A High-Level Look at the Global MRO Market

February 26, 2016

Brian Littlefield

UPS transported a 3500-lb replacement cowl more than 2600 mi for a grounded Boeing 787 Dreamliner aircraft in Honolulu, HI. (UPS)

Aerospace and defense (A&D) companies that provide maintenance repair and overhaul (MRO) services increasingly find themselves out of their comfort zone as the recent appetite for new airplanes, especially in emerging markets, spurs dramatic shifts in their business.

This strong demand in Asia and the Middle East is bringing more planes on line at a historic pace. Meanwhile, customers have higher expectations to minimize flight disruptions. These two factors challenge supply chains in new ways to keep the right parts and tools on flight lines and in repair depots when they’re needed. The stakes have never been higher for A&D companies and their partners as they navigate the obstacles of an expanding MRO market that offers growing possibilities.

In the meantime, the aerospace sector will continue to see strong growth. During the next decade, the commercial fleet globally is forecast to expand to nearly 41,000 aircraft with new planes making up about half the total, according to industry data. Emerging markets in the Asia/Pacific region and the Middle East are leading the way.

This shifting fleet dynamic will continue to reshape MRO as well. That business is expected to grow by more than 50% through 2024 to $85.2 billion, and aftermarket providers are ramping up their capabilities for next-gen aircraft and phasing out services for older models.

It’s a delicate and costly balance. Decision-making affects everything from tooling to technician training and technology infrastructure. MRO providers stand to win or lose big based on their execution of strategies in a dynamic market, including logistics. And challenges abound.

First, emerging market growth impacts the global supply chain and, importantly, where and how MRO business is conducted. Production of parts, location of facilities, and staffing all must be factored in.

Next, A&D customers are becoming more demanding as they try to meet the needs of their downstream customers, including governments and passengers. Service level agreements now impact how A&D firms deliver MRO services and directly influence logistics networks.

Finally, the business model for MRO providers is changing. Roles are shifting and creating additional challenges.

For example, aerospace OEMs want more depot-based overhaul activity, flight-line level repair, and preventative maintenance. To do this, they must stock inventory in strategic locations, requiring capital investment in facilities that can handle the more sophisticated aircraft coming on line.

A focus group survey of key U.S-based A&D firms conducted for UPS by IDC Manufacturing Insights found that nearly 30% of survey respondents said the top challenge A&D companies face in optimizing their MRO supply chains is managing the complexities of getting parts to where they need to be in a timely manner.

For example, the survey indicated that the industry as a whole has seen a shift in how spare parts are stocked and distributed across an MRO network. Managing logistics for parts distribution is a definite pain point.

Other primary challenges in competing globally and servicing customers include finding and vetting new suppliers and partners for logistics and warehousing, and building infrastructure. A&D companies must ensure they are agile, responsive and resilient. Logistics providers are essential, but they also must offer a wide breadth of capabilities.

“Whatever (our logistics provider) can physically do, we have them do it,” one survey respondent said, which includes storing parts and kitting them with tools in a warehouse located near the customer.

This article was written by Brian Littlefield, Director of Marketing for Aerospace, Automotive, and Industrial Manufacturing and Distribution, UPS.