The demand for British civil aftermarket work is expected to grow in the next decade, but most startups face an uphill struggle to enter a market being squeezed by OEMs.
To add to their headaches, the current shortage of skilled engineering labor is set to worsen in the next decade or two, while the trend of partnering with OEMs offers a double-edged sword: MRO providers can gain reliable work from a handful of big customers—but only while it lasts.
On the plus side, the relative weakness of the British pound in recent years has improved prospects for British MRO services, which were previously considered to be offering poorer value for the money than their Eastern European rivals in particular.
Civil MRO work in Britain is forecast to grow about 4% annually in the next 10 years, driven largely by air transport demand, according to Aerospace, Defense and Security (ADS), the sector's national trade body.
At the same time, ADS is encouraging British MRO companies to look outside their comfort zone and exploit growing demand for expertise and technology transfer in Brazil, China, Kuwait, Malaysia, Qatar, Russia and the United Arab Emirates.
Jeegar Kakkad, chief economist and director of policy at ADS, says that “it's not as if a British company is giving away the crown jewels by working with a foreign country.” Once a relationship has been established with an overseas company, “what they quite often want is to maintain a partnership and do a bit of a workshare,” he notes.
According to the British trade body, U.K. Trade and Investment (UKTI), domestic MRO providers face stiff competition abroad due to the increasing strength of component manufacturers, while airframe makers such as, and “are a growing competitor as they seek to capture a greater share of the value that their aircraft generate after production.”
Avionics repair for foreign customers has relatively high barriers to entry due to the sophisticated test equipment and training needed to deal with modern systems, software development and capability upgrades, UKTI adds.
But there has been growth in agreements using performance-based logistics, where suppliers are contracted to deliver performance outcomes against MRO objectives for systems or products, rather than simply agreeing to provide goods and services.
Spending by airlines on asset management is rising, meanwhile, and the increasing use of composites in new aircraft means there is “a corresponding need to be able to support it and undertake the necessary repairs once in service,” says UKTI.
The demand for non-destructive testing and appropriate repair derives from the Airbus, , , Boeing's 787 and Embraer's 175 and 195.
As the OEMs target greater volumes of aftermarket work, independent MROs are moving from “heavy, detailed, in-depth services to more frequent, light-touch services,” says Kakkad.
Many MRO companies benefit from the aerospace clusters that have developed around Britain, offering easier access to OEMs and the range of work they can offer.
The aerospace cluster in South East Wales is one such example, and is dominated by themaintenance center in the Vale of Glamorgan, which employs more than 700 people to maintain the airline's , 777 and long-haul 767 aircraft.
David Jones, the secretary of state for Wales, says the center has had “a very positive impact” on small and medium-sized firms (SME).
“There is the very beneficial effect of larger companies being able to assist the smaller companies in developing their business models, because they've got a great deal of expertise in terms of running business, giving advice and so on,” he says.
“We're getting very small SMEs, if you like, under the wing of large companies, and benefitting from that relationship,” he adds.
Local MRO provider Cardiff Aviation was established last year and aims to be a one-stop shop for airlines and leasing companies operating narrowbody passenger aircraft.
Cardiff Aviation operates in 132,000 sq. ft. of hangar and workshop space at the formermaintenance base in St. Athan and can hold 20 narrowbody airliners at one time.
It was co-founded by Bruce Dickinson, the lead singer for rock band Iron Maiden, and Mario Fulgoni, who hopes the company will transcend the “rather specialist” nature of most British civil MROs by offering the full range of maintenance, training for engineers and pilots, and even initial flights for startup airlines.
British MRO companies previously suffered due to the relative strength of the pound against the U.S. dollar, the chief currency used for industry pricing, while the recession has forced them to improve in the face of growing regional competition, Fulgoni says.
“The U.K. has become more competitive over the last few years. Sterling was previously strong against the dollar; now it's relatively weak, which means that our rates are beginning to look pretty good. Against the euro, the U.K. is doing OK as well,” Fulgoni says.
He notes that MRO providers in the U.K. are “competing against East Europeans—their labor costs are lower and they're much more willing to do work. A lot of the workforce in the U.K. are beginning to realize that the pre-2008 gravy train has gone away and that we need to be more productive now if we're going to win business from Europe.”
He has ambitions to win business in northern Europe, Scandinavia and as far as North Africa, but “if you go beyond that range, it really doesn't pay to ferry the aircraft,” he says.
Fulgoni sees partnership with OEMs as another opportunity rather than a threat. “I would like to be an approved supplier to both Airbus and Boeing to provide them with OEM support to their customers. They can produce regular work and it tends to be higher-margin,” he says.
“I've talked to Airbus. They're very interested in talking to us and looking at what we can do,” adds Fulgoni. “It all depends on what programs they start and the problems they have.”
Cardiff Aviation works on the Airbus 320 and Boeing's 737, 757 and 767 in addition to smaller regional aircraft. For now, its work is split roughly 50/50 between leasing companies and airlines, but Fulgoni sees smaller airlines as a promising source of business.
Dorset-based Marilake Aero specializes in instrument MRO and also has benefitted from work for smaller customers. An SME employing just 12 people, it has not suffered from the recession and still gets “plenty of work” from approximately 100 customers.
“Generally, a lot of the budget airlines do reasonably well, and that's where we get a lot of our work from,” says Gerry Griffiths, Marilake's managing director.
The skills shortage has proved to be one of his greatest challenges, a problem that is only set to grow in the coming decades.
“It is difficult to get engineers who've got instrument experience,” he adds. “In the past, we've hired people with electronic and some mechanical expertise and trained them on our equipment—that takes a year to 18 months,” says Griffiths.
According to Kakkad, “there's a real challenge in terms of getting skilled people for MRO.” The Royal Academy of Engineering estimates that Britain will need 80,000 new engineering graduates each year but is only producing about 20,000 annually.
The civil MRO sector, like other British engineering sectors, is facing a retirement peak of older workers. The industry has only 1,200 licensed engineers ages 20-30 and more than 3,500 over the age of 50, Kakkad says.
Spending money on training programs now is just one way of overcoming the skills shortage. “Even though it might seem as if cash is short, most companies realize that without skills programs, production will slow up,” he adds.
As for the other challenges faced by new and established civil MRO companies, Kakkad says they need to become “more flexible and agile to respond to shifts in the MRO market,” focusing more on partnering and shifting their focus from heavy to light work.
OEMs are unlikely to make life easy for independent MRO providers, and the persistent skills shortage offers a permanent challenge. But with a weaker pound and growing demand abroad, new U.K. MRO companies should have plenty of opportunities ahead of them.