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