Podcast: Navigating The M&A Boom — Opportunities And Challenges in MRO

Explore the dynamic world of mergers and acquisitions in the MRO sector from the booming aftermarket to the evolving engine market. Hosted by Aviation Week's James Pozzi with Meghan Welch, managing director and head of aerospace and defense investment banking practice at Brown Gibbons Lang & Company, and Michael Bruno, Aviation Week's executive editor for business.  

Subscribe Now

Don't miss a single episode. Subscribe to Aviation Week's MRO Podcast in Apple Podcasts, Spotify or wherever you get podcasts.

Discover all of our podcasts at aviationweek.com/podcasts.

AI-Generated Transcript

James Pozzi (00:49)
Welcome to the MRO podcast. I'm James Pozzi, MRO editor for the EMEA region. And today we are looking ahead at what might lay in store for potential merger and acquisition activity in the commercial aftermarket in 2026. Over the past few years, we've seen some vibrant activity in the MRO space. Where will the direction of travel be heading, and will it be for a sustained period?

So looking at all things M&A in the aftermarket with me today are Meghan Welch, who is Managing Director and Head of Aerospace and Defense Investment Banking Practice at Brown Gibbons Lang & Company, and Michael Bruno, Aviation Week's Executive Editor for Business. Meghan, Michael, thanks for joining me.

Meghan Welch (1:55)
Great to be here.

Michael Bruno (1:56)
Thank you.

James Pozzi (1:35)
Meghan, we'll start from your side, of course. Let's get a view of what is driving some of the M&A activity we've seen in the aftermarket, as we're now in kind of the end of January 2026. Which factors, I guess, are driving buying habits in MRO, and what are some of the things we should really consider around that?

Meghan Welch (02:01)
Yeah, so M&A activity has really been the bright spot of commercial aero for the last, say, six years since 2020. COVID was a bit of a black swan event for the commercial aero market across the board, but the aftermarket has been uniquely impacted in such a way that there are really strong structural demand drivers creating attractive opportunities for investors. And so that has driven a lot of that M&A interest. Things like capacity constraints because of the fact that Boeing was limited in their production.

Airlines are flying aircraft way beyond where they expected to be flying. There were a number of maintenance events that were deferred that were non-critical during the COVID period. And the market has historically just been a very fragmented market, with lots of owners that are privately held, which private equity loves to see from a buy-and-build strategy. So when we look at a value creation opportunity from an M&A perspective, it hits all of the flavors that both strategics and private equity love to see. And that's been driving a lot of the investor interest.

There's also been such a huge cut on the capacity side from just a repair perspective that strategics are taking very aggressive moves to do acquisitions to shore up their own capacity to make sure they can continue to serve the MRO market going forward.

Michael Bruno (03:13)
Yeah, and I would just add, if I could, James, to that. I mean, one thing that's fascinated me over this time span that Meghan just walked us through is just how companies that even were not aftermarket-focused, strategics in particular, are trying to increase their aftermarket exposure, even though OEM new production is starting to pick up again. So, I mean, there's just demand coming from every corner for MRO and aftermarket assets.

James Pozzi (03:13)
Yeah, and given that demand, we'll come back to you, Michael, and then Meghan. Where are buyers typically looking to make acquisitions? Which parts of the market are vibrant at the moment for, or at least ripe for, M&A activity?

Meghan Welch (03:55)
Perfect. I think all subsectors of MRO are of interest to buyers, to be frankly honest with you. We're seeing everything all the way down to the part-out companies like the Unicals of the world, all the way up through the highly engineered pneumatics and components, avionics, et cetera. I think what's been interesting, and Michael kind of alluded to this, and I won't steal his thunder, so I'll let him jump in. When he talks about strategics trying to get more into the aftermarket on the MRO side, I think the use of PMAs is being much more widely adopted because of the fact that we're so supply-constrained from a repair perspective and a repair component perspective.

And it's become a really attractive potential avenue for folks like Heico, who bought Wencor, and like we just saw with TransDigm's big announcement of Vance Street’s two port-cos.

Michael Bruno (04:38)
Yeah, and I just wrote a piece for Aviation Week about how parts are a big target for companies, whether private equity investors or strategics. If you think for a moment, people think of aircraft and companies that provide aircraft. And we always think of the Airbus, Boeings, and the big airlines and things like that. But the real money is actually based inside of the aircraft for a lot of these, most of these investors. And it's not just the new production again. It's not just that final deal to getting a new A320 or 737 out the door. It's the fact that you're going to be making parts to support these aircraft for the next 20 years.

Retirements are low. We have operators of these major large commercial aircraft that are seriously thinking about how to fund, you know, C-checks and such major maintenance overhauls that once upon a time they probably wouldn't be considering—they would have parted out the aircraft.

These things are going to be flying longer. So if you're providing parts to these companies, you're going to be making money in two different ways: new aircraft that are getting built, as well as supporting the aircraft already built. So Meghan just talked about TransDigm making, I think it was a $2.2 billion acquisition. Loar Holdings just announced a relatively small $250 million acquisition for a company that was only making $50 million in revenue.

An 85-person company. You know, from big to small, people are looking at every corner, as Meghan alluded to. What they want to know is, how do I get in on this play, on this MRO aftermarket play, because everybody just sees things going up and to the right for years. And maybe we'll get into that a little bit as to how long it'll go. But you know, basically, if you weren't in it already, people are starting to have a little bit of fear of missing out. And they want to get in on it.

James Pozzi (06:32)
Of course, you said that the money, I guess, is there inside the aircraft, as you mentioned—parts, aircraft programs, et cetera. Back to Meghan, of course, we mentioned before in some of our prep calls about the engine segment perhaps being or showing signs of consolidation. Is there anything you could share with us around the kind of particularly the engine segment and perhaps some of the activities that may happen there also?

Meghan Welch (06:59)
So the engine segment's a bit of a different beast outside of just traditional aircraft parts. And that's because the engine OEMs very early on, different than some of the OEMs that were serving the new-build market on aircraft, realized the value of the aftermarket. And so they did a lot of things like power-by-the-hour programs. They were very involved in the aftermarket and continue to be through very specific programs that require only certain outside repair shops to be able to work on their engines from a certification perspective.

What's really changed in the engine market, and I'm speaking very broadly here, is that there have been a lot of fundamental challenges with some of these new engines that were introduced, especially at Pratt & Whitney and Safran, which has just compounded the delays in production of aircraft and created more of a challenge on top of everything else going on with the FAA's review of Boeing's quality. And what that's opened up is an opportunity for a number of engine repair shops or engine MROs to own a little bit more of that market share because the large Safrans, the large Pratt & Whitneys of the world, are laser-focused on fixing their fundamental design flaws—the powdered metal issues, et cetera—of their new engines, which are driving a lot of these aircraft and delaying a lot of the new productions. We're seeing more and more opportunities pop up in the engine sector, and that's become a really interesting area for investors to look into.

Now, there's varying degrees of investor risk tolerances with engines because it's such a flight-critical section of the aircraft. So there are different parts of the engine, like the hot sections of the engine versus other components that go onto the engine. You'll see varying degrees of investors wanting to touch things like the hot section, which tends to be extremely flight-critical and very, very difficult. But that is very much a big focus.

Any company that has content on a CFM56 or some of the engines that are really powering these narrowbody aircraft—the workhorses of the global fleet right now for the airlines—has a lot of runway in front of them, a lot of demand, and a lot of value in the market. We're also seeing the likes of turbine engines and turbine engine repair come around as real acquisition targets. For example, McNally Capital announced an acquisition of a smaller company back in December that was focused on the PT-6 engine. The PT-6 is a turbine engine that's powering more of the general aviation (GA) fleet and some military aircraft, which is an interesting avenue for investment for folks looking to get into engines.

Michael Bruno (09:22)

I just want to pile on to what Meghan was saying. She actually alluded to something else I want to bring up earlier, and that is that the engine sector is fragmented as well. There are lots of different ways to get in and make a play for investors. For every different kind of investor, there's a different way to play into the engine market. That's not as usual as what you see in other sub-sectors, where it's just very clear that you want to be a new-build provider or something like that.

With engines, you can get in whether it's by being somewhere deep in the supply chain and trying to roll up those assets into a bigger company, particularly if you're private equity. Maybe you're somebody who wants to tackle the very front end, that forging and casting area, where there are just extreme limitations for the ultimate volume of production that the industry can achieve.

So if you can introduce somebody new into a segment of that castings and forgings area, you're going to control key revenue streams. Or you could just try to scale up and be somebody of size. There are a lot of different ways to play it, and that's why people are looking at engines and saying, wow, you know, you can really get in on this.

Meghan Welch (10:39)
Yeah, I just want to—I think that's a really salient point. I want to add on to that a little bit. The casting and forging segment is becoming much more interesting from an investor perspective. It is a fantastic segment to be in during times of record backlog in production. It is very challenging when you have limitations, especially artificial limitations on production, like the FAA limiting Boeing's production, and some of the challenges with the engine manufacturers. But we're seeing that as a real bright spot because fundamentally the market is extremely constrained from a capacity perspective for casting and forging. So there's just not that many shops that do casting and forging for aerospace and defense across the board.

It's not like the thousands and thousands of component shops in Miami and South Florida that do a lot of very specific MRO. The other thing I'd say from an opportunity on the engine side is that we're seeing a lot more opportunities if you have advanced capabilities, like DER engineering capabilities or any kind of OEM authorization, which is just increasing values. So it's no longer a play in 2026 to just get scale. It's really to increase your capacity and also to increase your capabilities on some of these higher-end capabilities. PMA is another good example.

James Pozzi (11:48)
Absolutely. Yes. We'll look at a key component, I guess, of the aftermarket or a key player as a sector in recent years: private equity's role. Now, we've talked about this extensively before on the MRO podcast to varying degrees. And we know that private equity likes the aftermarket. I assume that will continue to be the case this year.

And, you know, we'll expect more kind of PE money pouring into the aftermarket in various sectors. Is that right to assume, or will something change this year?

Meghan Welch (12:23)
No, I think that's right. I'd be curious to hear Michael's thoughts as well. Private equity has always liked this area. This is an area with non-discretionary demand. I mean, there is very predictable demand driven by mandated checks across each aircraft type and different opportunities. And so this is an area that private equity loves because of the fragmented nature of the business, because of the consistent demand, and frankly, the supply and demand imbalance for the macro reasons we talked about earlier.

I think what you'll see in 2026 from a PE perspective is not less interest from PE, but maybe a more disciplined approach on value. M&A and aftermarket MRO have been very, very hot for a few years, and we're seeing a lot of these strategics step up and take on more capacity. Private equity continues to pay up for assets, but I think they're trying to be more disciplined in how they're paying for them from a valuation perspective because they're no longer wanting to fight tooth and nail for 16-18 times multiples for a deal. I think they're really trying to find opportunistic pockets of MRO that they can invest in and have a lot of the same fundamentals but don't require that kind of valuation expectation.

Michael Bruno (13:27)
Meghan's the real expert here, and not surprisingly, I agree with everything she just said. I would point out that at this point, not only do we expect to see PE interest continue and continue to be robust, but as she said, disciplined. And there are many reasons for that, one of which is, as we said earlier, strategics—companies that are actual companies providing the parts and aftermarket services—were already doing it. They're increasingly looking to get in on these plays.

And so, you know, that provides a little bit more competition. Historically, strategics were willing to pay more than private equity investors, just in general, on assets. And so, you know, when you've got increased strategic interest there, that's going to make PE not quite rethink things, but try to be more, you know, pardon the pun, strategic about where they're investing.

But, you know, there are other things going on here, one of which is just the long-lasting forecast for this industry. And with private equity, they have now, as a kind of investor, very much evolved in their involvement in aerospace and defense. They used to be, you know, the classic sort of Gordon Gekko—come in, break things up, sell them off in pieces, try to do that within five years, seven at the most. You now see a lot of PE firms that are very, very much buy-and-build. They've become more patient. They’ve become more like the strategic companies.

And so we definitely don't think their interest is going to wane at all. How it may change in the future, particularly as consolidation rolls on—I mean, we could probably have a whole other podcast on that, but that's kind of a TBD.

James Pozzi (15:13)
Yeah, absolutely. Kind of looking forward, I guess, following on from what we've just spoken about—market valuations. Maybe starting with Meghan, do you feel market valuations are going to hold or reset perhaps or change in some ways? What do you see in that area?

Meghan Welch (15:31)
I think market valuations will hold, potentially expand for higher-quality, top-tier assets, especially as more of these assets are acquired and there becomes a scarcity value associated with an asset of scale or really specialized capabilities. So I do expect valuations to hold, if not increase. I think across aerospace in general, we're seeing the early innings of an M&A boom, both from a transaction volume perspective for the reasons Michael mentioned, as well as from a valuation perspective.

James Pozzi (15:10)
I was going to ask if we're in the middle or the end of this M&A cycle. Do you feel, in terms of the boom, we're very much at the beginning?

Meghan Welch (16:07)
I do. I think so from the aftermarket perspective. And just to talk to the longevity of demand, we're seeing aftermarket supply-demand imbalance in the market for the next up to 10 years. Right. And that's very attractive for a lot of investors, whether you're a strategic trying to make sure you have capacity or private equity that's very thoughtful about how you play this market and add value. So I do see that still as kind of earlier in the boom, even though it's been a few years now since 2020, that MRO has been kind of a driving force on the commercial aero side for M&A.

Michael Bruno (16:37)
Yeah, again, just to pile on to what Meghan said, I mean, if you look at the new production side of things, there isn't relief coming very quickly in the near future. The major OEMs, Airbus and Boeing, they're just now approaching levels of monthly production of large commercial aircraft that they had hit before the pandemic, before the MAX crisis. It's going to be another couple of years before they're just back up to those levels.

There's practically no expectation for a new design, next-generation, major air transport coming out anytime before the late 2030s at the earliest. And the engine companies aren't really rushing to do that either because they're looking to cash in on the GTF and the Leap investments that they created last decade. So you put all that together, and that means that the aftermarket market is expected to be robust.

And if you're an investor looking where to allocate capital, you think, hey, I've got another, yeah, at least five to 10 years just on current programs that are running. I would say, you know, Meghan said early innings—maybe we're approaching the midpoint, but that means we're still pretty much in the first third of how this is going to play out. Nobody thinks this thing's going to get curtailed in the next couple of years.

James Pozzi (18:00)
And that's even factoring in potentially geopolitical factors and uncertainties around the world.

Michael Bruno (18:06)
Yes, except you can never control for black swan events, right? And upcycles like we're having right now traditionally die more from black swan events than they do from old age. So, you can't control what you can't control, but looking at the market the way it is right now, people see it going for a long time.

James Pozzi (18:10)
Absolutely. Meghan, any closing thoughts?

Meghan Welch (18:30)
No, I think that as you look at the market, it's just going to be—if you're trying to add value from a buyer's perspective, I would look at pockets of the market that have really specialized capabilities, or you work on components, pneumatics, something very specialized that you can build upon from a buy-and-build strategy, as well as areas that have either large global installed bases with a long life in front of them and strong demand fundamentals behind them.

From a strategic perspective, we're going to continue to see the strategics be much more aggressive in this space. VSE has done a number of acquisitions this year across the full spectrum of MRO, everything from their Kellstrom acquisition, which is more on the distribution side, to their acquisition, most recently, of Precision Aviation Group, which is more on the rotable side. They're really trying to play across all facets of the MRO, which will be interesting to see what they continue to look at.

James Pozzi (19:20)
Excellent. Well, that brings us to the end of today's episode. We could continue for a lot longer, ideally, but sadly we've come to the end. Michael, Meghan, thank you so much for joining us today and giving us your insights. It's going to be an interesting year ahead, no doubt about it.

Michael Bruno (19:36)
Thank you.

Meghan Welch (19:37)
Thank you.

James Pozzi (19:38)
Excellent. Well, that's all we've got time for today on today's MRO podcast. If you're listening via Apple or Spotify, please leave us a review and a star rating. And remember, a new MRO podcast episode drops every Monday morning via Aviation Week. Thank you for listening.