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South African regional operator Airlink has seen local operators pushing back against unwanted MRO cost pressures.
The African MRO sector faces significant cost pressures exacerbated by lingering supply chain disruptions. However, it remains a resilient market with a strong appetite for capacity building and an abundance of young, available talent.
The lack of significant MRO capacity in Africa has been well documented. Like other global regions, the pandemic’s aftereffects have only made things more challenging. Reportedly, AOG scenarios in the region have increased due to prolonged scarcity of spare parts and the all-too-familiar high repair costs—not a great combination in an already high-cost environment.
The good news is that African airlines are expected to make a small combined profit of $100 million in 2024, according to the International Air Transport Association. This translates to just 90 cents per passenger, which is well below the global average of $6.14, but it is a march in the right direction in the post-pandemic recovery.
Aviation Week Network’s data suggests total MRO spending in Africa is valued at $32.6 billion between 2024-33, and 9,755 MRO events are anticipated in the region throughout this period.
The highest spending by segment is engine maintenance at 51%, followed by components at 22%, line maintenance at 17%, modifications at 6% and airframe at 5%. On average, African carriers still operate the oldest fleets, so perhaps that is contributing to the increased splurge on engine MRO. However, the tide is turning as more airlines—such as Air Tanzania, Ibom Air, TAAG Angola and others, especially in North Africa—transition to next-generation fleets.
IDENTIFYING COST PRESSURES
South African Airways Technical (SAAT) supports operators with base and line maintenance, continuing airworthiness management organization services, engineering, and tooling and equipment support. It also accommodates AOG aircraft outside of its main base in Johannesburg.
Supply chain issues have significantly impacted the cost and supply of MRO materials, and South Africa is no exception to this.
“The COVID-induced supply chain challenges have been causing delays, shortages and cost pressures in the market,” says Wellington Nyuswa, interim chief executive at SAAT. “Costs have been growing exponentially due to supply chain shortages, including the cost of component repairs, and also exorbitant price increases by the OEMs.”
Pre-COVID, the average percentage of material price increases was in the single digits, but they have now grown to double digits. “We have seen a remarkable surge in demand for components and materials without sufficient supplies available to meet such levels,” Nyuswa says.
In fact, some suppliers have stopped offering spares for exchange due to high uncertainty about core units returning serviceable and prolonged long lead times at the repair shops. Thus, MROs are scrambling for raw materials and components.
“Consequently, sourcing components and materials has become more about finding any availability rather than finding the right price,” Nyuswa adds.
South African regional operator Airlink has a comprehensive approved maintenance organization (AMO) facility in Johannesburg. Morgan Chikurunhe, Airlink’s executive manager of the AMO, also highlights the supply chain disruptions and cost pressures induced by a post-pandemic international inflationary environment that seemed to have peaked in 2023.
“It seems like 2024 inflation levels appear to be easing into the second half of 2024, but the input price shocks are still playing out,” Chikurunhe says.
Airlines are under pressure to pass costs to the consumer, but passengers are particularly price sensitive, especially in a harsh cost-of-living environment, and the market has not been able to fully absorb the cost pressures. Chikurunhe has seen local operators pushing back at MROs in response to these unwanted cost pressures.
Raw material shortages are also causing problems, including delays in production runs and consequently curtailing production volumes. In addition, a lack of technical labor expertise in labor-intensive production and assembly facilities has precipitated production re-works.
Chikurunhe feels these delays and inefficiencies affect onward assembly and value-adding processes in the supply chain, too--particularly in cases of component manufacturing and repairs.
“The concept of ‘just-in-time’ no longer applies as we knew it prior to the pandemic, and these inefficiencies have forced MROs to hold more stock than before, further compounding the cost and cash flow management pressure,” Chikurunhe says.
With the global supply network consolidating, larger corporations are getting larger through mergers and acquisitions. Chikurunhe suggests smaller organizations are facing pressure to remain competitive against the bigger entities, noting that this cycle is slowly reducing the supply network and resulting in an over-dominance of the supply side.
“Naturally, this appears to be placing upward cost pressure on the MRO market over time,” he says. Chikurunhe adds that product support is being controlled by big corporations, which make support decisions based purely on commercial viability. “They show little regard to the effects thereof in the industry, and OEMs appear to be fighting to keep their aging aircraft supported in this regard,” he says.
EVALUATING PRICING STRATEGIES
Pricing for MRO services in a high-cost environment such as Africa requires an intricate understanding of the various individual markets on the continent and their respective needs and requirements. This extends to understanding the challenges, such as infrastructure, economics and soft currency earnings versus hard currency costs.
Walid El-Khafif, chairman and chief executive at EgyptAir Maintenance and Engineering, understands the high-cost environment that presents a challenge across the African market. The Cairo-based MRO takes a multi-pronged approach to ensure its MRO service pricing remains competitive, and El-Khafif says it achieves a balance of cost-effectiveness and value proposition.
“We continuously evaluate our processes to identify and implement efficiencies,” says El-Khafif, noting that this might include streamlining workflows, negotiating bulk purchasing agreements with suppliers and leveraging technology to optimize operations.
“While cost is a factor, airlines also prioritize safety, turnaround times and expertise,” he says, noting that EgyptAir Maintenance and Engineering’s qualified staff, capabilities and technology are customer draws as well.
At Aerotechnic Industries (ATI) in Morocco, the narrowbody MRO provider specializes in Airbus A320 family and Boeing 737NG base maintenance capabilities, predominantly supporting the fleet of its parent owners, Air France-KLM and Royal Air Maroc.
In terms of pricing, and considering the current inflationary environment, General Manager Loic Gelebart is prioritizing remaining a “light cost “MRO supplier, so the company’s strategic focus is on cost-efficiency. He believes this approach will ensure continuity with competitive pricing.
Meanwhile, TAAG Angola Airlines CEO Nelson de Oliveira says the African market is not homogeneous in terms of pricing or resource availability. “For example, we have significantly higher labor costs here in Angola compared to other regions in Africa,” he says.
Increasing productivity via leaner and digital applications are some of the solutions Oliveira discusses frequently.
TAAG’s MRO services include line checks on the carrier’s de Havilland Canada Dash 8, Boeing 737 and 777 fleet and engine replacement services for the Pratt & Whitney PW1500, CFM International CFM56-7B and General Electric GE90. Additionally, it performs avionics and systems shop capabilities while outsourcing all C checks, engine repairs and auxiliary power unit repairs.
Back in South Africa, SAAT has been very conservative on pricing strategy due to other factors outside its control, such as its location, but it has seen increased demand for its maintenance activities in line with other MROs that are focused on supporting parent airlines.
“Most of the independent remaining MROs were struggling to accommodate independent airlines, whereas we had the capacity to take them,” says Nyuswa.
SAAT took advantage of the situation and commanded market rates, but Nyuswa stresses that most African airlines are already accustomed to above-market rates for their MRO requirements. “We avoided the price war with other competitor MROs and promoted ourselves armed with our major approvals, capability and quality. These factors enabled SAAT to close the gap around pricing as most African airlines are also striving for quality service,” he adds.
Others, such as Chikurunhe, argue that pricing is no longer a competitive advantage in many African regions. Several lowest-priced service providers and suppliers have found themselves facing unwanted consequences of failed price-war strategies, which result in disrupted operational stability and cost management fallouts.
Chikurunhe says pricing strategies are currently focused on financial risk management, mitigating supply disruptions over several years and ring-fencing inflation pressures.
Risk transfer is an important factor and often a key driver in product and service offerings, and it is associated closely with the financial risk management aspect of pricing strategy. Therefore, a careful understanding of which risks are inherent and how their associated financial impacts may affect an MRO provider, such as Airlink, is key to the final decision-making. However, the growth of Airlink’s fleet over a short period has left its AMO with no capacity to take on any additional work from outside customers.
CAPACITY LEAP
In July, Ethiopian Airlines MRO announced two very strategic developments. The first is the installation of a test cell for the CFM International CFM Leap 1B engine at its MRO facility in Addis Ababa. This capability will pave the way for performance restoration shop visit repair work that will be phased in until September.
Reportedly, the new testing facility is only the fifth globally outside the Safran Aero Engines and General Electric network, and the first of its kind in the Middle East and Africa.
Meanwhile, ATR and Ethiopian Airlines' MRO signed a letter of intent at the Farnborough Airshow to develop the airline’s ATR maintenance and training capabilities and to establish a local spares stock to reduce response time for ATR operators in the region. The partnership will also explore collaborative ways to train new ATR pilots at Ethiopian’s pilot academy. ATR says 36 airlines operate 131 of its aircraft in Africa and the Middle East.
Aviation Week Network data forecasts ATR operators in Africa will generate $983.7 million in MRO demand and 758 total MRO events between 2024-33. Engine maintenance will comprise 45% of spending by segment, followed by line maintenance at 24%, components at 21%, airframe at 8% and modifications at 2%.
EgyptAir Maintenance and Engineering also plans to expand its base maintenance facilities in Cairo as the EgyptAir fleet grows. El-Khafif sees much potential for third-party work from operators in Africa, the Middle East and Europe.
El-Khafif is coy about specifics related to new capabilities but hints at plans to expand in-house engine shop capabilities for new “modern” engines. The company is also focusing on expanding line maintenance stations in Africa and the Middle East.
TAAG is setting up a stand-alone MRO at the new Luanda International Airport in Angola, which now services only cargo carriers and will open for commercial operations in the third quarter of 2024. Details remain unclear, but de Oliveira says the ownership structure and shareholders will soon be made public. He tells Inside MRO that Dash 8, 737 and 777 C checks will be in-sourced and TAAG’s avionics and emergency shop capabilities will increase.
De Oliveira is also considering partnerships as a mechanism to grow the company’s MRO footprint. “TAAG is open to win-win partnerships, and we are already discussing with top players on building a joint venture MRO in Luanda,” he says.
TALENT SEARCH
Vallair and the Cameroon Civil Aviation Authority recently signed a memorandum of understanding to collaborate in aeronautical training, aircraft maintenance, aircraft disassembly, and workforce training and development.
The agreement responds to a requirement for qualified airworthiness, maintenance and teardown personnel and considers the economic opportunities at secondary airports in Cameroon to establish these activities.
Certainly, Africa abounds with a new generation of young, motivated (and largely English-speaking) aircraft engineers eager to build careers and appeal to international recruiters.
“They want to improve their skills and they want to travel,” says Armel Jezequel, chief executive at Vallair’s training subsidiary, Aircraft Academy. “Cameroon is a good example of capturing this groundswell of talent and finding ways to deliver the training they need.”
The Vallair Group sees huge potential in Africa and anticipates that this initiative will spark a debate about similar programs elsewhere in Africa. However, Jezequel notes that African aviation works at its own pace. While he believes collaboration opportunities exist across Africa, he stresses that they must be carefully assessed from a practicality, viability and affordability perspective.
