Expect more consolidation in the civil aviation aftermarket this year, as companies try to gain scale and diversify. As the industry strengthens at the top level, small-and medium-sized companies are emerging to keep up with the new-technology aircraft coming online—and to price services competitively.

“Companies are paying good multiples,” says James Johnston, a partner at Moelis Capital Partners. While the figure varies, he sees some “north of eight times,” a trend he expects to continue into 2015.

Size and scale drive M&A activity, but also, “it’s about mitigating risk,” either through horizontal or vertical plays—or through geographic expansion—to ensure viable, competitive businesses that can help airlines reduce costs, adds Johnston. 

“There will be winners and losers” in reducing costs for airlines, and “M&A is one tool to do this,” says Johnston.

To put this in perspective, consider North American MRO M&A activity in 2013.

Aviation Technical Services (ATS) has had an eventful year—starting with an ownership change. On June 21, its leadership, including President and CEO Matt Yerbic and a group of investors, purchased the MRO from Macquarie Group to grow and diversify. Less than two months later, it set up a strategic partnership with AJ Walter Aviation to help customers reduce spare inventory and logistics costs. The partnership leverages AJ Walter’s global parts stock and repair expertise with ATS’s heavy maintenance and component overhaul capability.

In January, ATS reached an agreement with the Kansas City Aviation Department to resurrect part of the former TWA/American Airlines maintenance base. This is the first ATS facility outside of Washington state and, not by accident, it is at an airport where its largest customer, Southwest Airlines, dominates.

“We would expect further cost savings as it aligns within our network. We also expect to see significant gains with ATS lowering their operating cost in the Kansas City area,” says Jim Sokol, Southwest Airlines’ vice presidentmaintenance operations. However, he adds that the airline needs to see ATS’s plans for the Kansas City facility before making any commitments.

Expansion to facilitate growth and comprehensive solutions for customers also drove Hong Kong Aircraft Engineering Co. (Haeco) to purchase Timco Aviation Services for $388.8 million in January. The acquisition gave Haeco entree into the North American market and leverages both companies’ core capabilities in aircraft MRO, interiors and line maintenance.

For the past five years, Timco’s engineering and integration business has provided the most growth, and Kip Blakely, the MRO’s vice president-
industry and government relations, says the MRO is actively pursuing projects with Asian carriers, which is now easier with Haeco’s in-region support.

Besides running complementary businesses, Haeco and Timco share several customers—including United, Delta, FedEx and American airlines. “Customers now can look at their whole fleet plan—narrowbodies and widebodies—and what makes sense for their fleet,” by having Haeco and Timco as part of the same company, says Blakely.

He thinks the U.S. will be more competitive in widebody work in “the near future,” so Timco might look at expanding its existing facilities or look for others in the U.S.—with the caveat that it needs to keep its portfolio of commercial, military and cargo work balanced.

Expanding its widebody maintenance capability was the primary driver for AAR’s takeover of the 520,000-sq.-ft. facility formerly operated by Aeroframe in Lake Charles, La., in August. The shop can accommodate seven widebody and 10 narrowbody aircraft. A 118,000-sq.-ft. hangar big enough for an Airbus A380 is scheduled to open by the end of this year.

AAR’s operation in Duluth, Minn., opened its third line of maintenance in early September 2013, which means the facility opened in November 2012 is running at 75% capacity. It performs heavy maintenance for Air Canada’s Airbus A320 fleet, and has capacity for four lines; the last should open in mid-2014, according to Chris Jessup, AAR’s senior vice president-airframe and engineering services.

AAR’s opening of the Duluth facility was  part of the aftermath of Aveos Fleet Performance’s abrupt closure in March 2012, leading to a tidal wave of change in the North American MRO market as Air Canada quickly sought new service providers for its fleet.

AJ Walter acquired component repair assets from Aveos in October 2012 and officially opened AJW Technique in April 2013. AJW Technique in Montreal has the capability to process 35,000 components annually.

Lockheed Martin purchased some of Aveos’s engine MRO assets and opened Kelly Aviation Center Montreal in September 2013. That facility specializes in the GE CF34 and CFM56 engine families.

Aeroman, partly owned by Aero Technical Support & Services Holdings—which used to own Aveos prior to its bankruptcy—is evaluating its growth options. Aeroman CEO Ernesto Ruiz tells Aviation Week that the El Salvador-based MRO’s 12 production bays are full, and it can either expand in El Salvador, grow outside its home base or remain the same size. While he would not commit to when Aeroman and its investors would decide which choice to pursue, he hopes one of the growth options will win.

Aeroman plans to remain focused on narrowbodies because of the large number operated in the U.S., but if the MRO decides to broaden its capabilities, the Embraer E170/175 and E190/195 family could be “a possibility on the horizon,” says Ruiz. 

Delta TechOps is a major provider of maintenance on its own. It recently expanded its engine and component capabilities to include the CF6-B8F and Airbus component repairs—and it just opened a joint venture aircraft MRO, TechOps Mexico, with Aeromexico on March 5.

International expansion goes both ways. Air France Industries KLM Engineering & Maintenance just purchased Barfield in Florida from Sabena Technics in March. And Singapore-based ST Aerospace continues to invest in the U.S. STA San Antonio leased nearly 400,000 sq. ft. of space in south Texas in December, to focus on aircraft parking and teardown. 

ST Aero also purchased Turbo Mach, which manufacturers composite components and assemblies, in May.

Meanwhile, U.S.-headquartered GA Telesis acquired Finnair’s engine services business in May 2013—and one month later won a $500 million contract from Transaero to repair and overhaul CF6-80C2 engines.

On Dec. 19, Aviation Week reported that AAR CEO David Storch said AAR is “looking at a fairly sizable deal that would expand our presence” outside the U.S. On March 20, AAR announced it is acquiring inventory and customer contracts from Sabena Technics Brussels. AAR expects to close the deal in early April.

In the fragmented MRO market, potential mergers, acquisitions and partnerships should answer the question, “Do they drive down costs to save airlines money?” Companies that can achieve that goal will grow.