This article originally ran in the April 21 edition of Aviation Week & Space Technology.

The world’s largest maintenance, repair, and overhaul (MRO) market may not grow much in the next decade, but the lack of expansion will not hold back change in response to shifting customer demand and market dynamics.

Analysts speaking at Aviation Week’s MRO Americas Conference April 7-10 agree that while worldwide annual growth is expected to approach 4%, the North American transport aircraft MRO market—the revenue generated from work on the region’s commercial aircraft—will be stagnant at best through 2023. Aviation Week’s Civil Aviation Fleet and MRO Forecast projects that the North American market will shrink 0.9% per year, on average, during the decade. ICF SH&E—the most optimistic prognosticator—projects growth of about 1.4%.

“Components is the only segment we see showing growth,” says Brian Kough, Aviation Week’s director of forecasts and analysis, pegging it at a paltry 1.5% per year in 2014-23, which will give it a 25% share of the North American MRO market in 2023. Engine work, the largest segment, will contract about 1% per year and account for a 41% share of the 2023 market.

The stagnation is due in part to North America’s major re-fleeting. Team SAI projects that North American carriers will take delivery of 3,700 new commercial aircraft in the next 10 years, but 80% of them will be replacements, adding up to a fleet of about 8,000 aircraft from the current 7,300. Newer aircraft need less maintenance, so a slight uptick in total fleet size will not yield much new MRO work.

While the market’s size will not grow, an influx of new narrowbodies will change its makeup. Team SAI calculates that three aircraft families—the Boeing 737, Airbus A320 and Boeing 757—each generate a double-digit share of North American MRO spending and combine for 40% of the total. No other type has more than an 8% share.

In 2023, the market will be even more top-heavy, with the 737 family accounting for 28% of the market, up from 15% today, and the A320 rising to 18% from 12%. The Boeing 777, ranked seventh today at 5%, will climb to third with a 7% share, leapfrogging the 757 and 767 as well as both Bombardier’s smaller and larger regional jet families.

Meanwhile, operators continue to press MRO providers for cheaper services, particularly in materials-heavy engine overhaul. Engine work accounts for about 40% of the $60 billion total MRO market, and parts make up 60%-70% of engine overhaul expenses.

Operators’ drive to cut costs combined with a steady stream of retiring aircraft means used serviceable material (USM), or surplus parts, are one sure-bet growth area.

The USM market reached $3.5 billion in 2013, according to ICF SH&E, including about $2.2 billion in engine parts and $1.3 billion in components. An airframe USM market exists, but it is very small and will not grow much. By 2023, USM is expected to reach $6.2 billion, including $3.8 billion in engine parts and $2.2 billion in component spares. The increase translates into a 5.5% annual growth rate.

ICF calculates that USM’s percentage of the engine parts market has increased 4%, to 14%, since 2009. The rise comes at the expense of new life-limited parts (LLP), which have seen their share of total engine overhaul material cost drop 6%, to 21%.

The growth has opened up opportunities for creative suppliers. AeroTurbine, which specializes in used airframe and engine parts, leveraged its USM expertise to help land A320 work from Frontier Airways, for which it has completed more than 100 C checks. 

The Miami-based MRO provider, owned by International Lease Finance Corp. (ILFC), recently expanded its portfolio, adding technical consulting services for lessors and small operators. While ILFC will likely provide some of the business—the services are tailored to aircraft changing hands—AeroTurbine must compete for it, says Josh Abelson, the company’s vice president and general manager.

While USM growth has helped lift parts specialists, OEMs are shifting their models to capitalize on the trend. Industry estimates suggest that General Electric, Pratt & Whitney and Rolls-Royce together account for nearly half of engine USM activity. The GE/Snecma family moves some $700 million in used parts per year, says Nathan Hoening, GE Aviation Materials business leader. 

The OEMs’ largest customers are their internal overhaul shops, part of their game plan to keep costs down while supporting power-by-the-hour and other customer service agreements.

Analysts emphasize that while North American MRO needs are not growing, variables could conspire to drive more work back to the region. Rising labor costs in developing markets are changing the contract maintenance equation, tilting the results toward keeping work home.

Chris Doan of TeamSAI says 62% of North American widebodies are sent away for heavy checks. The moves can save as much as 30%, depending on the aircraft type and prevailing labor costs in the MRO provider’s market. But rising costs in places such as China—which performs an estimated 9% of the North American widebody work—are beginning to eat into that savings.