The Impact of COVID-19 on the Aviation MRO Industry

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When the COVID-19 pandemic started to emerge in late January 2020, no one even could even imagine the enormous consequences that would impact all industries and the lives of everyone globally. The aviation industry at this point was just slightly affected and was taking some preventive measures for flights to and from countries in Asia, while the virus was quietly spreading everywhere. Soon after, the world realized that the COVID-19 pandemic was already a reality in many countries and the numerous travel restrictions as never before has been implemented across the globe, with each nation taking individual actions to preserve its own domain. The lockdown swept across from east to west, heralding a condition in which no one was prepared for, with borders being closed and the air travel simply almost disappearing, leaving thousands of aircrafts grounded.

The International Civil Aviation Organization, ICAO, is continuously monitoring the flight impacts due to the COVID-19 pandemic as per the chart below, where it clearly notes the immense devastation of the sector, which started to shows a small sign of improvement, but still far from being an optimistic scenario. 

Operational impact on air transport
Figure 01 – ICAO Operational Impact on Air Transport
Figure 01 – ICAO Operational Impact on Air Transport

Figure 01 – ICAO Operational Impact on Air Transport

https://data.icao.int/COVID-19/, accessed on Sep 24, 2020

The aviation industry is only one of the many sectors affected by the pandemic crisis, which caused an unprecedented global economic recession, with millions of jobs lost and companies bankrupted. Such a situation contributes negatively to the very slow recovery of the aviation industry with many people and companies left without any budget for personal or business travels.

During the worst phase of the lockdown period, the commercial aviation industry had to re-plan all its businesses, including airports, airlines and services providers, among them the MRO providers. With the airlines struggling to adapt to the brutal cut in revenues, the MRO providers felt the first wave of impact in terms of delay in maintenance plans as the airlines had grounded a majority of their fleet. The immediate impact was very simple: no flights mean no maintenance needs, including spare parts sales which is one of the major revenue sources for the MRO providers.

Figure 1 shows that the recovery already started, which is a good sign, but it does not mean that all grounded aircrafts are returning to service. The current trend observed worldwide is that operations are being resumed with smaller aircrafts, with lower operational and maintenance costs, while wide body aircrafts are still suffering from a lack of demand and border restrictions.

With a slow recovery of the sector initiating in middle of this year, most of the MRO´s that had the slots full for several months ahead saw their customers cancelling or postponing their maintenance plans. The parts sourced to supply the old demand will be now accumulating dust on the shelfs for a longer period as demand will not return to what it was prior to the COVID-19 pandemic in a short and even in a medium-term basis. A study from the consulting firm, Oliver Wyman, analyzed that the MRO spending after the COVID-19 will be 45% lower in 2020, as per the chart below:

MRO spend

Figure 02 – MRO Spend Scenario by Oliver Wyman

https://www.oliverwyman.com/content/dam/oliver-wyman/v2/media/July_Update_Impact_of_COVID19_on_Commercial_MRO_2020.pdf, accessed on Sep 24, 2020

Furthermore, another study from the consulting firm Roland Berger presents three scenarios about the impact to the MRO industry caused by the pandemic crisis, as per the chart below, which ranges from a decrease of 51% to 67%.

https://img.rolandberger.com/content_assets/content_images/captions/rb_art_348_rethinking_aerospace_gt_8_image_caption_none.jpg

Figure 03 – MRO Spend Scenario by Roland Berger

https://www.rolandberger.com/ja/Point-of-View/How-the-COVID-19-crisis-is-expected-to-impact-the-aerospace-industry.html, accessed on Sep 24, 2020

It is important to observe that the aviation industry was in a consistent growth path worldwide since the last crisis in 2009, and 2020 would not be different as Figure 1 indicated in January and February, and the MRO market was supposed to follow the same pattern.

MRO Opportunities and Threats

The current crisis can be also be seen as an opportunity for the MRO companies as the maintenance demand may increase in a short term with airlines removing part of the fleet from a long-term parking period requiring immediate services. New opportunities have presented itself during the lockdown due to the conversion of passenger’s aircrafts into cargo aircrafts and medical aircrafts thus requiring the use of MRO´s for these services.

The fact is that the majority of the airlines are reviewing their plans for new aircrafts with a lower demand forecast for the coming months and even years, and are currently canceling or postponing orders with aircraft manufacturers like Boeing, Airbus and Embraer. This means that aircrafts that were supposed to be retired will continue to be in service for a longer period, and these older fleets usually demand more parts and services, and for other cases, the airlines will be simply retire aircrafts earlier, such as A380´s and Boeings 757 / 767 / 747 aircrafts. Another analysis from Roland Berger indicates three scenarios where the baseline pre-COVID-19 orders for new aircrafts will be drastically reduced in the next 10 years, and the chart below shows the worst-case scenario on the left side and compares with the baseline and other two scenarios in the right side, estimating that a considerable part of the fleet will be useless until 2022.

COVID-19 – How we will need to re-think the aerospace industry — Roland  Berger

Figure 04 – New Aircrafts Demand

https://www.rolandberger.com/ru/Point-of-View/COVID-19-How-we-will-need-to-rethink-the-aerospace-industry.html, accessed on Sep 24, 2020

The MRO companies may not have felt a very severe impact when compared to the airlines and aircraft manufacturers, but the recovery will not be easy anyway, once the airlines are returning with only part of the fleet in operation and will demand from MRO´s companies even more costs reduction for the services and parts provided. Furthermore, it is expected that airlines at this moment will no longer formalize previous plans for modifications, modernizations, interiors refurbishment, or any other non-essential maintenance activities, prioritizing only the mandatory tasks, thus denying the MRO companies a good source of revenue usually derived from such peripheral tasks.

Surplus of spare parts for some aircraft types may be a problem as hundreds or thousands of aircrafts may be retired earlier, being a common practice, the full disassembly of these aircrafts resulting in the parts derived being used for spare parts, thus creating a spare parts sales market that will be even more competitive. Nevertheless, it may be a positive scenario for the airlines in terms of prices and parts availability.

On the other hands, many airlines will continue operating older aircrafts and will demand spare parts for a product no longer manufactured which can create several difficulties for the MRO companies to source parts to keep these aircrafts in operation.

The biggest challenge for the MRO companies is their position in the market that depends on how the world and airlines are recovering from the crisis that currently has no visible deadline. In view of this, the MRO companies will need to be prepared to offer customers different alternatives and solutions in order to create a new partnership with these customers who are financially on the edge.

What to expect for the future

As with all businesses after the COVID-19 pandemic, the MRO industry will also need to improve the efficiency of their process and results, seeking for cost reduction and cutting back on everything that is not essential, without jeopardizing the safety and quality of its services to the aviation industry. Everything changed with COVID-19 and nothing is going to be the same, whether in businesses or in the daily life of the people. Cooperation and partnership between customers and MRO companies will be crucial for the success of both parties going forward.

At this point, without a vaccine and the economies worldwide trying to claw back to an acceptable “normal”, the recovery in the aviation market, especially for the MRO companies appears to have a light in the end of the tunnel, as more and more aircrafts are returning to the skies. It is still too early to be greatly optimistic as the challenges ahead are huge, with many airlines and MRO compnaies still relying on government support and airlines retiring its current aircrafts, and cancelling and postponing the deliveries of new aircrafts.

As per the examples presented, the demand will probably not revert to the same figures before the COVID-19 pandamic in the next years. The current restrictions have also made many different businesses and industries realize that virtual meetings and trainings can be also very effective and have a very low cost, which may result in less business travels resulting in a delay for the recovery of the industry.

While there are aircrafts still flying, parts and services will mandatorily be required. However, the MRO industry will have to rely on its creativity and competence to survive in the next upcoming months. Certainly, the companies that are able to manage and sustain themselves will have great opportunities left behind by others, and in the end the MRO market was and will continue to be a demanding and profitable niche.

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