The Mro Ma Market Is Like A Game Of Poker
In many ways, MRO mergers and acquisitions constitute their own form of industry-predictive maintenance and how it affects the health of the sector. An intelligent deal involves gathering data and looking at what might happen, not only for MRO providers but for aviation as a whole. In the words of former Apple CEO John Sculley: “The best way to predict the future is to invent it.”
Sometimes predicting the future involves taking a step back. “If you’re thinking about what’s been impacting the aftermarket, it’s not mergers and acquisitions [M&A] in MRO, it’s mergers and acquisitions in the broader aerospace sense,” says David Stewart, a partner at consultancy Oliver Wyman.
Visualize a pie chart of the component-MRO spending for the Boeing 777 by supplier. “It’s massively fragmented,” says Stewart. “There are lots and lots of different OEMs providing parts for the 777.”
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“You can be a very big shark in your marketplace, but it’s the piranhas which will take you apart,” says British Telecom Chairman Iain Vallance.
Put that chart to one side. Now create one for the Boeing 787. Significant supply-chain consolidation—such as Hamilton Sundstrand, Goodrich, Rockwell Collins and B/E Aerospace all coming together as Collins Aerospace—means just a few companies are involved in 70-80% of the MRO spending for 787 components.
“Suddenly, those component OEMs, because they’ve consolidated at OEM-level, can come up with a compelling offer. They own a significant proportion of the aftermarket for the 787 in terms of their access to the parts,” Stewart explains.
While this is “absolutely right” for their businesses, he says, this limits component-MRO options on some of the newer airframes: “There’s tons of choice on the huge fleets, on the Airbus A320 and the [Boeing] 737, because that supply chain has been around forever. It’s more a new-aircraft platform problem.”
Struggle For Independents
Together with other major deals, such as Safran and Zodiac Aerospace, this consolidation makes it harder for independent MROs to compete. As show business performer Dean Martin once said: “When your opponent’s sitting there holding all the aces, there’s only one thing left to do: Kick over the table.” In MRO, the table is a metaphor for the old way of doing business.
As part of that shift, independent MROs are joining forces with OEMs. “You’re clearly seeing, on the engine side and on the component side, more OEM alignment,” says Ken Herbert, aviation analyst at Canaccord Genuity. “There’s always going to be a market and demand for independent MROs. Clearly, that’s being pressured these days by OEM involvement on a number of levels, but independent MROs are not going to be extinct anytime soon.”
Why Acquire?
In the aftermarket, companies such as StandardAero and Magnetic MRO, to name just a couple, have changed hands in recent months. Herbert sees at least three high-level drivers behind this consolidation: OEM involvement, geographic expansion to tap growing demand and access to intellectual property—particularly around data and new technologies. “I think these are three of the key reasons we’ve seen a lot of M&A activity within MRO so far, and I expect that to continue,” he notes.
- Oliver Wyman
- David Stewart, partner at Oliver Wyman
Like Stewart, Herbert sees United Technologies’ acquisition of Rockwell Collins as “incredibly significant on a lot of levels.” He also flagged TransDigm’s $3.6 billion acquisition of Esterline as “transformational” for that part of the industry.
Herbert’s comment is significant, because not all areas of MRO are at the same stage of consolidation.
“Engine MRO consolidated a long time ago, because the engine OEMs needed capacity, so they ended up buying a lot of the independent MROs. Now you’ve reached a stage where the engine OEMs, through their facilities or partners, probably on average have a 50-60% market share,” Stewart points out.
Component consolidation is happening at the OEM level, but Stewart says the component-MRO sector remains massively fragmented. Historically, Lufthansa Technik and Air France Industries KLM Engineering and Maintenance (AFI KLM E&M) have been acquirers in this space. “You’ve literally got thousands of ‘mom and pop shops’ out there. You will see more consolidation there,” he says.
Airline Backlash
Stewart believes there is still plenty of component-MRO choice, but that sector needs to be careful about repeating what happened in engine MRO, especially on newer aircraft.
He cites the International Air Transport Association’s recent competition complaint against CFM International’s MRO policies as a warning bell. “They [the component MROs] are not anywhere near that yet, but one has to be conscious of making sure the airlines believe they still have choice. If you think… For more amazing games, visit situs judi bola terpercaya.
