MRO Pains: A Regal Response

The theme of the decade in the Middle East is “growth, growth, growth” and tourism and entertainment its obvious billboards. Behind the scenes is a frenzy of activity in the transport sector particularly the aviation industry ecosystem as it races to meet the needs of an unprecedented demand for travel. Eye-watering investments are transforming airlines and airports, introducing futuristic modes of travel such eVTOLs (electric vertical take-off and landing aircraft) and nurturing support services such as maintenance, repair and overhaul (MROs) for aircraft, helicopters as well as eVTOls.

What is driving growth in Middle East Aviation?

A classic virtuous circle, the strong growth of the Middle East’s major airlines is due partly to enviable passenger demand as the world flocks to one of the world’s fastest growing regional economies – and aviation markets – for both work and leisure. The region’s airlines are placing record-beating orders for aircraft to meet the needs of an estimated 1.1 billion travellers by 2040 twice as many as the 405 million passengers that traveled through its airports in 2019. The ATC estimates this will require investments worth over US$151 billion in capacity expansion. A concerning corollary of this trend is that the order books of OEMs are dominated by the biggest industry players. This does not bode well for smaller players relegated to the bottom of OEM order books and therefore dependent instead on older, inefficient aircraft and potentially higher operating and leasing costs.

Be that as it may for now, an ever greater proportion of global passenger traffic – forecast to reach 9.7 billion by the end of 2024 and around 19 billion by 2042 – is expected to accrue to emerging and developing economies as growth and urbanization and therefore rising disposable incomes buoy demand upwards. In order to meet demand, the aviation industry – both global and regional – is ramping up investments in infrastructure to build across capability and capacity. The aftermarket industry has emerged as an investment priority for both operators and governments.

Ziad Al Hazmi, CEO of Lufthansa Technik Middle East CEO notes that the high demand for new airframes and engines, driven as mentioned above by record-breaking aircrafts orders from airlines and governments spanning the globe as well as the needs of a hyperactive aftermarket, have stretched lead times for component parts as well as repairs. In response, his company is ‘acquiring stock to build up inventories and investing in exchanges,’ to minimize lead times due to part shortages and ensure that those at least don’t contribute to longer turnaround times.

This strategy and the resultant flurry of activity is playing out across the industry and around the world signalling a shift away from large global entities to smaller regional, national and even in house players heralding perhaps even greater fragmentation of this already rather fragmented space. While MRO is expected to see continuing growth in 2024 and beyond, an emerging trend towards consolidation – as evidenced by significant M&A activity in 2023 with AAR acquiring Trax ($120 million) and announcing the acquisition of Triumph Product Support ($725 million) and Heico purchasing Wencor ($2 billion) – is being countered by significant ‘startup’ activity in the sector particularly in the Middle East.

Is the emergence of new players in the MRO industry a positive trend?

While working with global, integrated players offers obvious advantages – such as cost savings that flow from avoiding large scale capital expenditure on infrastructure and talent; from the economies of scale that large MROs can leverage; from the expertise, specialized knowledge and access to investments in advanced technologies and tools and talent – resource constraints affecting supply chains, from parts to people are pushing up costs and lead times, something OEMs and airlines, especially start-up airlines can ill-afford.

Which is not to say that the shift towards building in-house or local MRO capacities is a panacea. Not by a long shot: it will probably make a bad situation worse in the short to medium term. The idea and hope is that as business and nations invest in building up capabilities, by investing in much needed talent such as aeronautical engineers and technicians – the shortages and constraints will ease.

Against this backdrop, there are some obvious advantages of in-house or localized MRO that should inform the thinking of business leaders as much as policy makers:

  • Most crucially, building up local capabilities eliminates dependencies on third party providers protecting operations from external influences most critically market conditions but also financial or managerial exigencies or the changing priorities of governments or clients.
  • Complete control over the maintenance processes, schedules, and quality standards of local or in-house capabilities opens up opportunities to help align services with local or business specifications with the flexibility to customize maintenance processes and schedules to suit operational requirements
  • It can allow direct oversight of personnel and the ability to foster a hands-on management approach
  • It can enable service providers to seamlessly align maintenance operations with local business, industry or national goals and objectives

How is Saudi Arabia responding to the MRO challenge?

As part of Vision 2030 and its National Transformation Strategy, Saudi Arabia, the Middle East’s fastest growing aviation ecosystem, is forging ahead with an ambitious, forward thinking MRO strategy to be led by a few, well-chosen, established industry leaders:

PIF backed Saudia Technic – the MRO arm of Saudi Arabian Airlines – is shaping the future of aviation working to position the Kingdom as a global leader in aviation safety, sustainability and innovation. It is playing ‘a pivotal role in shaping the future of Saudi aviation … and establishing comprehensive aerospace clusters across the kingdom.’ Previously known as Saudia Aerospace Engineering Industries or SAEI, it is building a huge MRO Village across 900,000 sq.m of desert near Jeddah’s King Abdulaziz International Airport. Designed to compete with the world’s largest, most advanced MRO centres today, the Village will house 11 hangars, including some with the capacity to service four narrow bodies or two A380s simultaneously; an aircraft washing centre and a paint shop. But most importantly it will have it’s own Jet Propulsion Centre with a test cell capable of testing engines up to 150,000 lbs of thrust which is 20% more than its closest competition anywhere in the world. The JPC is being built to service both G90 and CFM 56 engines. Compared to the 40-50 aircraft that the airport’s current MRO facilities built some 40 years ago were designed to service, the new SAEI centre will be able to serve up to 300 aircraft.

Far more importantly though, big players across the Kingdom’s aviation ecosystem are investing in training and developing the talent needed to service these facilities.

Avilease, has signed an MoU with Riyadh’s Prince Sultan University to help develop a strong local workforce for Saudi Arabia’s burgeoning aviation ecosystem by providing student scholarships, sponsoring local and international visits and trips for Aviation Management students, and providing university students with internship opportunities at AviLease.

Riyadh Air has signed an MOU with Colleges of Excellence to provide vocational and industry specific training to local Saudi professionals and provide courses especially designed to encourage women to pursue careers in aviation engineering and MRO. 

Saudia Technic is building a centre of innovation in collaboration with SMEs and universities to provide engineering and technical training to the Kingdom’s young men and women eager to pursue careers in the aviation industry. In the words of Capt Majed Sabbagh, VP Transformation at Saudi Technic, the innovation centre being built will serve not only as a catalyst for the rapid evolution of the national and regional aviation ecosystem, but also as a lodestar for global aviation communities.

Flynas, a Saudi LCC, operates a qualification and training program to certify its maintenance and aircraft engineers. The program includes intensive hands-on training opportunities for those with a background in aeronautical science and engineering or with specializations in aviation technology.

Not to be left behind, leading international players such as Boeing, keenly aware of the importance of showing their commitment to the region and Vision 2030, are also making catalyzing investments in Saudi aviation. Boeing has 15 R&D relationships with institutions and universities in the Kingdom as well as a number of joint ventures and community investments. In addition, it is also working with King Abdullah University of Science and Technology to support student interest in STEM and aerospace related subjects.

All of these initiatives reflect Saudi Arabia’s determination to emerge as a global hub for transportation and trade and a centre for innovation for the aviation industry not by emulating the achievements or successes of it’s competitors but by ‘spearheading new initiatives, programmes, and activities … that leverage advanced technologies such as data, AI, robotics, biometrics, and blockchain to streamline operations, deliver unparalleled customer experience with enviable standards of safety and environmental sustainability.’

Clearly, the dramatic growth the MRO industry on the back of global demand for travel and a steepening aviation industry growth curve is a huge opportunity for visionary businesses and governments to grow local businesses, create jobs, build technical capability and capacity and to position themselves at the forefront of a highly competitive industry that brings with it the potential to deliver significant GDP growth.

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