Eastern European Aircraft MRO Market: In many respects the same but still a bit different

April 14, 2014
Most global MRO providers have started the expansion of their operations through the acquisitions of some regional players and OEMs are also gaining an increasing share in the segment.

According to various statistics, in terms of development rates, the aircraft MRO industry in Eastern Europe has been taking the leading role for quite a while now. On the one hand, the ongoing growth presents new opportunities for local MROs as well as global industry players, including OEMs, to further expand their activities worldwide. On the other hand, as the market is still considerably young, it needs constant attention with regard to the quality of the services provided and the specific requirements of the regional aviation industry.

While it is common to attribute the rapid growth of the $60 million aircraft MRO industry to the latest boost in the development of the emerging Asian economies, it is hard to ignore the fact that as concerns the recovery of aviation industry the CIS and Eastern Europe nowadays contribute as much as their larger brothers. Currently valued at a little over $4 billion, the MRO industry in the region is expected to reach around $7.5 billion by 2022, thus lagging only Asia-Pacific and the Middle East in terms of absolute MRO spending growth.

“Due to the fact that the Eastern European MRO industry is expected to almost double in value during the next 10 years, it has truly become a place of great opportunities. Therefore, it should raise no eyebrows that recently the region has noticed an increased activity in this sector of the industry,” says the CEO of FL Technics, Zilvinas Lapinskas. “The general trends that have been and are expected to continue shaping the aircraft maintenance sector in the region are somewhat similar to the ones that have already been observed globally.

Firstly, most global MRO providers, recognising the potential of the segment, have started the expansion of their operations through the acquisitions of some regional players. In the meantime, OEMs are also gaining an increasing share in the segment, thus adding the pressure on the local independent MROs, who, in turn, are forced to look for various ways to simply survive. However, there are some nuances that make the region different from the others.”

Customer satisfaction

Indeed, despite the fact, that the region is developing rapidly, the environment is still quite tough for MRO providers. Firstly, this has to do with the overall insufficiency of the MRO infrastructure (e.g. a large number of old hangars), which consequently contributes to the overall negative perception about the work being done in the region. Thus, according to the research done by FL Technics’ team last year, over 86 percent of the operators in the Eastern Europe and the CIS are generally or partially unhappy with their current MRO providers. The component-related solutions carry the largest opportunity for improving customer satisfaction (over 80 percent of respondents said that they were not fully satisfied with the support), followed by the heavy maintenance works (65 percent), engine support (60 percent) and line maintenance services (40 percent). However, it should be pointed out that the latter are mostly being performed in-house or by long-standing partners.

“Such dissatisfaction with the services in the segment certainly contributes to the very specific dynamics in the MRO segment of the region. On the one hand, it indicates a very stiff competition among the local MROs, as many carriers tend to change their providers pretty often (short-term contracts currently seem to be dominating the maintenance support segment), and it is difficult to secure long-lasting relationships,” says the CEO of FL Technics. “However, since more and more global players have started to expand into the region, the local providers are faced with the increasing necessity to improve the services provided, since they have to compete on a whole new level.”

OEM pressure

The already intense competition has in fact become even more acute. The OEMs which are exploiting the opportunity of fleet replacement in order to continue their expansion in the MRO market see the region as an additional source to recoup their investment in developing new technologies. Thus, because of the limited access to repair information in technical manuals for these new technologies, an increased pace of modification to key parts and the popularity of such long-term maintenance programs like Edge, GoldCare, or TotalCare, OEMs have successfully expanded and secured their business in the region.

Nevertheless, according to FL Technics experts, despite the fact that OEMs are taking an increasing share of the market, global MRO players are unlikely to reshape the MRO industry in the region in the near future. This has partly to do with the fact that the local players have been investing into the growth of their own capacity (good examples of which are the doubled capacity of AeroStar Romania, as well as AAR and FL Technics’ projects in Ulyanovsk, Russia and FL Technics’ new 8,000 sq m hangar in Kaunas, Lithuania) for quite a while now. Moreover, the local MROs have reacted to the changes in the environment by opting for consolidations or cooperation agreements with OEMs (e.g. FL Technics being Boeing’s GoldCare partner). Such partnerships have not only helped to raise competitiveness (and the resistance to the pressure from other market players), but also allowed the local providers to offer a larger scope of services and broaden the aftermarket support.

Labour challenges

One of the other reasons why the independent MROs in the region have been able to compete with some of the major players until now was definitely the fact that Eastern Europe has lower labour rates than in the West. However, the recent trends suggest that salary-wise things are inevitably going to change and the providers will face the need to offer something more than just competitive prices. At the same time, another labour-related challenge facing the industry is how to recruit, train and retain enough engineers to fulfill the current and future MRO demand, while ensuring that the engineers are trained to a sufficient standard and can offer the right experience.

“Currently every MRO provider in the region has to focus on a two-way strategy. First, they have to maintain the existing work force by providing continuous qualification updates, required to support and inspect the new technologies, engines and composite materials. Then they also need to develop new workforce solutions, as the global personnel deficiency problem hasn’t spared these parts,” says Zilvinas Lapinskas. “Of course, this could be perceived as a good thing. Bringing in new and younger people has specific advantages, as they are not burdened by any pre-existing behaviours as well as are generally cheaper to recruit. However, experience always counts and these newcomers may not always be as effective and efficient as fully competent staff. That is which is why they [the newcomers] require effective supervision and ongoing training.”

According to the executive, while in-house training is always the best approach, as it is a good way of securing the quality of your services, training decisions should be adapted to fit the needs and complexity of the organization. Thus, in some cases entering into training partnerships or leasing the personnel may prove to be more effective. “In general, flexibility, customer-oriented service and tailor-made solutions are probably amongst the best means to remain in the game in the region today, which is not so different from the global industry. The statistics show that clients don’t necessarily choose a bigger provider. It’s the performance that truly counts.”

About the Author

Anton Tisov | Avia Solutions Group