European MROs Consider Inflation, Potential India Investment

AMSTERDAM—Inflation, supply chain shortages and labor issues continue to challenge European MROs, but global investment opportunities and high maintenance demand are serving as a bright spot for aftermarket stakeholders. At Aviation Week’s recent MRO Europe event, MRO providers highlighted several key challenges and opportunities that could impact the region’s aftermarket in the near future.

The biggest pain point seems to revolve around inflation. “Depending where you are in Europe, especially in the eastern part, there has been a huge increase in labor cost concerning spare parts and these kinds of things. I think everybody raised prices everywhere,” says Sven Taubert, head of corporate strategy and market analytics at Lufthansa Technik.

Although Amman, Jordan-based MRO provider Joramco does not operate facilities in Europe, CEO Fraser Currie says it is still feeling much of the same inflationary pain. “One of the things we have in common [with European MROs] is we have had to adjust prices. There has been a lot of inflationary pressure,” he says. “We’ve had to have difficult midterm conversations with some legacy customers. There’s never a good time to give an operator bad news but we’ve had to bump prices up.”

Taubert says the Russia-Ukraine war has exacerbated issues by creating difficulties in obtaining material, such as titanium. “The European Union (EU) is quite involved in the sanctions [on Russia] and some of them could have a big influence on our industry, so [Lufthansa Technik] is quite involved in lobbying and explaining to EU parliament what these sanctions could mean for industry,” he says. “I expect this will be solved, but that could also have a huge impact concerning prices pushing up again, and that’s probably not where the airlines want to have it.”

Currie notes that Joramco has responded to raw material shortages by investing in raw materials and fabricating its own items.

At auxiliary power unit, engine parts and landing gear specialist Revima, the Russia-Ukraine war has impacted energy costs. “Energy is a significant cost factor, especially on our landing gear operation which consumes a lot of gas and electricity,” says Olivier Legrand, Revima Group president and CEO. “Certainly, material cost increases have also been an issue. None of us in the industry had energy costs baked into escalation clauses, so discussions have been difficult with some of our airline customers because we’ve had to explain the cost pressures we’re facing, and obviously they’re facing their own cost pressures.”

Joramco’s Currie and Piotr Kaczor, CEO of Avia Prime, noted that growing demand for MRO services and the industry’s current under-capacity are driving their companies to look at international investment opportunities. Currie says the situation has fueled its decision to build new capacity in Jordan, and Kaczor says Avia Prime is looking at geographic expansions in the Americas and Asia.

Legrand notes that Revima was nervous after opening a new Thailand facility in March 2020, but since the Asia-Pacific region’s recovery has ramped up, “the growth has been tremendous,” adding that the facility is now seeing three times the volume of work compared to 2022.

Each of the panelists acknowledged the industry’s massive growth potential in India, but they are approaching the market cautiously. “You can’t be blind and not see that huge market that will develop. Everybody’s seen those huge orders from IndiGo and Air India,” acknowledges Legrand.

“Having said that, when you look at the component business, and if you look, for example, at the landing gear market, those events happen every 10-12 years on the new generations,” adds Legrand. “You still have to have a business case to build capacity there, and even though there is a very strong push from the government in terms of Make In India, we don’t see a very mature market for the components that we repair until such time as the fleet has aged enough. We are looking, but we will be cautiously moving into that market—certainly not in a big way anytime soon.”

Lufthansa Technik’s Taubert says the aftermarket is ripe for investments in Europe, the Americas and Asia, but cautions that there will be a limit to expansion. “India is an interesting market. The numbers are pointing in the right direction and the government is taking steps in the right direction, but there are still huge challenges,” he says. “If you prioritize on a global scale, India is not currently at number one [for Lufthansa Technik]. But will that be the case next year or the year after? Maybe that’s changing a lot, because India is developing very fast.”

Taubert adds that companies looking at investment in India will want to consider smart strategies to account for the country’s culturally diverse environment. “I would say a joint venture is probably a good idea to adapt to the local culture and business environment, getting the right contacts and seeing how to deal with certain issues,” he says.