Opinion: MRO Profitability Requires Tweaks

Take your pick of prognosticators, but 2024 may indeed be the year when airlines reach or exceed 2019 seat-miles flown. Greater utilization often begets an uptick in shop visits, and 64% of respondents to the Accenture Commercial Aerospace Insights Report see higher MRO spending emerging in 2024 into 2025. Throw in a bow wave of engine shop visits and the first set of scheduled checks for new engine programs, and industry analysts are expecting the commercial aftermarket to generate considerable top- and bottom-line growth for OEMs and Tier 1s alike. Things are looking up. They are also looking back.

Today’s MRO infrastructure and processes remain little changed from March 2020. The MRO segment around that time was on the cusp of investments to improve throughput and prepare for expanding fleets and initial shop visits of new-generation engines. Due to the COVID-19 pandemic, the resulting shutdowns and concomitant travel downturn, those planned investments in new capacity, parts planning, partner collaboration, shop digitization, workforce and analytics stayed just that: planned. Going forward, many MROs will look back to those plans. Others will extend them and target small but significant actions to capture the growth ahead.

MRO businesses work when they maximize on-time throughput at the lowest, most predictable cost. We can pull some well-understood levers to achieve these outcomes: utilization and life limits, workscope, shop capacity, service bulletin incorporation, labor, parts availability and contract terms, to name a few. These in turn must be choreographed within a global network of line maintenance, overhaul and component repair locations. While aftermarket providers have long understood these factors, they find themselves today seeking to operate at larger scale but vulnerable to rapid shifts in aftermarket demand and the supply of parts, labor and capacity. How we got here is an interesting and long story; more important is what needs to come next.

MRO businesses do not work when they stop making money. As the airline industry has diversified from national champions to mainline carriers to low-cost and ultra-low-cost carriers, the breadth of aftermarket offerings and contractual constructs has expanded to align with specific operator requirements. Customers have bought in to the notion of bespoke aftermarket contracts. But for providers, such custom arrangements drive complexity into aftermarket execution, adding cost through longer induction times, tailored workscopes and bespoke supply chain needs, resulting in misestimation and missed financial goals. Illuminating those hidden costs should be at the top of the wish list for any aftermarket provider.

Understanding contractual obligations is important. So is understanding assets. Gaining a better understanding of the configuration and condition of assets as they come into the shop can drive double-digit percentage improvements in shop cycle times. Yes, paper and manual data exchange persist in the aftermarket. But gaining even incrementally better insight into configuration, time, cycles and condition can take precious days and weeks out of maintenance intervals. Without establishing the technology, relationships, processes and contracts that underpin this insight, even the most generous increases in capacity will fail to generate their maximum returns.

Then there are the internal and extended supply chains. There is little that has not been written about performance and quality challenges within the supply base. While investor calls may focus on important efforts in supplier development, bulk purchasing and other initiatives, OEMs and independent aftermarket providers can also take important internal steps. Investment in capacity, shop tooling and people is important but requires maintenance providers to be confident in planned demand, supply and capacity to deliver the greatest return. Establishing this choreography of demand, supply and capacity is in the plans of many an OEM and aftermarket provider alike. It cannot come soon enough.

The aftermarket faces certain growth and the uncertain ability to grow at the pace, volume and cost customers will expect. Nearly all providers will take needed steps to invest in physical and human capital, but those steps alone may not be sufficient to generate the speed of throughput and insight needed to serve the aftermarket rebound predictably and profitably. These small nudges to improve contractual insight, increase asset configuration awareness and tighten supply chain coordination may well mean the difference between money spent on the aftermarket and money made in the aftermarket.

Craig Gottlieb is the managing director of Accenture’s aerospace and defense practice, focused on innovation in aftermarket services