Various factors are shaping the present dynamics of the industry. Airlines throughout the world are keeping strict control on costs and there is substantial reduction in the maintenance activity of aircrafts. A large number of older aircrafts that require more maintenance activities have been grounded, thus magnifying the negative effect on the MROs.
Going beyond 2010, Frost & Sullivan expects that airlines would once again increase their capacity. However, the increase would be more in the form of newer aircrafts that require less maintenance. This means that the MROs' are not expected to regain their lost ground in the calendar year 2010.
According to Frost & Sullivan's Asia Pacific Consultant of Aerospace & Defense Practice Soumyajyoti Basu, there is also a huge pile up of inventory of parts with the MROs and the airlines, worth around 40 billion dollars. "Service providers and the airlines would try to use this stock rather than going for fresh orders, thus affecting the third party MRO suppliers" he adds.
He continues, "However, the practice of destocking & deferred maintenance is not sustainable. Hence, in the middle to long term, MRO businesses would once again become extremely profitable. Frost & Sullivan does not expect any cutbacks on the MRO revenue predicted for the nine year period into 2019 where it is expected to reach about USD63 billion". "The present reversal in revenue from negative to positive means the CAGR for the ten-year period will be revised upwards and is expected to be around 4.5%" Basu says.
Basu elaborates that Asia Pacific would record a comparatively higher growth stemming from all maintenance segments, the bulk of which will be driven by the engine segment. "This is in part due to long-term demand emanating from major economies in the Asia Pacific region that is expecting new aircraft deliveries from major OEMs such as Boeing and Airbus" he explains.
This provides excellent investment opportunity in the MRO field. MRO service providers that utilize this period to revamp their business model in anticipation of the future, building up capabilities to serve newer aircraft models, decreasing turnaround time & becoming green would be the ones that would drive growth in the coming years. "The prevailing low valuation in the industry also gives ample opportunity for mergers & Acquisitions. Hence, the process of consolidation that started since 2001 would continue. This would decrease operation costs in the MRO" Basu states.
"However, shortage of labour would drive up labour costs. There is also an increasing tendency of the OEMs getting into MRO activities & providing packaged
deals in the sales market. This process would pose serious competition to the MRO service providers. This can be countered by providing one-stop MRO service points that would be both cost efficient & convenient from the customer's point of view" says Basu.
Basu concludes, "In 2010, the dynamics within aerospace MRO would be very fast moving. There is a huge opportunity for growth in the market, promising high return on investments for service providers across the value chain. However, an efficient strategy needs to be implemented in order to tap the market".
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