The maintenance, repair and overhaul (MRO) business for regional jets will grow at a five-percent annual rate over the next five years, according to Christopher Doan, president of the TeamSAI, which partnered with BACK Aviation Solutions to produce a worldwide forecast of the MRO business.

The North American regional jet market is now a $1.2-billion industry, and by the end of the forecast period in 2016 it will be a $3.2-billion industry. The forecast does not include the MRO market for turboprops, although Doan indicated that with the price of fuel driving increased interest in these aircraft, more turboprop MRO business is likely.

The growth rate for the North American regional airline industry MRO work will grow at the same rate as the of the worldwide industry for the large commercial jet MRO business, which is expected to become a $48.8 billion industry by 2011. Back/TeamSAI expects a slowing growth rate of 4.4 percent annually between 2012 and 2016 but, worldwide, the commercial aviation MRO business will still develop into a $60.6 billion market. North America accounts for 66 percent of the world market.

This forecast comes at a time when industry losses over the last five years reached $40 billion. This has pushed down costs, which will continue under pressure as providers seek to lower labor rates in order to achieve greater margins. Indeed, costs have dropped 19 percent since 2001 and are forecast to improve slightly, overcoming inflationary pressures of material and labor, said the BACK-Team SAI Global MRO Forecast, which covers 2006-2016. Independent MRO companies, continuing to benefit from outsourcing, will see revenue grow faster, but only for those delivering price, quality and cycle time.

"The mandate for MROs is clearly faster turn-around time, on-time deliveries and higher quality and reliability," said Doan. "The MROs are only now recognizing that, unless they do something spectacular, they will continue to lose business. They are now listening to the customers who want their aircraft to spend less time in the hangar and have more reliability when they come out of check. That is driving the decision to bring some of the business back in house. It is a question of how these support companies will respond in order to keep the rest of the business."

With the exception of larger regional operators, most airlines outsource their MRO work, according to Doan, adding that a smattering of movement exists to bring some of the work back in-house. The percentage of outsourcing, said Doan is higher for regional operations because airlines tend to start off that way and then build their maintenance capabilities as they mature.

Kurt Jensen of Berlin, Germany-based MTU Maintenance, which focuses on GE CF-34 engines powering the regional RJs, indicated that, while some can do C Checks, few regionals have the capability to perform the D Check, prompting them to outsource such work.

Doan has seen a trend for regional jet producers Bombardier and Embraer to provide a worldwide network of services. Bombardier has its own technical centers as well as factory-authorized facilities in Europe at and Asia. It also has facilities in Tucson, Ariz., which is complemented in the U.S. by the work done by West Virginia Air Center. Embraer's recently expanded its facility in Nashville (RAN, April 24), which is open to all fleet types, not just Embraer aircraft. In addition, Doan noted Embraer's facility in Portugal, which serves the European market. He expects the companies to continue to develop their networks.

Currently the regional jet heavy maintenance visit (HMV) with modifications accounts for $159 million of the $1.2 billion that now makes up the current MRO regional aviation market. Engine work amounts to $769 million, while component work equals $129 million. Line maintenance, said Doan, is a $141-million part of the industry. Regional jets now make up only 15 percent of the fleet and thus constitutes only five percent of current MRO spending, with commercial freighters accounting for less than one percent of the spending.

While freighters account for only 10 percent of the world fleet, they are expected to grow by 50 percent over the decade, when 65 percent of current freighters will retire in favor of 1,500 new or converted replacements. BACK-TeamSAI predicts 75 percent of replacements will be conversions.

The report also noted that 50-seat jets have reached saturation, owing to high fuel prices and the restructuring of major carrier fleets from bankruptcies. The restructuring has meant a sharp reduction in short-haul flying as the larger regional jets take over for major carriers on what, for regionals, are significantly longer haul routes. A major factor in industry trends is the liberalization of scope clauses. These allow majors to drop short-haul flights, traditionally served by its regionals, and to redeploy regional aircraft to longer distance routes beyond 500 miles. This favors the larger RJs over the 50-seaters, marking an end to the phenomenal growth of these aircraft in the last decade.

For that reason, the forecast for RJs has dropped by 1,700 units over last year's forecast, largely owing to the abrupt cessation of 50-seat production. "Introduction of the E190s by JetBlue is in its infancy, but has the potential to change the LCC dynamics dramatically," said the report. RJ activity in HMV and modifications will climb during the forecast period, peaking in 2012, when it begins a small decline owing to the end of the 50-seat delivery bubble. BACK-Team SAI expect some carriers to experiment with their new lower cost structures by trying to bring some outsourced work back in, especially where independent MROs are not improving fast enough.

Christopher Doan, TeamSAI, (720)249- 2643; Tulinda Larsen, BACK Aviation Solutions (202) 783-5052; Kurt Jensen, MTU Maintenance (414)540-2200.