In the past five years, the Airline industry in China has been growing at an annual rate of 15% to total $90.4 billion. The china market noticed a slowdown in 2008 and 2009 due to global economic crisis, and stricter security checks due to the Beijing Olympic Games. The Chinese market has three main airlines – Air China, China Eastern and China Southern, and Hainan Airlines. But there are 40+ domestic carriers, so there exists a fierce competition among airlines in China. Competition is not only direct, there are lot of in-direct competitions to  the Chinese market as a whole. For example, the competition is from other modes of transport like the high-speed rail between Beijing – Shanghai that began operations in 2011.

However, the economy recovered and demand for air travel rose strongly. According to the Civil Aviation Administration of China, the country’s air passenger traffic has reached 620 million. Comparatively, India’s Minister of Civil Aviation has noticed that in 2011 the national passenger traffic slightly topped 140 million only. Notice the huge gap?

China’s commercial aviation sector, the world’s second-largest in terms of air traffic and passenger turnover, has presented its maintenance, repair, and overhaul (MRO) market with new opportunities. Increased domestic aircraft utilization and larger fleets positively influence the local market. Better infrastructure and support services over a wide product system have allowed the migration of maintenance activities to China, further adding impetus to the fastest-growing MRO market in the world.

According to Aerostrategy, ”The size of the global air transport MRO market is expected to reach $53.5 billion in 2012. This compares to $50.9 billion in 2011. North America leads the global market with $16.6 billion, china stands at number four with $4.2 billion”. The chart below explains the MRO market share.

New analysis from Frost & Sullivan, China Commercial Aircraft and Engine MRO Market Opportunities, finds that the market earned revenues of over US$2.66 billion in 2011 and estimates this to reach US$6.39 billion in 2020.

Frost & Sullivan Industry Analyst Reshma Bhandary says that ”Currently, 28 percent of the MRO work is sourced to companies outside China,” said . However, the trend is expected to reverse as the country’s MRO service providers expand their capabilities and capacities.

Aircrafts in service will be the major source of revenue, as Chinese airlines prefer to contract their maintenance work to domestic suppliers. New heavy maintenance bases in China’s secondary cities are also growing popular, saving end users the associated costs of positioning flights.

The top four airlines own MRO facilities or operate through joint ventures. Winning new business from these airline-associated MROs appears unlikely. Moreover, original equipment manufacturers (OEMs) seeking vertical integration have intensified competition.

For market entrants to be successful, they need to strategically position themselves early in the new airframe and engine MRO service space.

Focusing on the commercial aircraft engine front, which is the second-largest sub-market by revenue, could be rewarding in the long term. The engine MRO market’s lower reliance on labor rates will also reduce costs and supplement revenue.”

Reports from Aerostrategy (refer charts below) and Frost & Sullivan study confirms that MRO industry is on a steady rise and China is going to lead the annual growth table compared to all other regions.

MRO players – the focus IS ‘China’.

Author: Karthick Prabu