Global MRO industry to face staff shortages as aviation fleets grow

22 May 2017 Consultancy.uk

The global Maintenance, Repair and Operations (MRO) sector faces a combination of increased demand and a waning supply of personnel, according to new research from consulting group Oliver Wyman. The global fleet is expected to increase rapidly by 2027, while the average age of MRO technicians is far above average, resulting in a supply demand imbalance with the mid-term for the industry.

A new report from Oliver Wyman, titled ‘When Growth Out Weighs Capacity’, explores key trends and development in the maintenance, repair, and overhaul (MRO) sector of the aviation industry.

Potential aviation aftermarket disruptors

The MRO sector faces a number of challenges, according to Oliver Wyman's survey. Participants placed ‘changes in fleet plans and strategies’ as the number one issue (57% of respondents placed it within their top three) to warrant attention over the coming three years, followed by growth in OEM aftermarket presence (56%).

A labour shortage in the maintenance field was cited by 42% of respondents as a potential disruption that warranted the greatest attention, followed by ‘game-changing advancements in technology’ at 38% of respondents. The areas noted as of least concern were ‘lessors becoming more active in MRA selection’, cited by 10% of respondents, and ‘business impact from rising oil prices and interest rates’, at 16% of respondents.        

Global commercial air transport fleet forecast by aircraft type

The global aviation fleet is set to grow steadily over the coming decade, with global CAGR at 3.4%, and areas such as Asia-Pacific, seeing CAGR of 4.2%. The growing fleet – more than 10,000 planes by 2027 – is set to create considerable demand on a number of sectors, from pilots and cabin crew to steward the aeroplanes, to support and maintenance staff to keep them sky worthy.

The changes in the fleet are projected to see an increased number of vintage planes leave the global stock, with 1970s vintage set to fall to around 1,500 planes by 2027. However, the current estimates may vary considerably, with around half of respondents reconsidering the mothballing of stock – reasons cited include capacity opportunities (30%), improved economics of older aircraft (13%) given lower fuel prices, and the lack of availability of new aircraft (3%).

Forecast US commercial MRO maintenance technician demand and supply by year

A perfect storm is brewing however, with respect to MRO; the fleet size growth is coinciding with a retirement bulge, with the median age of workers in the sector standing at 51, nine years older than the median age in the rest of the economy. The consequence of the relatively older age of the workforce is that by around 2023 demand from the growing fleet will begin to outstrip waning supply, and, by 2027, the difference between supply and demand could hit 8,000 people.

US commercial MRO maintenance technician workforce by age

The sector is facing a number of challenges when it comes to attracting and training future technicians. 51% of respondents cite wages and benefits as a problem, while a lack of supply was cited as a difficulty by 71% of respondents. A further 49% cited heavy competition and the cost of housing staff near the aviation facilities. Cross-sector competition too was noted as an area of concern, with around 30% of those trained to be an aviation technician, moving into a different field.

Demand for maintenance technicians in the next three years

The consulting firm also asked respondents about their expectations for recruitment activities over the coming three years. The vast majority of respondents (64%) say that they plan to increase headcount of maintenance technicians, while around 23% say that they plan to maintain current levels of maintenance technicians – accounting for attrition from retirees. 10% of respondents will let their headcounts fall through attrition, while the remainder (4%) will do so through layoffs.

A spokesperson from the firm commented, “Given the looming labor shortage and failure to upgrade technology, Oliver Wyman sees a prospect for rising maintenance costs and an increase in turnaround times (TAT) for scheduled maintenance. In response, airlines are likely to retain more spare aircraft as a backup for potential servicing delays”

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High employment drives deals to access fresh talent

09 April 2019 Consultancy.uk

The UK continues to have a historically low unemployment rate, resulting in a tightening employment market and demand for recruitment services. The industry topped £12.3 billion last year, while valuations continued to rachet up. There were were 32 firm acquisitions in the recruitment services space last year, up significantly on the previous five-year average.

Labour markets globally are tightening, particularly in developed economies. At the same time, access to top talent is becoming increasingly difficult to source, as demand for that talent continues to rise. Higher demand has been one of the key drivers for acquisitions in the space. New analysis of the recruitment M&A market, from consultancy firm BDO, looks at current trends and future projections for activity in the segment.

The UK employment rate has grown considerably over the past decade, with the number of NEET decreasing, more women joining the workforce, and older people continuing to work, among other trends. Participation rates hit more than 75% in 2018, up from around 73% in 2014. The unemployment rate dropped to 4.1% last year, the lowest level in more than 40 years.

UK Recruitment Market

 

The recruitment industry has enjoyed strong growth over the same period, with revenues increasing from around £8 billion in 2014 to £12.3 billion last year. However, the growth rate for the industry is expected to stall for the coming years – the firm is projecting annual growth of 0.1% to 2024. The stall reflects deep seated uncertainties stemming from the future of the UK, from migration to internal employment in an increasingly uncertain future.

According to the firm’s analysis of market trends for UK listed FTSE recruitment companies, their performance over 2018 outperformed the wider FTSE market by a significant market during some months – the end-of-year uncertainty hit both recruitment and non-recruitment firms with relatively equal strength. The drop partly reflects market sentiment about the future of the UK.

FTSE Listed Recruitment Firms Average EV/EBITDA Multiple

 

The study also considered the multiples growth, average EV/EBITDA multiples, over the past year – which has shown considerable ups and downs. The yearly average multiple of 10.4x was above that of 2017’s 9.9x – although a 26% drop at the end of the year was significant. The drop was tied to the relative volatility in macroeconomic conditions affecting the globe, though another major contributing factor has been Brexit and political instability.

Global M&A

The global recruitment M&A market was particularly active in the UK, with 32 deals last year – a five-year high, and well above the 17 recorded for second-place US. Deal activity in the UK was focused on expertise and capacity in industrial and technical sectors, reflecting skills shortages in those segments. The US was largely focused on healthcare-related M&A, representing 25% of their market.

Overall, of the 92 deals in 2018 (a 21% drop on 2017) generalist firms were the most in demand, at 25% of the total, followed by education at 14% and engineering & construction at 13%. Software saw relatively low demand, at 2%.Investment into the UK by country

In terms of investments made into the UK, domestic investment continues to be the most dominant, accounting for 24 deals. Japan made three deals, although Brexit is seeing the country become increasingly nervous about investment. The US accounted for two deals. The longer-term trend shows that domestic investment is up on 2017, hitting the highest level in five years, while the US has reduced its M&A investment into the UK.

Commenting on the results, the firm noted, “The latest report shows the recruitment sector remains strong and continued to grow through 2018 despite facing many challenges. Notwithstanding the personalised nature of these services, the market continues to evolve, seeing traditional recruitment firms utilising available technology along with new entrants showcasing innovative platforms.”

Related: High UK employment masks troubled economy.