Wednesday, April 1, 2009
Emerging MRO Markets
Within the next two decades, some 29,400 aircraft, ranging from regional jets to Boeing 747s and Airbus A380s, will be delivered to airlines around the world, according to Boeing’s "2008 – 2027 Current Market Outlook." Of those, 11,440 will go to airlines within the Asia/Pacific, Middle East, Latin America and African regions — areas where MROs are considered an emerging market because of the growing number of aircraft entering those markets.
In the Middle East alone, roughly a quarter of the airliners being delivered worldwide in the near term will be to those carriers, with some 700 corporate jets also going into the region, according to HH Sheikh Ahmed Bin Saeed Al Maktoum, president of Dubai’s Civil Aviation Authority. The Middle East airline fleet is expected to grow from 650 aircraft in 2005 to over 1,000 by 2015. Just the "Big Three" alone of the Middle East carriers — Emirates, Etihad and Qatar — have over 325 aircraft on order for delivery within the next few years.
What that means is that a need has been created for both new and bigger MROs to service aircraft as they come on line in these emerging markets. Traditionally, aircraft maintenance, particularly engine maintenance, has long been outsourced to MROs and OEMs primarily in Europe and North America. Fortunately, a new MRO market is rapidly starting to emerge in the regions slated to get those 11,400 airliners... as well as the hundreds of corporate aircraft.
David Stewart, a principal with AeroStrategy, an aerospace management consulting and analysis company, said that the Middle East MRO market has experienced the most rapid growth since 2003, growing at 10.5 percent per year and expected to account for 5 percent of the world’s total MRO value in 2009, totaling about $2.2 billion.
Speaking at an MRO conference in Dubai last January, he said that over the next 10 years, the Middle East is expected to have an estimated 8.9 percent growth compared to the overall industry average of 3 to 5 percent per annum over the long term. For the near term, money spent on MROs is expected to drop this year, with some recovery next year. Admitting to a general gut feeling, Stewart said that, "2009 will be below 2008, while 2010 will be pretty much equal to ’08 will be my hunch."
Calling the MRO industry one of the Middle East’s "most important emerging sectors," Sheikh Ahmed said that "With huge growth in regional commercial and business aviation markets, the need for indigenous MRO facilities is expanding week on week. The local skills base that is required to maintain ever-growing numbers in regional aircraft fleets also continues to rise."
India also has a rapidly growing airliner fleet that will need more MRO growth, although it lacks "a certain amount of infrastructure required to manage the amount of growth" in its aviation industry, Stewart said. "India particularly has had such explosive growth (that) they’ve had trouble with infrastructure such as pilot training, hangars, parking and air traffic control keeping pace with the growth."
China is also a growing market for MRO, although "it has managed to keep itself going," he said.
The MRO industry as a whole will be driven by the emerging markets, particularly India and China, according to a report issued in February by PricewaterhouseCoopers and the Confederation of Indian Industry.
Perhaps showing a bit of bias, the report stated that "India has several advantages, such as talent availability, manpower cost competitiveness, liberalized civil aviation and defense policies, a strong domestic manufacturing base and the presence of specialist capabilities amongst others, that positions it favorably to become the manufacturing MRO hub for global and domestic aerospace companies."
In issuing the report, Dhiraj Mathur, PricewaterhouseCoopers’ India leader for Aerospace & Defence Practice, said that the MRO industry within India is estimated to grow at 10 percent and reach $1.17 billion by 2010 and $2.6 billion by 2020. However, development as an MRO hub is challenged by the "indirect tax structure, specifically customs duties and service tax."
AeroStrategy’s Stewart noted that customs and taxation problems are also a challenge faced by China in its development of an MRO industrial base.
There is also growth in Africa that is "slightly above average," Stewart said, "but it is not spectacular like India or the Middle East. There is a market there, but it will not receive a great deal of attention when you’ve still got areas like India, China and the Middle East to distract people. It might be that you have colonial relationships such as Airbus in French-speaking North Africa since they still do quite a bit of business there. So, yes, there is a bit of business, but it’s not going to be something that everybody is writing home about."
As for the Asia/Pacific region, a Frost & Sullivan report issued in January stated that while the economic outlook for the MRO industry in both the short and long term "remains bullish," studies suggest "that the Asia/Pacific MRO revenue forecast would decrease by 3 percent due to slowdown in air traffic."
However, according to Nagib Ramli, Frost & Sullivan’s Asia Pacific research associate for Aerospace & Defense Practice, the region "will still record a comparatively higher growth stemming from all maintenance segments, the bulk of which will be driven by the engine segment."
Ramli noted that a new engine MRO joint venture is being established in Shanghai between Pratt & Whitney and China Eastern Airline to handle the airline’s CFM56 engines used to power its fleet of A320 and Boeing 737 aircraft.
A "reasonable growth" of low cost carrier (LCC) passenger traffic within the Asia/Pacific region also "could potentially provide stimulus for an increase in MRO activities," he said.
One of the biggest areas for MRO growth continues to be Singapore, long a hub for aviation maintenance. Singapore is currently developing a 300-hectare (741-acre) Seletar Aerospace Park "as an integrated aerospace facility which, besides MRO, will play host to manufacturing and other business activities," Ramli said. Companies such as Rolls-Royce, Pratt & Whitney and ST Aerospace have already committed to invest in the aerospace park, he said.
In India, MAS Engineering & Maintenance and GMR Hyderabad Intl Airport Ltd. have formed a joint venture to establish a "world class MRO facility" at the Greenfield Rajiv Gandhi Intl Airport in Shamshabad, Hyderabad, India. This facility, estimated to cost between $50 million and $70 million, will provide MRO services for both narrow and wide-body aircraft and is expected to open by the end of third quarter 2009.
One of the biggest factors in the growth of MROs in emerging countries is the increasing interest by OEMs, particularly in the realm of joint ventures similar to that between P&W and China Eastern.
In January, General Electric and Singapore Technologies Aerospace announced a 20-year agreement to support work on GE’s new GEnx-1B and -2B engines. The agreement allows ST Aerospace Engines, an ST Aerospace subsidiary, to serve as a GE-approved on-wing support provider for the engines. The GEnx engine is planned to succeed the CF6, with the -1B going onto Boeing’s new 787 (See Aviation Maintenance, April 2008.)
GE has also established a wholly-owned repair shop in Singapore for airfoil high pressure turbine blades and a facility for repair of compressor airfoils. The Singapore shop for high pressure airfoils is currently being expanded by 40,000 square feet to handle a growing demand, according to Thomas Gentile, president and CEO of GE Aviation Services. The Singapore facility for compressor airfoils was initially a 49/51 percent joint venture with Teleflex, Inc. However, in March the two companies announced a $30 million buy-out by GE, giving it Teleflex’s 51 percent and full ownership of the company. Transfer of Teleflex’s share of the company will be made by the end of the year.
As far as long term needs are concerned, "what you’re seeing right now is a lot of (aircraft) orders being placed in some of the emerging markets. But whether it’s the Middle East, or China, or India or other parts of Asia, or even Latin America, the fastest growing regions are clearly the emerging markets," he said.
"Because so many orders are going into those regions, it is important to develop the MRO capabilities to serve those orders in the regions. There is always the opportunity take the engines off and ship them to wherever you want in the world, and that’s the great thing about engines, that you can send them around. But it is so effective for turnaround time and efficiency to do as much work in the region as you can. So as we develop our network globally, we are working with airlines and independent MROs to create the capability and coverage for our partners."
Gentile noted that GE has a 66/34 percent joint venture with Malaysia Airlines for the repair of CFM56 engines. Originally established for the CFM56-3, the facility was expanded last November to include the -5B that powers the MAS Airbus A320s.
"We’re doing something similar in Brazil, expanding that from the -3 to both the -5B and -7B. The -7B is what flies on the new generation Boeing 737."
Snecma America Engine Services (SAMES) signed a similar joint venture agreement with the Mexican engine MRO company Turborreactores SA de CV (ITR) in May 2008 in Querétaro, Mexico to provide MRO service on the CFM56 (See story, Aviation Maintenance, Oct. 2008).
GE also has partners in the Middle East, and is "a big provider to Emirates," Gentile said. Emirates currently flies aircraft with GE engines including the CF34, GE90, the GE/PW GP7000 and the GE/Snecma CFM56.
GE recently signed an agreement with Mubadala, part of the Abu Dhabi government, to work with Abu Dhabi Aircraft Technologies (ADAT which was previously known as GAMCO), which provides maintenance support for Etihad, Abu Dhabi’s national carrier. "So as part of the agreement between GE and Mubadala, we have agreed to work with Mubadala and ADAT to enhance their capabilities to overhaul a wide variety of our engines — the CFM56, the CF6, ultimately the GE90 and then future, more advanced engines," he said. (For more on ADAT, see story page 32).
For work on the GE90 in China and across Asia, GE has formed a joint venture with Taikoo Aircraft Engineering Co. (TAECO) in Xiamen, a sister company to Hong Kong Aircraft Engineering Company (HAECO), which is part of the Swire Group, Gentile said. "And we will probably get another facility for the CF34 in China. The CF34-10A is going to be on the ARJ, the new Chinese regional jet."
The two large airliner OEMs are also getting into picture, establishing partnerships to support their aircraft in the emerging markets.
Boeing entered into a partnership with Shanghai Airport Authorities and Shanghai Airlines in 2006 to form Boeing Shanghai Aviation Services Co. to provide heavy maintenance on more than 235 Next-Generation 737s flying in the East Asia region. It received FAA Part 145 certification to do the work last October, with the first phase of construction on a hangar for the MRO facility now completed and the hangar itself expected to be completed this coming October, the company said. Additional certification is planned to allow work on wide-body Boeing aircraft, starting with the 767-300.
Boeing is also involved in plans to form a joint venture for an MRO facility in Nagpur city in the state of Maharashtra, in central India. ‘The Nagpur facility will provide a convenient, centralized location for India-based airlines to schedule routine maintenance and overhaul work, and to have repairs completed," a spokesperson said.
The spokesperson added that Boeing has no plans to create a Boeing MRO in the Middle East or any addition MROs or joint ventures. "We are concentrating on Boeing Shanghai Aviation Services and our investment into the India MRO." Boeing does, however, acknowledge that "the aviation industry is growing rapidly in the Middle East, Africa and Asia," and that it "will evaluate each region to see if needs support a strong business case for Boeing to offer such a service."
Airbus has joined with 15 MRO providers worldwide to form the Airbus MRO Network. The latest addition was an agreement with Mexicana MRO Services, signed last February. Mexicana MRO Services is a division of Grupo Mexicana de Aviacion S.A. de C.V., and provides integrated maintenance services for Mexicana.
Airbus is also working with the National Aviation Company of India Ltd. (NACIL), the entity formed by the merger of Air India and Indian Airlines.
"In India, we see a growing and serious lack in MRO infrastructure in country," said Wolfgang Kortas, head of airline projects, Airbus Services and Customer Support. "That is why we are working together with NACIL and our mother company EADS with its local partners to facilitate the set up of an airframe and components MRO venture in India, which shall be joined by one of our partners from the Airbus MRO Network."
Kortas also noted that for its range of aircraft, particularly on its two newest aircraft, the A380 and A350, "we are facing a strong demand from our customers to take an active part in providing a competitive maintenance offering. Airbus works together with the members of the MRO network and with Airbus OEM suppliers to provide tailored services solutions acting as the service integrator."
While Airbus does not consider airframe maintenance or components repair "as our core business," the company "is responding to a growing demand from our customers for value added service packages," he said. "Our approach is to offer value to customers’ operations through our core competencies as aircraft systems designer and integrator of services, partnering with both the Airbus MRO network members and the Airbus OEM suppliers."
With the lack of an appropriate infrastructure — particularly in India — being a major challenge to the growth of MRO capabilities, a major aspect of the growth of those capabilities is going to be the investment in the infrastructure to support it, including training of engineers and training facilities. GE’s Thomas Gentile said that there is a growing need for MRO capabilities, and that companies such as ST Aero in Asia, the Swire Group and HAECO in China and Mubadala in the Middle East are now making the investments to develop the technology and capability to meet that demand. "It’s not something that you can just turn a switch overnight. It requires investment in infrastructure and technology, engineering development... but very importantly, human capital."
Kortas said that while the newer technology aircraft "will bring lower maintenance cost and less MRO base workload," at the same time it will provide the opportunity "for MROs to serve bigger fleets more comprehensively and efficiently when they acquire the capability to fully utilize the new technology maintenance, diagnostics and prognostics systems embedded in the aircraft."
Gentile said that "one of the most impressive training facilities I’ve seen anywhere" is in Xiamen, China, run by TAECO. "They have just built it, and it is designed to train literally thousands of people each year, in not only airframe maintenance and overhaul, but also engines and components overhaul. They have a whole village of apartments to house students and several buildings with classrooms and auditoriums and training facilities.
"I also see the same kind of commitment from Mubadala in the Middle East. They are going to invest in a training center and will work with all the partners, including GE. We will be very involved in their training center in order to help them develop the capabilities to get down to the detailed levels of overhaul."
Gentile also noted that GE has large research centers in Shanghai, China and Bangalore, India. "We have those facilities to develop new technologies for repair. It might be advanced welding techniques, or metallurgy, new ways of thinking about borescoping and new ways of providing coats, something we call our electron beam physical vapor deposition, which how we apply coating to our high pressure turbine blades."
"The establishments of MRO facilities across Asia will bolster competencies of aircraft technicians, and hence produce a strong demand for engineering talents," Frost & Sullivan’s Nagib Ramli said.