1. W
hile forecasters predict that engines will
remain the largest and fastest-growing
sector of the commercial jet maintenance,
repair and overhaul (MRO) business over
the next decade, the market is becoming
increasingly competitive and its dynamics more complicated.
OEMs have targeted the aftermarket for well over a decade
and have captured a large portion of the MRO business.This
trend looks set to continue and will make life harder for
other MRO providers.
Over-capacity in the market has led to bankruptcies, and
some observers believe it will generate a wave of
consolidation.Adding to the issue, engines are remaining
on-wing for longer, thus reducing the number of shop visits.
Additionally, the price of fuel is lowering the average age of
the global aircraft fleet by forcing the early retirement of less
fuel-efficient aircraft. Many such aircraft are equipped with
relatively young and well-maintained key components, which
are more valuable once dismantled.This has created a supply
of surplus engines and parts, offering airlines an attractive
alternative to MRO shop visits.
afm • Issue 81 – November–December • www.afm.aero
FLEET OPS: Engine MRO
24
Peter Donaldson examines the engine MRO market and finds that growth is forecast to lag
behind that of the global engine fleet, yet this has not stopped competition from mounting.
Engine MRO:
Everything to play for

2. The trend for outsourcing
Globally, almost 80 per cent of engine MRO is outsourced, so
there is much to play for..Analysis by consultancy and technical
services specialist,TeamSAI, shows a very strong preference for
this to continue.Airlines in the most developed regions (North
America,Western Europe andAsia-Pacific), that outsource their
engine MRO work, generally choose providers from within their
own region.The figures for NorthAmerica andWestern Europe
are 82 and 69 per cent respectively.
However, airlines inAsia-Pacific are the exception.They send
just 15 per cent of their work toAsia-Pacific, with the rest split
betweenWestern Europe (46 per cent) and NorthAmerica (35
per cent). In developing regions, airlines are much more likely to
use foreign MRO providers. Indian carriers split their work
evenly between NorthAmerica,Western Europe andAsia-
Pacific, while Chinese airlines outsource 25 per cent of their
MRO to Chinese providers, 24 per cent toWestern Europe and
42 per cent to NorthAmerica.
According toAscend, more than 45,000 engines power the
current world fleet (in 2012).A third of them are in North
America, 21 per cent inWestern Europe and 15 per cent in
Asia-Pacific.These top three regions represent 69 per cent of
the fleet, a significant drop from the 72 per cent measured in
2010.The bottom six –Africa, China, Eastern Europe, India,
LatinAmerica and Caribbean, plus the Middle East – are on the
increase, and their share of the world engine fleet has grown
from 31 to 39 per cent in a decade.Ascend forecasts that the
world’s commercial engine fleet will grow to more than 62,500
over the next 10 years.
TeamSAI expects the engine fleet to increase at a compound
annual growth rate (CAGR) of 6.7 per cent, representing 17,281
engines in 10 years. On the engine MRO front, the company
predicts that today’s $22.4bn industry will grow to $31.6bn,
representing a CAGR of 3.5 per cent.The company notes that
the numbers for 2012 are already up 3.7 per cent compared
with 2011.
The significantly slower growth in engine MRO compared with
that of the global engine fleet has much to do with the
introduction of new technology.CFM’s Leap X,Rolls-Royce’s XWB
and Pratt &Whitney’s PW1000G will each require less
maintenance – great for the airline but not for the MRO provider.
But MTU Maintenance, the largest independent engine MRO
provider, disagrees. It produces its own forecasts,which differ
fromTeamSAI’s. Head of marketing, Katia Diebold-Widmer, tells
AFM that today’s market is worth about $18.2bn and predicts
that it will grow to $26.1bn by 2021, representing a CAGR of
3.7 per cent.
“But these forecasts are in constant dollars and, clearly, with
engine MRO you have very strong material price escalations, so
the real value in dollars could be much higher. But it is difficult
to predict because nobody really knows what impact the
fast-growing surplus parts market may have on the content and
the price of that material”, she says.
Diebold-Widmer cites a forecast from ICF SH&E predicting that
the market in surplus engine parts will grow from today’s value
of around $1.4bn to $2.6bn in 10 years, representing CAGR of
around eight per cent, nearly double its prediction for engine
MRO at 4.4 per cent.
“As aircraft retirements occur, there will be fewer engine
maintenance events and more opportunities to utilise surplus
engines”, says Chris Pelly, commercial SVP for UK-based aircraft
engine asset management company,Total Engine Support (TES)
Aviation.“Essentially, the trend makes it more important for us
to monitor particular markets [and] to know when to enter and
exit”, he says.
25afm • Issue 81 – November–December • www.afm.aero
FLEET OPS: Engine MRO

3. The question
Pelly argues that the OEMs’ strengthening hold on the
aftermarket presents third-party and airline affiliated MROs
with a question: Do they compete against the OEMs or align
with them? “In the engine world, the true independent
MROs are the ones who are really struggling.”
Longer engine life and new technology are game-changers.
“Many business models are still based upon older expectations
and assumptions”, says Pelly.“Further, the costs of investing in
repair capability for newer technology is becoming crippling;
independent organisations that used to play in the parts repair
world can no longer compete.Again, this plays into the hands of
the OEMs.”
Regarding aftermarket sales, the long-term service agreement
has been one of the OEMs’ most powerful cards. But others can
play that hand too, asTESAviation’s seniorVP for sales and
marketing, StevenTaylor, explains.“We have seen a surge in
airlines’ willingness to explore long-term service agreements
with both OEMs and third-party MROs.” Innovative offerings
from both OEMs and MROs are challenging typical power-by-
the-hour (PBH) agreements, which include inflated costs to
cover risk for the service provider.Through these new offerings,
airlines can maintain predictable cash flow and benefit from
increased flexibility in the payment structure.
Taylor points out that airlines are doing all they can to control
and even defer maintenance. Many airlines prefer the known
cost of engine exchanges and the risk of cost escalation
associated with repairs. Some are choosing to defer services for
the sake of cash flow. He tellsAFM this has caused major issues
for MROs in their effort to predict demand and balance the
stock supply.“Industry statistics are showing the majority of
global engine MROs are operating below capacity.”
David versus Goliath
MTU’s Diebold-Widmer believes that over-capacity in the MRO
market will lead to consolidation and a split of the market into
two types of competitors.“There will be the very large, strong
players who have the money, the access to the technology and
the volume on the one side; and on the other side there will be
small, niche players”, she says.
She argues that the process has begun, citingAveos’ bankruptcy
and subsequent break-up; FinnairTechnical Services’ decision to
exit the engine MRO market; the closure of the Melbourne-
based joint venture between LufthansaTechnik and Qantas, and
the shutdown of Pratt &Whitney Norway, all of which occurred
during the course of this year alone.
In her view, the new niche providers will be companies that
trade in engines, supply exchange and surplus engines,
sometimes tearing them down for part-out.“In the end, they
are not direct competitors for engine MRO, but they offer an
alternative solution to your shop visits.”
IATA’s CEO,TonyTyler, complained in his lecture to the Royal
Aeronautical Society in June that engine MRO costs are
predicted to rise from today’s 46 per cent of total MRO costs to
almost half by 2016.This is despite modern engines needing far
less maintenance than older designs. Diebold-Widmer points
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FLEET OPS: Engine MRO
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TES Engine MRO.

4. FLEET OPS: Engine MRO
29afm • Issue 81 – November–December • www.afm.aero
out that although longer on-wing times make shop visits less
frequent, they are more expensive because there is a greater
likelihood that life-limited parts will need to be replaced and
that other parts are more likely to have worn beyond economic
repair.“But, in the end, typically you are on a power-by-the-
hour contract and you don’t care.” Furthermore, newer
generation engines offer large fuel savings, meaning decreased
operating costs.
Logistic support specialist,AJ Walter’s director of aircraft
engine services, Steve Williams, agrees but also sees
increased engine MRO cost as a result of OEM power. “Now
that we have got very few independents in the market, I
think that the balance is starting to swing in the OEMs’
favour and they can charge as a result.”
AJW started its engine business in 2011 to help it grow into an
emerging market, ironically created during the credit crunch
when many aircraft were available for part-out.
“One of the key drivers for us”,Williams tellsAFM,“was to
position ourselves by using the engine division because there
was an awful lot of cashflow in engines.Airlines are now
looking for used parts where in the past they would have
looked for new OEM-provided parts.”
However,Williams is quick to point out AJW’s support for
OEMs.“We probably use more OEM repairs than any of our
counterparts”, he says.“About 80 per cent of our repairs are
done by the original equipment manufacturer, so we actually
support the OEM very strongly.The reason for that is when
we put a part on-wing we want it to last on-wing, so we
want the pedigree and the quality that comes along with
the OEM tag.”
He also sees strong relationships with OEMs as a key part of
the company’s future.“I think, going forward, we will be
trying to partner with as many of the OEMs as we possibly
can”, he says.“We have the capability from an infrastructure
standpoint and the spares pooling standpoint to help the
OEM’s cashflow position considerably.”
TeamSAI concluded its 2012 forecast with some advice for
independent engine MROs. It suggested that they increase
customer involvement by telling them exactly what parts are
going into their engines. It also suggested that they develop
repair capabilities for costly parts instead of replacing them,
increase the use of parts from older engines and capture
opportunities associated with tear-down and part-out.
Rather than fighting against the trend for longer on-wing
periods,TeamSAI suggests that MRO providers help engines
stay on the aircraft for longer by promoting preventive
maintenance and developing ‘surgical workscope’ capabilities.
It also advised that MROs use the huge flows of data
produced by modern powerplants to monitor engines.
However, it acknowledged that most of these strategies will
require a close relationship with OEMs. It seems that like it or
not, OEMs are an in integral and continuous part of the
aftemarket. Independent MRO providers must learn to adapt
to them and work with them if they are to flourish.
MTU engine MRO staff at work.