Big Friendly Giants

The MRO giants are embracing technological change and finding new ways to efficiently and effectively run their businesses. The challenges are plenty. Material costs are rising, labor costs may be increasing as the mechanic shortage grows and the challenge of managing maintenance for legacy aircraft while welcoming next gen aircraft creates a unique dichotomy.

Growth is still happening in our cyclical industry. Air travel is booming right now, airlines are profitable and emerging markets continue to hold the promise of the golden ring. There is steady growth predicted for the next ten years. Consolidation among players is still happening. Renewed laser focus from behemoths like Boeing are impacting the playing field, too.

During the next ten years, the global air transport MRO market will grow an average of four percent, The Oliver Wyman annual MRO forecast projects. “Total MRO spending expected to rise to $114.7 billion from $77.4 billion in 2018,” the report says.

Still, it’s a delicate balance with fuel prices, labor prices, demand for air travel and geopolitical nuances all playing a role in how long the streak can last. IAI Bedek agrees that the MRO market is highly sensitive to oil prices and says low oil prices have positively indulged the aviation industry in the last few years and allowed its rapid growth.

Oliver Wyman’s report says a gradual changeover to newer aircraft will see airlines retire older, less fuel-efficient models—although at a slightly slower rate than expected last year. Delta Air Lines, for example, is in the process of taking delivery of their new A200s while continuing to fly every last leg possible on its Mad Dogs, the venerable MD-88 workhorse, that has helped their profits soar, before retiring each one.

Meanwhile, to remain a leader among giants, MROs are looking for ways to entice new customers and keep the ones they have. Technology, digitization and niche product offerings are being dangled at every turn. New facilities, joint ventures and collaborations are also playing key roles in building sustainable business growth.

General Consensus

The giants among MROs are in agreement. Most have had an excellent year and some, a record year. MTU Aero Engines says its MTU Maintenance division is breaking records. “In MTU Aero Engines’ commercial maintenance business, revenues expressed in U.S. dollars are forecast to increase by mid- to high-teen percentages in 2018. The MRO division has broken records for four consecutive years now and market demand is strong,” says Holger Sindemann, executive vice president MRO Operations, MTU Aero Engines. “We are optimistic that we will continue our growth trajectory in 2019. With an intelligent, multipronged aftermarket strategy that combines OEM program partnerships and joint ventures with airlines with an independent MRO stronghold and the largest engine portfolio worldwide, we intend to grow at a rate of around 10 percent well into the next decade, with MRO services complemented with fast growing leasing and asset management activities.”

Russell Ford CEO, StandardAero
Russell Ford
CEO, StandardAero

This was a year of tremendous growth for StandardAero. “After acquiring four companies in 2017 and winning several very large new engine maintenance programs, 2018 has also been a year of execution for our company,” CEO Russell Ford says. “In the last year, we have grown our company from 3,500 employees to 6,000 and increased our facilities footprint from 14 primary facilities at the beginning of 2017 to 37 primary sites in North America, Europe, Africa, Asia and Australia. In addition, we’ve expanded our serviceable aircraft engine platforms from 25 to 41 and we are authorized by all of the world’s leading aircraft engine manufacturers.” Still, Ford says, they are optimistic about even more growth opportunities ahead.

Since its formal standup on July 1, 2017, new giant on the block, Boeing Global Services (BGS), says it has outpaced the current services market’s average growth rate. “As we further expand our offerings and continue to harness the full potential of Boeing’s integrated resources, such as digital solutions powered by Boeing AnalytX, the services capability advantages and cost savings that we offer customers will grow exponentially,” says Stan Deal, president and CEO, Boeing Global Services.

Stan Deal CEO, Boeing Global Service
Stan Deal
CEO, Boeing Global Service

“We are pleased with our double-digit sales growth,” says Chris Jessup, chief commercial officer, AAR. “Our market position as the largest independent aftermarket services provider, diversified portfolio of service offerings and strong balance sheet with substantial available liquidity, will help us grow our market positions both within the commercial and government sectors.”

Behemoth Lufthansa Technik (LHT) is ready for more and is even more optimistic. “We expect a revenue growth for LHT in 2019 compared to 2018,” says Frank Berweger, vice president Corporate Sales Americas, Lufthansa Technik. “Regarding the overall MRO market, we forecast an annual growth rate of about seven percent for the next years.

MRO will grow about four percent during the next ten years according to the Oliver Wyman forecast. MTU's MRO division has broken records for four consecutive years, according to Holger Sindemann, EVP at MTU.
MRO will grow about four percent during the next ten years according to the Oliver Wyman forecast. MTU’s MRO division has broken records for four consecutive years, according to Holger Sindemann, EVP at MTU.

Aiming High for Growth

Turkish Technic, one of the largest MRO companies in the world operating in one hub, says it has set its sights on being among the top five MRO companies in the world by the end of 2023. To help it reach this target, the company is building new hangar facilities at the new Istanbul Airport. The new airport will feature the world’s largest single terminal, 11 million square feet, with a capacity of 90 million passengers per year. Operations at the new airport are set to begin in January 2019. Turkish Technic says it plans to “enhance and extend its capacity and capabilities at Istanbul Airport” to take advantage of those opportunities.

AAR predicts company-wide growth in 2019. “AAR expects the most growth to come from our aftermarket new and used parts trading, OEM new parts distribution and programs integrated solutions offerings,” CCO Jessup says.

AJ Walter Group CEO Christopher Whiteside says 2018 was a “hugely successful year…with the addition of many new customers and extensions to existing contracts.” Looking ahead to 2019 he adds, “In the context of a buoyant MRO market, we anticipate further growth in this area.”

Israeli giant IAI Bedek says they are also optimistic for 2019 growth focused on several areas, including a “clear trend of growth in engine MRO demand with some additional growth of Bedek’s APU, landing gear and components overhaul services.”

Lufthansa Technik feels the highest potential for their growth is in engine services, component services, line maintenance and digital products, but also continues to invest in multiple internal areas. “We have invested more than €160 million in different areas in the first three quarters of 2018,” says Berweger. “We are currently preparing the start of construction of a new hydraulics shop in Hamburg. Lufthansa Technik Malta has opened an innovation bay this Spring and we have made significant progress in establishing our two engine shop JVs in Poland.”

From an engine perspective, MTU predicts “Shop visits will peak for the newer versions of V2500 and CFM56 engine families in the next two to five years – the V2500-A5 and CFM56-5B and CFM56-7 – and we expect to see growth on these engine types.” MTU says they are experiencing a “perfect storm” of demand. Services for older legacy engines, such as the CF6-80C2, has continued longer than expected due to low fuel prices. And new generation engines are entering the shops earlier than originally anticipated. “All this has led to our shops being fully loaded worldwide,” MTU EVP Sindemann says. He stresses that with capacity of more than 1,000 shop visits across their network, they still have flexibility for induction.

StandardAero points to their recent acquisitions, investments and new engine platform awards to show their appetite for growth and say they are in process of translating those things into growth opportunities. “[The] integrations of Jet Aviation Specialists (JAS), PAS Technologies and Vector Aerospace during the last two years have enabled us to credibly model synergies, acquire financing, etc. for future acquisitions, especially in the engine components space, which is highly fragmented,” Ford says.

Asian Sunrise

There is pent-up demand for air travel in Asia, particularly domestic travel, according to Oliver Wyman. They predict the next 10 years will see a significant shift in passenger traffic, moving away from North America and toward Asia. An emerging middle class in China, and potentially India, will fuel this. Asia, as has been the case for several years, will remain the driver of MRO growth. India is forecast to grow 6.7 percent annually but will represent a smaller share of the total market (two to three percent). Lufthansa Technik agrees. “Important markets with high growth rates remain Asia Pacific, Middle East and Africa. Regarding potential, we estimate that Asia Pacific will pass the American MRO market within the next five years and stands out with the strongest fleet and MRO Market growth,” Lufthansa Technik VP Berweger says.

Frank Berweger VP Corporate Sales, LHT
Frank Berweger
VP Corporate Sales, LHT

StandardAero’s CEO, Ford, agrees. “We see numerous opportunities to grow in emerging economies like Asia Pacific or Latin America,” he says.

Boeing feels its worldwide presence and partnerships, including an expansive supply chain, ensures that they can respond to the growing demand in Asia. “Global Services has more than 22,000 employees spread across 70 countries and 300 locations to ensure that offerings in the U.S. and abroad bring the depth and breadth of Boeing’s resources, while providing the right level of indigenous capability expansion,” BGS CEO, Deal says. “For example, Singapore is home to Boeing Asia Pacific Aviation Services, a joint venture with SIA Engineering Company that provides engineering, repair and maintenance services by combining Boeing’s Global Fleet Care services with local MRO engineering expertise.”

Christopher Whiteside CEO, AJ Walter Group
Christopher Whiteside
CEO, AJ Walter Group

AJW Group says Asia will remain an important market for growth for them. “The addition of OEMs like COMAC in recent years has boosted jobs and fueled demand in the region and across the MRO industry as a whole. As China’s relatively young aircraft fleet inevitably matures, and warranties expire, we can expect the rotables industry to grow,” Whiteside maintains.

Clearly, well-established regional leaders like ST Engineering Aerospace, a clear MRO giant with a global MRO network of facilities and affiliates in the Americas, Asia Pacific and Europe, will have continued success with the forecast growth in the area. Their MRO capabilities include airframe, component and engine, aviation materials and asset management services, as well as aircraft interior solutions. HAECO Group is also well-situated to address the growing MRO needs of the area. HAECO consists of 18 subsidiaries and affiliates, employing over 17,000 in Hong Kong, China, Singapore and the U. S.

High Tech Future

“We want to shape the digitization of our industry,” Dr. Johannes Bussman, LHT’s chairman boldly and confidently said at their annual press briefing in Hamburg in March. And they have many initiatives to prove their commitment to this end. “We are permanently determining the potential of new ideas for the MRO business, initiating innovative projects, integrating new advanced technologies and revolutionizing work processes,” says Berweger. “Big data use and MRO 4.0 are major fields which we are focusing on. We are looking at additive manufacturing, digitization of MRO in general, with a special focus on AVIATAR [their modular IT-platform for digital fleet solutions], robotics and automation, drone services, health monitoring, predictive analytics, artificial intelligence and machine learning. In 2018, LHT also opened an “innovation bay.” The innovation bay at Lufthansa Technik Malta focuses on reviewing state-of-the-art technologies for aircraft overhauls in the near future. LHT says everything that proves itself in practice there will be integrated in the work process and rolled out to all other Lufthansa Technik base maintenance locations. More innovation bays will follow at other sites of their network.

StandardAero says they innovate with their extensive engineering capabilities, develop component repairs and utilize OEM relationships to get access/authorization to execute the repairs developed for customers. What about additive manufacturing? “For 3D technology, the biggest benefit is speed of manufacture by using 3D printing for tooling and making the tooling available within a few hours or days, versus the long process of ordering material and finishing tooling,” Ford says. “For example, in our engine component repair facilities, we have used 3D printed plastic tooling to replace aluminum tooling and metallic printing for more complicated tooling geometries.”

Chris Jessup CCO, AAR
Chris Jessup
CCO, AAR

AAR has been investing heavily across the company with innovative technologies to help maintain a competitive edge. They have several proprietary products that resulted from the investments. “AARIVE is a self-service portal for our power-by -the-hour (PBH) component support customers that provides real-time order tracking and transparency,” CCO Jessup explains. “Airvolution is our robust and secure cloud-based system for managing aircraft component repairs. PAARTS Store gives customers 24/7 visibility of more than one million parts and access to traceability documents and instant bidding or purchasing options. We’ve also launched our first paperless hangar environment approach in our airframe heavy maintenance network and drone testing to facilitate maintenance activities. Additionally, we are developing block chain solutions with industry partners.”

AJW is spearheading a number of digital initiatives to enhance operational efficiency for its customers and colleagues. In the next three years, AJW says it will fully develop a modern cloud-based infrastructure to provide customers with the ability to engage digitally in real time across multiple platforms. “With 30 locations across five continents, local server-based data storage presents challenges of both capacity and consistency; consequently, AJW is migrating its data and many core digital services onto cloud-based storage systems,” Whiteside says. Holding all of the data in one place will enable them to create a “data lake” from which the company can develop the building blocks for wider digital information. “This will enable AJW to guide and boost its predictive analytics expertise. As part of this digital evolution, AJW is also introducing a digital services platform for customer use to ensure efficient and effective interaction in all transactional areas,” says Whiteside. “It incorporates a highly responsive portal which enables customers to manage transactions on a live basis. The platform is designed to quickly and reliably integrate with third party software systems, such as AMOS or SAP.”

MTU Maintenance’s largest project in the technology arena is their engine trend monitoring (ETM) system, based on engine data from flight operations and shop visit data. “We introduced ETM over fifteen years ago and continually develop and optimize the system,” Sindemann says. “As an independent service, MTU’s ETM system is not based on a single engine system and we can monitor a customer’s GE90 and V2500 fleet with the same tool, for instance.” MTU maintains that this is particularly helpful for engineers and technical managers and unusual in the industry. “We have recently introduced new features to our ETM system, such as remaining on-wing time prediction based on critical performance parameters, like EGT margin, automatic diagnosis to identify the root cause of a trend shift, quick fleet analysis tool to review on-wing deterioration per ESN and shop visit effects,” he adds.

Boeing Global Services says it is focused on organically growing their resources and expertise.
Boeing Global Services says it is focused on organically growing their resources and expertise.

Not to be outdone, Boeing’s digital solutions include predictive maintenance activities powered by Boeing AnalytX and the company says they will continue to evolve those technologies alongside other capabilities and platforms. “Predictive Maintenance represents an umbrella of activities that help operators turn unscheduled maintenance into scheduled activities. It includes establishing a maintenance strategy, maintenance planning, day-of operations monitoring, execution, reliability analysis, predictive and prescriptive maintenance, and post-operations monitoring for feedback and improvement,” Deal says. One of Global Services’ digital applications is the Jeppesen FliteDeck Pro electronic flight bag (EFB) solution. “We have recently added new features and capabilities to enhance operational efficiency for airlines and large-scale operators.”

Recently, Turkish Technic established Cornea Aerospace Systems to develop IFE (In-Flight Entertainment System) as a Joint Venture with Havelsan. “Besides our comprehensive maintenance and repair capabilities and our high-quality aircraft galley and aircraft seat producer JV’s, we are pleased to operate in [the] in-flight entertainment market through our Joint Venture Company to be established with Havelsan. I believe that this step will create many opportunities for both parties and also customers,” Ahmet Karaman, CEO of Turkish Technic said when the JV was announced in May.

IAI Bedek Aviation founded an aviation innovation hub called Hangar in 2017 that promotes technologies which focus on MRO, freight, condition analysis, predictive maintenance, supply chain and big data analytics. Creators of Industry 4.0 – IoT, AI, Blockchain or automation and robotics were solicited and welcomed to apply by May this year to have an opportunity to mutually develop a commercial aviation application with IAI Bedek.

Cooperate, Collaborate

Studies show collaborative work can benefit problem-solving performance required in businesses. Global, cross-national team building sparks ingenuity. Instinctively, the giants in our industry know this. In 2018, Lufthansa Technik beefed up its collaborations. “At the end of September, we celebrated with our partner, MTU Aero Engines, the cornerstone ceremony of our Joint Venture EME Aero, a new engine overhaul shop for Pratt & Whitney’s PW1100G engines,” says Berweger. “At the beginning of November, we signed with UTC Aerospace Systems, a life-of-program component service agreement for maintenance of Geared Turbofan (GTF) engine accessories integrated and supplied by UTC Aerospace Systems for the A320neo.”

“We are always looking for good business opportunities, either from geographical or technological perspectives,” Berweger says. “We also want to enlarge our aircraft overhaul capabilities in Asia. Concretely, we plan to increase our hangar capacities at Lufthansa Technik Philippines in the next year. In the Americas we have expanded our overhaul site in Puerto Rico and are now also offering overhaul services for the Airbus 320neo family, there.”

However, Boeing Global Services says it is first focused on organically growing their resources and expertise. BGS says they will also look to make complementary investments to enhance their current offerings portfolio, including joint ventures and acquisitions. “For example,” Deal says, “Boeing’s acquisition of KLX nearly doubled Boeing’s supply chain product and service offerings. We will continue to make selective acquisitions and engage in partnerships when doing so enhances lifecycle value for our customers, makes sense for our business and benefits industry.” The company says only 20 percent of the worldwide fleet of military aircraft will be retired and replaced over the next 10 years. They say this means the demand for services to maintain aging aircraft, extend service life and enhance capability will grow faster than overall fleet size. Boeing feels their worldwide presence and partnerships, including that expansive supply chain, will ensure they can respond to the demand.

MTU Aero Engines and Lufthansa Technik are setting up a joint venture named EME Aero (Engine Maintenance Europe) for the maintenance, repair and overhaul of geared turbofan (GTF) engines, with each of the partners holding a 50-percent stake. “The foundation stone was laid at the end of September this year. According to current plans, the facility in Jasionka, Poland, will be operational in 2019 and have an annual capacity of over 450 shops visits. It will service the new PW1000G-series geared turbofan engines as part of the OEM network,” MTU’s Sindemann says.

Holger Sindemann EVP MRO, MTU
Holger Sindemann
EVP MRO, MTU

AJW’s philosophy is unique in this regard. “At AJW Group we very much see OEMs as partners,” Whiteside says. “Due to AJW Group’s independence, we have the freedom and fluidity to move with the market’s needs.” Whiteside says the current set-up for a larger OEM tends to be engineered towards the high-volume users of their components, rather than ad hoc requests for a single part or repair. Additionally, airline customers are likely to require an outsourced nose-to-tail solution and are unwilling or unable to manage multiple OEM relationships. “Forward-thinking OEMs are overcoming those barriers by working with existing aftermarket providers. AJW can offer customized route-to-market solutions and much more, having established relationships with over 1,000 customers—airlines, MROs and leasing companies—globally. OEMS’s can also benefit from AJW’s infrastructure and global customer service teams speak the customer’s language,” says Whiteside. “As OEMs do not necessarily have the right aftermarket support to compete with aggregators or nimble trading organizations, collaboration with an established aftermarket provider is the logical solution.”

Reduce, Reuse, Recycle

Where a particular engine platform is in its product lifecycle can determine if customers want or need to have used serviceable material (USM) as part of their maintenance program. Aircraft retirements will lead to the availability of engine assets and USM, which will help facilitate some of the customer requirements on cost and availability of parts for maintenance. “Creative, customized maintenance solutions for certain customers, such as with airlines meeting lease return conditions; lessors/owners retaining asset value and re-marketability to the next tier of operators; or disposition and creating customized maintenance solutions is a strength of StandardAero,” says CEO Ford. “On mature platforms, customers’ service requirements can skew towards cost and customized solutions facilitated by the embodiment of USM, repair development, asset acquisition/disposition, engine exchange programs, creative work-scoping (module level MRO, lifecycle-optimized build lives), etc. As an independent MRO, we have a long history of providing these solutions across market sectors, numerous engine platforms and products manufactured by all of the major OEMs.”

MTU says they use USM extensively, as a way of reducing material costs for operators. “These types of service are in high demand—in particular for V2500, CFM56 and CF6-80C2 engines, Sindemann says. “We provide asset management services for owners wanting to maximize asset value at the end-of-life and can teardown engines and remarket parts for them, purchase them for our own use, or provide a combination of both.

However, MTU says the market is volatile and supply of USM is dependent on various factors, such as traffic growth, production rates, oil prices, park and retirement rates, etc. In cases where oil prices are low and engines are being flown longer, there are fewer retirements and teardowns, which can result in a lack of certain parts. “We believe that experience and a strong network is key in navigating this volatile market,” says Sindemann. “Our strength is in the technical understanding from our nearly 40 years of MRO experience, combined with our market understanding through MTU Maintenance Lease Services B.V. It means we are able to handle engines in-house, salvage and repair parts—and also know what a fair market value for mature engines and USM is.”

Cost reduction is always crucial for customers, according to LHT. Their policy is always to better repair parts instead of throwing them away. “We are very experienced at supporting those who are open for recycled or used materials. We have gained a large expertise to develop repair methods,” says Berweger. “But we also consider all sources of used material, full aircraft as well as engines, landing gear or single components. We do trade overstock from aircraft teardown to a certain extent. In the end,” he stresses, “it is the decision of the customer…and it is our job to support him in the best possible manner.”

IAI Bedek has seen requests for USM in more RFP’s recently than in the past. They are also seeing customers’ demand that the facility has “green operational tendency” in its way of acting and performing service. “We invest a lot of resources on a continuous basis and, in practice, we are completely prepared for all aspects and infrastructures involved in the work processes, to act properly and in accordance with the strict legal requirements in this matter.” IAI-Bedek says it strictly abides by the regulations of the Israel Ministry of Environmental Protection.

BGS CEO Deal says, in response to customer demand with the creation of Boeing Global Services, it has developed the capability to support aerospace customers’ USM needs, including part trading, aircraft and engine teardown, and surplus redistribution and consignment. “Aerospace customers are demanding use of recycled and used materials and parts to meet replacement part needs,” Deal says. He says they understand utilizing USM to fill parts needs increases product availability and airlines’ operational efficiency. “Currently, Boeing is harvesting more than 2,500 USM parts for the aftermarket, with a potential of harvesting a total of 6,000 parts,” he emphasizes.

Outstanding in a Field

Technological change and the big data wave is coming and those companies that can leverage that aspect to their advantage are likely to do very well. Thousands of new tech aircraft are coming into service in the coming decade and will create new opportunities in the MRO industry. In the meantime, shops realize they need to focus their energy and resources on their core competencies, forge strategic partnerships and position themselves for growth in those regions where it will happen. It appears the giants of our industry have this figured out. With that said, what is the differentiating factor for these giants?

At MTU, Sindemann says their secret is offering alternatives. “We are the global market leader in customized solutions,” he says. “As engine experts, we offer a wide range of individually-tailored solutions encompassing innovative MRO services, integrated leasing and asset management. We marry world-class engineering with intelligent creativity and never give up unless an optimal solution has been found.”

Boeing Global Services says they offer the unique position of bringing commercial and government customers the full scale and scope of Boeing’s lifecycle expertise and resources. “[This includes] the most advanced digital aviation and data analytics capabilities to anticipate their needs and maximize their investments. This ‘one-stop shop’ is unique in the industry and offers a full suite of services solutions integrated with our airplanes, which drives down lifecycle costs and optimizes capital expense and operating costs,” Deal affirms.

AJW says its greatest strength is its independence. “It is that, together with its size and reputation, which gives AJW the freedom and fluidity to move with the market’s needs, setting us apart from the competition,” says Whiteside. “Our strategy is to redefine aviation supply chain management so that we are an enabler and a facilitator that meets the needs of both our customers and partners worldwide to continue to transform aviation efficiency.”

Lufthansa Technik says its size, resulting scale effects and worldwide network with more than 35 subsidiaries and joint ventures sets it apart. Berweger also points to their comprehensive MRO-related R&D activities, their significant investment in innovation, and the integration of maintenance, production and design organizations as differentiators. “We have a focus on ‘MRO goes digital’ to create innovative and optimal customer services,” he adds. “There is no ‘one size fits all’ business model [at LHT].“

StandardAero cites its mission as to be the best to work for and the most trusted service partner. “Our company’s vision is to inspire the best and constantly raise the standard of aviation services,” Ford says. “What sets us apart…is our highly trained technicians and collaborative and supportive company culture. We build that culture through trusted partnerships with our employees and our customers,” Ford says.

AAR says their main differentiator is their independence. “We are not owned by an OEM or airline, so we can focus on delivering fast, flexible, customer tailored solutions to our customers within the commercial and government sectors,” AAR CCO Jessup says.

Looks like 2019 will be an interesting year for the big, friendly giants of MRO.