Frost: Increasing Air Traffic, Expanding Fleets to Drive Euro MRO Demand
September 21, 2006 // Published as a news service by IHS
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Persistent growth in air traffic between Eastern and Western Europe, growing world trade activities, air transport liberalization and an outsourcing trend led by a low-cost operator business model will underpin steady growth in the European commercial airframe and engine maintenance, repair and overhaul (MRO) market, according to Frost & Sullivan.
Recent analysis from Frost & Sullivan found that the European commercial airframe and engine MRO market earned revenues of $10.6B in 2005, with estimates to reach $15.2B by 2012.
"A robust air traffic outlook, combined with the shifting of the airline business model and the anticipated surge in demand for heavy maintenance, looks set to drive significant growth in the European airframe and engine MRO industry," said Frost & Sullivan research analyst Patrick Yeung.
The expansion of the European Union (EU) will continue to play a role in stimulating intra-European air passenger growth over the long term, analysts said. Increasing aircraft utilization and expanding fleets will parallel this trend, translating into growing demand for MRO services.
The MRO outsourcing trend is expected to increase as legacy carriers continue to streamline their business models in response to the proliferation of low-cost carriers with the objective of slashing costs and focusing on core activities.
Analysts said a significant number of A320 family and B737 New Generation aircraft, which constituted 70% of total deliveries over the peak of delivery cycles between 1997 and 2002, will experience their first airframe heavy maintenance checks and engine removals and correspondingly create a short-term spike in demand during the forecast period.
However, the increasing vertical integration of original equipment manufacturers (OEMs) into the aftermarket, as well as the opening of lower-cost MRO facilities in Eastern Europe and the Far East have been fueling the hyper-competitive climate as the industry continues to recover from adverse external events. According to Frost & Sullivan, intensifying demands for flexible commercial/technical solutions in line with operators' re-aligned business models suggest price is no longer the sole criterion for success. Instead, perceived value for money is becoming as important.
"Establishing and sustaining competitive positioning is fundamental to longer-term organizational growth and profitability," said Yeung. "MRO providers must be proactive in identifying the life cycles of their service offerings and continuously explore opportunities to better fulfill customer requirements in what is largely perceived as a commodity market."
Analysts said there is a definite scope to leverage information technology in in-bound logistics and operations (with respect to inventory management and maintenance planning) to optimize reliability and quality of delivery across the MRO value chain. In addition, increasingly sophisticated customer demands warrant the need for firms to seek cooperative agreements with each other, as a means to extend their product portfolios and market coverage.
Source: Frost & Sullivan.