Asia Pacific Aerospace MRO A Long Term Bet for Investors, Says Frost & Sullivan

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Feb 02, 2010, 09:38 ET

SINGAPORE, Feb. 2 /PRNewswire/ -- The effect of the economic recession that has severely affected the aerospace industry is set to continue on MRO service providers going into 2010. The industry is expected to reach the bottom in the first half of 2010. The growth story after this period however should be robust.

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According to Frost & Sullivan's Asia Pacific Consultant of Aerospace & Defense Practice Soumyajyoti Basu, various factors are shaping the dynamics of the industry. "Airlines throughout the world are keeping strict control on their costs; there is substantial reduction in the maintenance activity of aircrafts. A large number of older aircrafts that require more maintenance activities have been grounded, magnifying the effect on the MROs."

He adds, "Going into 2010, we expect that airlines would once again increase their capacity. However, the increase would be more in the form of newer aircrafts that require less maintenance. Thus, MROs are not expected to regain their lost ground in this calendar year. There is also a huge pile up of inventory of parts with the MROs and the airlines, worth around 40 billion dollars. Hence, service providers and airlines would try to use this stock rather than going for fresh orders, thus affecting the third party MRO suppliers."

This practice of de-stocking and deferred maintenance is not sustainable. Therefore, in the middle to long term, MRO business will once again become extremely profitable.

"We don't expect any cut back on the MRO revenue predicted for 2019 which should be around 63 billion dollars. The present reversal in revenue means the CAGR for the ten-year period has to be revised up and is expected to be 4.5%," says Basu.

He continues, "Asia Pacific will record a comparatively higher growth stemming from all maintenance segments, the bulk of which will be driven by the engine segment. This is in part due to long term demand emanating from major economies in the Asia Pacific region that is expecting new aircraft deliveries from major OEMs such as Boeing and Airbus."

This provides excellent investment opportunities in the MRO field. According to Basu, MRO service providers that utilize this period to revamp their business model in anticipation for the future, building up capabilities to serve newer aircraft models, decreasing turnaround time and becoming green will be the ones to drive growth in the coming years.

"The prevailing low valuation in the industry also gives ample opportunity for Merger & Acquisition activities in the field, continuing the process of consolidation which started in 2001, decreasing operation costs in the MRO," he says.

He continues, "There is also an increasing tendency of OEMs getting into MRO activities and providing packaged deal in the sales market. This process will be serious competition for MRO service providers. This can be countered by providing one-stop MRO service points, which would be both cost efficient and convenient from the customer's point of view."

Moving into 2010, there are huge opportunities for growth in the market, promising high return on investments for service providers across the value chain. However, efficient strategy needs to be implemented in tapping the market.

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Carrie Low
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