Global MRO industry needs to change tech trajectory

25 June 2015 Consultancy.uk

The MRO market is set to grow around $35 billion in the coming decade. However, as it grows, new technologies will transform revenue streams in the background, a recent report from Oliver Wyman finds. These changes will be in, among others, predictive maintenance and new maintenance technologies. Disruptive technologies, like additive manufacturing, could also come in to play and radically change an industry that still lacks a drive to innovate.

In a recently released report, titled ‘Turning the Tide: a wave of new aviation technology will soon hit the MRO industry’, Oliver Wyman explores how technological advances in repair scheduling and disruptive technologies like additive manufacturing are set to change how the industry operates and spawns revenue streams. The report is based on a survey of 100 people, of which 46% are airline employees, 36% work for MROs, and 6% for OEMs.

MRO spending to rise

The MRO market is set to grow from $67.1 billion in 2015 to $100.4 billion by 2025, with the market dynamics within segments expected to undergo significant transformation. According to Oliver Wyman, technological advances could cut 15% to 20% of MRO spending from the aftermarket, and spawn new business models and revenue streams. In total, this would amount to a redistribution of $10 billion to $15 billion of value among current industry players and entice new competitors to enter. 

Technological development
The survey respondents believe that new repair technologies (58%) and predictive maintenance (48%) have the most potential to upset current market dynamics. Of lesser concern are ‘composite repair capabilities’ (26%) and ‘live maintenance through wearable and mobile tech manuals’ (26%). The lowest concern comes from additive manufacturing, 3D printing, which was listed by 13%.

MRO technological priorities

Predictive changes
Predictive maintenance has a considerable potential to transform the market by adding benefits of replacing parts before breakdowns occur. This decreases labour costs by reducing unscheduled repairs, out-of-service events, and costs for employee time-on-tools. One issue highlighted by the consulting firm, however, is that much of the data on aircraft maintenance requirements might, like passenger data, be in the hands of carriers, providing them with a considerable advantage in negotiating MRO agreements, as well as reducing the overall demand for MRO.

Wide open field of additive manufacturing

Additive technology
While data and the predictions from data are set to disrupt the market, other disruptions are also on the horizon, such as additive manufacturing. The survey shows that respondents are, however, not particularly phased by the coming of this technology, with only 1 in 5 saying that they expected the technology to affect the industry in the coming five years. Of the MROs only 11% think the technology will be good for their industry. As a consequence, few MROs are moving to engage with the technology, even in discussion. Over a third (34%) is not discussing the technology at all, while another 34% says they are engaged in internal discussion and assessment and for a quarter (24%) internal development is in progress.

Few MROs move on additive manufacturing

MRO industry innovation
Innovation with new technologies remains elusive under respondents. As many as 73% of MRO survey respondents indicate they attribute 10% or less of forecasted 2015 revenues to products and services stemming from internal MRO-related research and development conducted within the last five years.

The reasons for the low level of innovation are multivariate. However the most prominent reason (50%) is budgetary or capital availability, followed by the lack of risk taking that the new offering would improve on current best practice (44%). The total cost-vs.-benefit was seen as an issue for 44% while organisation resistance ranked fourth at 35%. Organisations do see that there is a need for change, with only 6% citing staying the same as a reason to not innovate.

Inhibitors of MRO innovation

Innovation in the industry does happen however, yet according to the respondents, such developments come in waves. Just over a third (39%) say innovation is periodical, while 27% say it is sporadically. One in five (21%) believes innovation happens because of OEM innovation, while 13% say that it occurs frequently.

The authors note however that the next wave might well be about to cusp: “For a business managed through incremental innovations, this is a rational approach. However, disruptive change will challenge management to think beyond standard practices and commit time and resources to successfully pick and choose technologies and develop beneficial business models. Within MROs, there is a need for clarity, purposeful analysis, and selection. The time for placing bets is now.”

MRO industry experiences innovation in waves

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BDO administrates Flybmi amid aviation industry turbulence

21 February 2019 Consultancy.uk

Around 400 jobs in the UK, Germany, Sweden and Belgium have been lost following the collapse of commercial airliner Flybmi. The administration, which will be overseen by professionals from BDO, constitutes the third failure of a commercial carrier since the start of 2019, with the industry having suffered from sustained turbulence for the duration of last year.

The initial 4 a.m. announcement informing customers that Britain’s longest-surviving airline, Monarch, had been placed into administration meant that many passengers arrived at airports only to find their flights cancelled and holiday plans inconvenienced, while many were left with no means of returning to the UK. Beyond the immediate ramifications, however, the collapse of Monarch also drew to a close six years of steady improvement for commercial carriers across the world. 

Since the economic shock of 2011 – an echo of the 2008 financial crisis – the number of commercial airlines falling into administration across the world declined at a relatively consistent rate. According to data from ProtectMyHoliday.com – barring an anomaly of a year which saw only four airlines falter in 2014 – the number of collapses in the sector declined continuously. In 2017, the figure stood at just 10, compared to a huge 46 in 2011, and a  staggering 61 in 2008.

Global number of airlines to have failed since 2005

Following Monarch’s precipitous fall, however, the situation once more seems to have commenced a nose-dive in the following year. 15 airlines failed in 2018, and less than two months into 2019, another three have followed suit. That puts 2019 on pace to reach 24 airline collapses. 

The latest of these firms to spiral into administration is Flybmi, an East Midlands-based airline which until February operated 17 regional jet aircraft on routes to 25 European cities. The company operated more than 600 flights a week from regional airports including Bristol, Newcastle, Aberdeen and the East Midlands.

News of the firm’s demise emerged as it cancelled hundreds of flights at short notice over the space of a single weekend, leaving many passengers stranded and out of pocket. Flybmi advised customers to seek refunds from credit and debit card companies, or to rebook with other airlines, before eventually appointing administrators from professional services firm BDO.

The appointment, initially reported by UK paper The Telegraph, came following a weekend of chaos, with passengers and staff desperate for information, but without an administrator to turn to, as authorities had remained tight-lipped on the matter. The process was reportedly delayed until the following Monday by a Scottish law which prevents insolvency specialists being appointed over the weekend.

Turbulence ahead

Commenting on the task at hand, BDO Business Restructuring Partner and joint administrator Tony Nygate said, “As joint administrators, we are taking all necessary steps to ensure customers, staff and suppliers are supported through the administration process. Our job is to maximise recoveries and minimise distress for all parties, acting as smoothly and swiftly as possible.”

Administrators from the firm now face questions over what preparations were in place prior to the carrier’s collapse, including actions that could have softened the blow for thousands of stranded passengers. Meanwhile, some 376 employees in the UK, Germany, Sweden and Belgium have been made redundant, with the remainder staying to assist with the administration. Unions have since demanded urgent talks with Flybmi’s administrators, with Unite, which represents about 40 of the airline’s 376 staff, calling for a buyer to be found in order to ensure wages are paid in full.

Unite Regional Secretary Paresh Patel told the press, “Unite is shocked and saddened by the news that Flybmi has gone into administration…  This is a terrible blow for the airline’s workforce and their families, as well as the East Midlands economy. We will be giving maximum support to our members who work for the airline across the UK at this very difficult time for them.”

The Brexit process seems to have played a key role in the downfall of Flybmi. Airlines are required by law to purchase carbon credits to offset their carbon emissions – something which until recently was subsidised through a free allocation of credits by European authorities. Now, however, Brussels has excluded UK firms from their allocation of credits ahead of the UK’s divorce from the EU in March, and it is anticipated that this may  well lead to more casualties in both the airline industry, and the broader British economy.

Glen Flannery, a Partner at law firm CMS, told The Telegraph, “The European Commission has started to implement its No Deal Brexit contingency plans. With effect from January 1st, it has temporarily suspended the UK’s free allocation of carbon allowances, auctioning, and the exchange of international credits. This has created a huge amount of uncertainty for UK participants, the full effects of which have yet to play out.”