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Accenture data shows most industry executives expect MRO spending to increase over the next 1-2 years.
There has been no shortage of telenovela-level gripping plotlines this year in aviation, aerospace and defense. From airlines predicting banner years to OEMs seesawing their guidance, it has been a bit breathless. The pace of global change in policy, economic activity and corporate strategies even affected this piece, which was initially intended to be a trenchant analysis of potential economic scenarios. What we can say is that the combination of macroeconomics, production surges and legacy fleet operations is testing the fundamental rules of the game for suppliers, OEMs and MROs in the most global of industries.
Despite uncertainty, there is a strong argument that business has never been better for MROs. Continued industry trends of slower fleet transitions, high utilization and high engine shop visits have created sustained long-term demand. In Accenture’s most recent polling of industry executives, 57% saw MRO spending increasing over the next 12 months, and 77% believed it would rise over the next 24 months.
Decisions for MRO strategists are hard. Is the MRO segment a frog in the slowly boiling water of macroeconomic and geopolitical volatility, or is it poised for continued growth and profits? Ultimately, the mix of macroeconomic signals serves to reinforce the lessons of the pandemic recovery; operational resiliency and agility carry the day.
The profitability and service availability of fixed-fee MRO contracts are inherently vulnerable to unforeseen cost increases. As broader cost variability increases in a tariff regime, MROs that can effectively model and react to these changes will be better positioned to sustain profitable growth. The instruments MROs have to influence cost are superficially blunt but sophisticated in practice. Reducing turn time, improving parts availability and increasing capacity are simple to say and much harder to do in an era of constrained supply and labor force transition.
Broadly speaking, MROs are taking two sets of actions. First, they are growing and diversifying in-country and in-region supplier and partner agreements to “federate” supply and overhaul capacity. In addition to addressing supply availability and throughput constraints, these efforts also provide a buffer to changing tariff requirements. Cross-industry trends support this hypothesis. Nearly 85% of all aerospace and defense companies Accenture surveyed are pivoting to more localized manufacturing over the next two years. Within MRO, mergers and acquisitions are a major lever for localization, with nearly 70% of such activity year to date focused on building domestic capacity, particularly in the U.S.
Secondly, MRO providers are accelerating investments in efficiency, ranging from workforce training to artificial intelligence (AI), predictive analytics and automation. In a high-demand, supply-constrained environment, these investments are targeted at removing constraints across overhaul, repair and extended supply chains to reduce time out of service. In a highly variable and uncertain cost environment, the operating cost reductions from these investments are an important buttress to planned contract performance.
Data and organizational boundaries hinder the effectiveness of these actions. MROs have received the message on data. Whether through consolidation of enterprise resource planning and repair systems, moving to the cloud or employing in-house and third-party data platforms, MROs are competing on data superiority. To compete to win, these efforts must be ruthless in their focus on data that aligns with the throughput, cost and quality of the MRO operation. Gathering data “for future analysis” can wait.
MRO staff must anticipate, understand and act upon situations faster than ever. Yet today’s relatively junior MRO workforce has very little experience to pull upon. With a workforce lacking lived experience, generative AI is an emerging means to bridge data and knowledge bases to help employees run faster up a steep learning curve. Speeding up insights to support the ongoing MRO surge with technology like generative AI is promising, but it requires MROs to capture data and the collective memory of experienced staff. It also depends on a uniquely human factor: knowing what questions to ask.
There is no single answer for MROs as they balance historic levels of demand within a rapidly changing macroeconomic, geopolitical and regulatory environment. The only certainty is that the current environment will only accelerate MROs’ structural, functional and digital investments in resiliency. MROs will need to navigate some turbulence over the coming months, and they have a compelling reason to build muscles that will serve the industry through this period and through future growth cycles.
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