK location, for thatmatter.However, three of the companies that were interviewedexpressed varying degrees of interest in aGlasgow MRO base, while only one of the five dismissedthe possibility out of hand.C. ConclusionsThe study boils down to answering four key questions:• How will the MRO market grow over the period to2035?• Is there an economic MRO development opportunity for Glasgow and what would this be?• Which acceptable organisations might beinterestedin developing a major MRO facility at Glasgow?• How can the Sponsors attract such organisationsto create the desired MRO facility at Glasgow?STRAIR Aircraft Maintenance Repair and Overhaul Market Study. Glasgow International Airport. 3
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Aircraft Maintenance Repair and Overhaul Market Study. - OBSA

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