The good, the bad and the ugly: the shape of things to ... - AviTrader

Cover Story - 2012: The MRO Outlook 8
An uncertain year ahead for the MRO sector
as the global economy teeters on the brink
In this issue, our final for 2011, we’ve handed the floor over to industry executives from around
the world, in a range of different sectors, to hear their predictions for the year ahead
TONy TyLER, DIRECTOR GENERAL and
CEO of the International Air Transport Association
(IATA), put the writing on the wall last
week when he downgraded the organization’s
central forecast for airline profits in 2012 from
$4.9bn to $3.5bn, for a net margin of 0.6%.
But that was the good news. In the next breath,
he said that the economic turmoil facing Europe
if governments fail to resolve the Eurozone
sovereign debt crisis would lead to aviation
industry losses of over $8bn - the largest
since the 2008 financial crisis. If the banking
crisis is averted, Europe is still almost certain
to fall into a brief recession. European carriers
are expected to post losses of $600m in 2012.
Profits in other regions of the world will be
considerably weaker than those of 2011.
In the context of this grim outlook for the
year ahead, AviTrader MRO spoke to a range
of industry professionals to hear their views
on the MRO industry and to gain some insight
into industry sentiment as we embark
on an uncertain future. We hand the floor to
our contributors:
CRySTAL BALL GAzING
According to Katia Diebold-Widmer, head of
marketing at MTU Maintenance Hannover,
the aviation business has changed since the
last downturn. “Unlike previous downturns
which led to a short-term heavy demand drop
As I sit here today, enclosed by mountains of MRO
related data which I have been trying to translate into
prose, it seems that now is a time of record orders
for increasingly technically complex aircraft. Even a
simpleton like me can deduce that more complex
aircraft, with more advanced bits, requiring more
advanced knowledge, for more advanced overhaul,
rolling off the production line in ever greater numbers
should point toward good times for MROs. In
fact, I am putting the pen down and I am off to start
an MRO - see you in the queue for the RFP, thanks
for your time reading this, job done.
and a high decrease in utilization, with most
parked aircraft put back into service shortly
thereafter, we are now faced with a more
structural type of change.”
This time around, she says, fuel-inefficient MROintensive
aircraft and engines have been parked
in high numbers, and most of them are unlikely
to come back. “Production rates for new aircraft
have stayed stable, and we are seeing
record orders for new technology aircraft.”
“In a worst case scenario,
should the Eurozone crisis
evolve into a full-blown
banking crisis and European
recession, IATA estimates
that the global aviation
industry could suffer losses
exceeding $8 billion in 2012”
Tony Tyler, director general, IATA
However, climbing into my coat, before venturing outside, into the
crisp winter air, in search of an enthusiastic financial backer and willing
workforce, there is a niggling doubt in my mind. Sadly it is not just
“will I need a scarf?”
Older aircraft are being replaced by newer, less
MRO-intensive ones that enjoy both a ‘honeymoon’
period of five to seven years before their
first shop visits, and longer engine on-wing
times, she says. New technology engine models
represent 50% of the active commercial jet engine
fleet, compared to 33% before the crisis.
Many aircraft are being retired and dismantled,
which has a direct repercussion on MRO demand:
shop visits no longer occur, as engines
are being replaced by surplus or exchange engines
at a lower cost for operators seeking to
use up an engine’s green time. This development
has led to the emergence of a new breed
of competitors, traders and brokers who are
also tapping into the MRO market.
Lower overall demand has led to increased
price pressure and competition. According
to Diebold-Widmer, the MRO market has lost
15-20% of its size - or three years of growth
- due to the downturn.
Western Europe will be most vulnerable to
increased shocks to the market. The continuing
trend of outsourcing MRO among cashstrapped
airlines and cost-conscious low-cost
airlines will further the migration of maintenance
activities to lower-cost regions like Asia-
Pacific and China, according to David Conrad,
director, International Sales and Marketing at
Guanghzhou-based GAMECO.
“We are seeing an increasingly crowded MRO
market in the region, especially in China, with
many new entrants joining long-term established
MRO providers. New entrants include
OEMs, international MROs, new joint ventures
or partnerships and third-party component repair
houses. The bottom line is that in 2012,
The outlook for MROs in 2012? Surely that is an easy question to answer . . . asks Ben
Jacques, commercial manager at aviation consultancy IBA
Ben Jacques
IBA
The doubt is that the longer term MRO outlook may initially seem great
based on manufacturer order books, but is that rose tinted longer term
view representative of 2012’s revenue earning potential? Perhaps not?
The MRO industry has not been immune to the pressures of the most
recent global downturn and as we enter 2012 that very same global
downturn is evolving. Trying to ditch the word global in favour of something
more fresh and bang on trend, perhaps ‘Euro centric’ or as Europeans
would probably prefer ‘Western (including USA) downturn’
would sit better as a title for the next 12 months.
Rising fuel prices and reduced consumer expenditure dampened fleet
growth and also existing fleet utilisation as airlines couldn’t get enough
seats filled to warrant the planned flying. Combine this with the predicted
surge in A320 and B737NG shop visits not materialising, and
one can quickly explain the reduced MRO expenditure of 2009-10. The
numbers for 2010-2011 will likely show a small, cautiously optimistic
(continued overleaf)
AviTrader MRO - December 2011