The airframe MRO market—including heavy checks, line maintenance and modifications—will be worth about $17.5 billion in 2014. This includes $9.1 billion for narrowbody aircraft and $8.4 billion for the widebody fleet. The general outlook, supported by these numbers, is that the MRO business will hold fairly steady next year.

Indeed, the crystal-ball view of narrowbody and widebody airframe MRO in 2014 is strikingly similar to the picture in the rear-view mirror. Analysts and leading MRO providers are united in their opinions that there will not be any major shifts in the MRO landscape next year, but that current trends—including growth in the interiors market, growth in capacity and rates in Asia, and reductions in maintenance costs through better data management—will continue to evolve.

“Based on current visibility within the industry, we expect improvement in 2014 over 2013, but a significant bounce-back after the weaker-than-expected 2013 is not expected,” wrote Kenneth Herbert, Canaccord Genuity's managing director, aerospace & defense equity research, in his Daily Letter of Oct. 21, 2013, highlighting the results of his Q3/13 Commercial Aerospace MRO survey. The survey results, he said, “[point] to continued caution” and suggest that “the headwinds in the market will continue to be a factor.”

One of the notable stories of 2013 was the slower-than-expected recovery in Europe and Asia, says Herbert. “We'd like to see more out of Asia and Europe than we've seen this year. The big question is: How well are these markets going to bounce back next year?” Asia, he predicts, will “do fine,” while Europe likely will take until the second half of 2014 to begin turning around. “I think, fundamentally, traffic will hold up and airlines will begin to catch up on maintenance spending,” Herbert predicts.

Two major issues will continue to plague the MRO market in Europe, says David Marcontell, president at TeamSAI. First, increased carrier consolidation and a slow economy will mean excess MRO capacity in both Western and Eastern Europe next year, particularly for narrowbody maintenance. Second, the region's labor rates, the highest in the world, are starting to come down in response to competitive pressure. As a result, “there is low-balling out there,” says Marcontell. “Companies will undercut in order to get the work and keep people on staff.”

In Asia, labor rates are moving in the opposite direction, a trend that will affect the MRO market in 2014 and beyond. As rates in Asia rise, “what used to be a very attractive labor- rate difference is rapidly evaporating,” observes Marcontell. “This is now starting to influence decisions about whether to take planes to Asia for maintenance.”

For instance, TeamSAI data show more than 20% of North American widebody maintenance is performed in Asia. “That will start to diminish,” Marcontell predicts. “I think we'll see that 20% figure accelerate to a reduction in 2014.”

Herbert agrees: “We believe that the exchange rates are having an impact on the competitiveness for China, both in relation to U.S. MROs but also in relation to MROs in other Asian countries. We believe that there is significant capacity that will be coming on line in countries such as Indonesia, the Philippines, Malaysia and other countries, which will become increasingly competitive at lower labor rates.”

NORTH AMERICA Widebody Expansion

Others agree that rising rates in Asia are starting to create a geographical shift in widebody maintenance that will become more pronounced in 2014. The rate increase has essentially closed the gap between Asia Pacific region and North American rates, which means it is not as attractive as it once was for North American operators to ferry their larger jets across the Pacific for heavy maintenance. Rates in Asia are now “equivalent to or higher than” U.S. MRO rates, says Chris Jessup, senior vice president of airframe and engineering services at AAR Corp.

Given the closing rate gap, fleet forecasts predicting growing demand for widebody maintenance, and customers directly requesting widebody capabilities, AAR moved quickly when the opportunity arose in mid-2013 to assume tenancy on a 520,000 sq. ft. maintenance facility in Lake Charles, La. The company took over the facility in late August and began work there three weeks later. It received its permanent repair station license for the location in mid-November.

Expanding widebody MRO capacity in North America, AAR will perform check-level, heavy maintenance and modification services for narrowbody and widebody aircraft at the new facility. On the widebody side, Jessup says AAR is interested in five fleet types: Airbus A300/A310 freighters (due to the higher numbers in operation in North America); the Boeing 747, 767 and 777 (due to volume and fleet commonality); and the Airbus A330. The latter, says Jessup, “is a niche play. A330 popularity is more outside North America, but a lot of markets where they are being operated are higher-cost regions.” Conversations with international operators about AAR providing heavy maintenance services has prompted the company's interest in the A330.

With 10 widebody slots, the Lake Charles facility is expected to grow to at least 1 million man-hours in 12-15 months, contributing materially to the expected $1.6 billion in widebody airframe MRO work in North America in 2014. Once fully operational, the expansion in widebody maintenance will change the balance of work at AAR as a whole. Until recently, Jessup says AAR's airframe heavy maintenance work has been a 90/10 narrowbody/widebody split. With the shifting trend toward widebody work, he anticipates revenue will soon be divided closer to 75/25 in the short term, and longer term will be closer to 60/40, underscoring observers' predictions of growth in this segment.

Strong Interiors Market

Aviation Week data show the biggest drivers of narrowbody airframe MRO in 2014 will be the A320 family (including the A318 through A321) and Boeing 737 (-300 through -900 series). The A320 family, including the corporate versions of each jet, is expected to generate $3.5 billion in airframe MRO. The 737 is projected to generate $3.4 billion in airframe MRO, of which just over $1 million is forecast for C and D check work. Together, these platforms represent 75.8% of all narrowbody airframe MRO next year.

These numbers are a reflection of fleet size rather than any unusual maintenance requirements next year. Lufthansa Technik was one of many MROs that said the 737 and A320 families will comprise the lion's share of their narrowbody MRO work due to their large fleets worldwide. This trend will only continue as more than 1,100 new aircraft in these segments will be delivered in 2014, nearly 58% of anticipated narrowbody deliveries in 2014.

Narrowbody work at Timco Aviation Services, which currently comprises 70% of the company's work, is fairly evenly balanced between 737 and A320 fleets. At AAR, the 737 is the single largest revenue driver. Of the 4.8 million labor-hours performed by AAR last year, slightly more than 1 million was for 737 work. The company averages 10-12 lines year-round for the 737. For the A320, its second-highest-volume platform, AAR supports eight to 10 lines in its network, and the fleet generates 750,000 labor-hours per year.

“We expect volume run rates on the 737 and A320 to remain consistent going forward, if not increase,” says Jessup. “Operators are happy with the platform, so they are spending a lot of money on interiors to bring them up to today's standards. You see new Scimitar Winglets being very popular. Also new cabin IFE and Wi-Fi requirements. Average man-hours are being driven up because of these things.”

Of the 1 million labor-hours of 737 work, Jessup says about 21% was tied to cabin upgrades, IFE and winglets last year. He predicts that number will grow to 30% in 2014, as demand in those three areas continues to increase.

From a contracting perspective, Timco Aviation Services does not foresee much change in demand next year compared to 2013. “We aren't seeing a big drop-off or increase. For scheduled maintenance, the outlook is pretty stable,” says Leonard Kazmerski, vice president-marketing and business development at Timco.

Where the company does foresee strong growth is in special modification work, including IFE installation, Wi-Fi installations and Scimitar Winglets. Interiors business, in particular, is keeping Timco busy. “A lot of people who used to fly in first and business class are being pushed to economy, so airlines are increasingly adding seats, IFE and other comfort features to the economy class,” says Kazmerski. “At the same time, airlines are seeking to drive cost out of their aircraft by reducing weight and adding as much revenue-generating capabilities as they can, such as through a premium-economy product. These kinds of programs are a huge driver behind our interiors demand. The premium-economy product is one of our best selling seats right now.”

In the past, he says, airline customers would seek short-term modification programs for one fleet type at a time. That has changed. “Today, we are seeing demand for interiors programs that cross the whole fleet, narrowbody and widebody. The trend started developing over the past couple years, and we see it continuing into 2014.” This is true even at the regional jet level. Timco opened its Cincinnati base about a year ago, primarily to support regional aircraft fleets such as Embraer ERJ145s and E170/190s, and Bombardier CRJ200/700/900s. Kazmerski says a big part of the work Timco is undertaking there is interiors, having just launched multiple new contracts for interiors work.

ST Aerospace, which has headed Aviation Week's Top 10 Airframe MRO list for the past several years, is also seeing strong demand on the interiors side. It just signed a contract for a cabin reconfiguration project for two 767-300s for an Asian carrier and was awarded an STC by the European Aviation Safety Agency for a full cabin retrofit program for six A330s for an international carrier. The passenger-to-freighter (PTF) conversion market is also a robust segment for ST Aerospace. In the third quarter 2013, ST Aerospace secured new orders worth about $600 million, including contracts for 17 PTF conversions, bringing to 119 the total number of aircraft contracted with ST Aerospace for the Boeing 757-200 PTF conversion program.

Cannacord Genuity's Herbert expects the modification/retrofit market to rise to nearly 10% in 2014. The drivers, he says, are competitive issues; fleet commonality, especially among airlines that have recently merged; evolution in inflight entertainment and widespread demand for inflight Internet connectivity; and economics, as airlines seek to lower costs with lighter-weight interiors. This kind of modification work typically makes up about 7-8% of the MRO market, he adds. While its growth will outpace some of the other segments, its relatively small contribution means we won't see a big change in its contribution in a single year.

Better Data Lowering Costs

One other trend several experts pointed to as affecting the MRO market next year and beyond is airlines' increasingly effective use of information. Their ability to rapidly collect and analyze data is helping carriers reduce maintenance spending, particularly in the area of unscheduled maintenance. “Airlines are getting smarter about how they manage their fleets,” says Herbert, noting this is a trend that will only continue to accelerate.

Airlines have collected data about the health of their fleets for many years, but the ability to harness that data in efficient ways and in higher volumes emerged only in about the last two years, says Linda Hapgood, program manager, Boeing airplane health management solutions. This capability is being driven by a reduction in the cost of communications solutions that can deliver data from the aircraft in real time, coupled with new IT solutions that can crunch massive amounts of data at reasonable cost. Combined, these capabilities are helping airlines make better, faster maintenance decisions, ultimately lowering maintenance costs.

While it is impossible to know exactly how much impact this capability is having on the overall airframe MRO market, anecdotal evidence suggests it is more than a trifle. In just one event, real-time data monitoring recently saved one airline about $1 million. Dave Kinney, associate technical fellow in commercial aviation at Boeing, says one of the carrier's airplanes took off from the U.S. West Coast en route to Europe and got a low tire-pressure warning about 45 min. into the flight. By pinging the airplane every 20 min. to calculate the leak rate, the company determined that the tire would be flat by the time the aircraft reached its destination.

Although a landing in Europe would have been possible, the airline's last three tire failures cost almost $1 million per event. The airline therefore directed the pilots to land at an airport on the East Coast, where mechanics changed the tire and the flight resumed without incident. Multiply this kind of cost-avoidance across an entire airline, and then across the industry, and the potential impact on the airframe MRO market becomes apparent.

Another area in which airlines are using fleet data to reduce costs is in parts management. Hapgood is responsible for Boeing's Airplane Health Management service, which monitors aircraft-specific data to watch for trends and seek problems before they happen. “One specific example is an integrated drive generator (IDG),” she says. “That part is very expensive if it gets to the point of failure. It costs about $500,000 to replace. We can trend data from the IDG and recommend removal before it gets to failure and airlines can save by sending it to the shop for overhaul instead of having to replace it.”

As technology continues to improve, enabling faster collection of more data and the ability to rapidly analyze and understand it, that capability will continue to have more and more impact on maintenance spending.

Airframe MRO Market, 2014
(U.S. $ millions)
Widebody Narrowbody
Africa $ 65.7 $ 156.1
Asia-Pacific 507.9 351
China 92.7 253.4
Eastern Europe 90.6 286.2
India 11.7 43
Latin America 58.6 267
Middle East 251.6 164.2
North America 542.9 1,286.6
Western Europe 676.7 1,039.4
Source: Aviation Week Commercial Fleet & MRO Forecast