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    Investigate The Global Fleet Recovery Post-COVID

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    Pandemic reshapes the MRO market, with shifts in demand

    Brian Prentice and Tom Cooper

    25 min read

    Table of Contents

      Before COVID-19, the global fleet and industry at large had been on a positive trajectory. As this decade begins, the industry faces more uncertainty than it has in more than 20 years
      Tom Cooper, Vice President, Oliver Wyman Vector

      Before COVID-19, the global aviation industry enjoyed 10 years of steady growth, especially in the latter half of the decade when low jet fuel prices boosted profitability. However, as this decade begins, the industry is facing its greatest uncertainty in over 20 years, starting with the disruption caused by the pandemic.

      In this episode of the Velocity Podcast, industry experts Tom Cooper and Brian Prentice discuss the implications for the maintenance, repair, and overhaul (MRO) market as signs of recovery begin in 2021 and over the next decade.

      The 2021-2031 edition of our Global Fleet And MRO Market Forecast Commentary reflects on over 20 years of dedication to understanding the commercial airline fleet and MRO market outlook. It serves as a key resource for aviation executives, manufacturers, operators, aftermarket providers, and those in financial sectors such as private equity and investment banks.

      Key talking points:

      • How the pandemic caused a 24 to 36-month setback for the MRO industry.
      • Narrow-body aircraft will dominate future fleet growth, while wide-body aircraft production will decline.
      • Labor shortages and new technology will challenge MRO providers in the coming years.
      • By 2030, MRO demand is expected to reach $115 billion, 15% below pre-COVID projections.

      This episode was first broadcast in May, 2021.

      This episode is part of the Velocity Podcast series, which delves into innovation in transportation, travel, and logistics. We discuss new mobility’s impact on global movement of people and goods, and address industry challenges from tech and economic disruptions.

      Subscribe for more on: Apple Podcasts | Spotify | Youtube

      Brian Pentice

      The pandemic has really hit different sectors of the aviation market differently.

      Narrator

      Welcome to the Velocity Podcast by management consulting firm Oliver Wyman. Join Tom Cooper and Brian Prentice for this episode where they discuss the implications to the MRO Market as we start to see signs of recovery in 2021 and over the next 10 years. Thank you and enjoy the show.

      Brian 

      Hello everyone and welcome to the Velocity Podcast. I'm Brian Prentice, a partner in the transportation practice at Oliver Wyman. And joining me today is my good friend and colleague Tom Cooper, who's a vice president with our Oliver Wyman CAVOK Division. Tom, we have a really interesting conversation today around fleet forecast and MRO's survey we've done and I'm really looking forward to hosting this conversation with you.

      Tom Cooper

      I couldn’t agree more, Brian. We've got a great discussion planned and in today's episode we’ll be having a conversation around MRO demand, and critical market trends and their corresponding applications for airlines as the aviation industry emerges from the COVID-19 crisis and fall out.

      Brian

      Great. Thanks, Tom, looking forward to it. Why don’t we jump straight into the conversation? From all the work you and your team has done over the last year, could you talk a little bit about what are the implications for the MRO market as we start to see signs of recovery in 2021 and over the course of the next 10 years?

      Tom 

      Before COVID-19, the global fleet and industry at large had been on a very positive trajectory. And this was particularly true in the second half of the last decade when low jet fuel prices really enhanced profitability. As this decade begins, the industry faces more uncertainty than it has in more than 20 years, starting off with the destruction brought by the pandemic. The 10-year forecast period starts slowly, with growth picking up steam in the second half of 2022. After, the fleet finally recovered to its pre-COVID January 2020 level. Still, aviation MRO is not expected to catch up with pre-COVID projections by the end of the 10-year forecast period.

      Brian 

      Tom, looking at the numbers, it looks like at the end of 10 years, we're going to be about a year or two shy of previous projections, almost like the COVID-19 pandemic has really set the MRO industry back 24 to 36 months. As we think about the last decade of aviation and you said it earlier, you said low fuel prices, there was great growth of the middle-class, there was constrained capacity around the world. It really drove great profitability and great growth for airlines globally. As we look at the post COVID-19 pandemic world, do you see the growth returning for the MRO market? How do you see it really impacting, or maybe we won't get to the numbers that we saw before? But do you think the growth will be as strong year over year, coming out of the pandemic or once we're back into a normal level of activity for airlines?

      Tom

      The recovery is going to be very interesting as we come out of this incredible trough that we've experienced with covid in the significant drop in demand that took place. We're going to see a pretty steep recovery into the middle of the 10-year forecast period. And we'll achieve a level in MRO activity in the middle of the forecast, that's roughly on par with what we would expect in pre-COVID. But I think growth really flattens it out for the second half of the forecast period. And the growth is significantly less than it would have been pre-COVID in the second half. Over this 10-year period, we're going to see about 132 billion dollars less of MRO activity over the 10-year period than we would have pre-COVID.

      Brian

      Wow, is that driven primarily by utilization? Or is there a fundamental shift in the number and types of aircraft that are going to be operating around the world?

      Tom

      It's a fundamental shift in the fleet mix that we're experiencing. We're going to see growth rate for narrow body aircraft rise. And that's really coming at the expense of wide bodies. Popularity of narrow body aircraft is increasing, and this has been going on for some time now, as the capability of narrow-body aircraft has improved. They have longer range now. They have great seat mile economics and they've been just incredibly more versatile in their role in most airline fleets and have really fit the trend toward up gauging that many carriers have experienced. And, very good for low-cost carriers as well. We expect the trend toward narrow bodies to continue as airlines get realigned as a result of COVID-19.

      Brian

      I agree with you wholeheartedly. The story is narrow body seemed to really be the future of the operations and you can see that really in wide-body aircraft production. We’ve seen a significant decline because of COVID-19 impact on long-haul travel demand and really over the next ten years. We expect wide body production to be as much as 40% below what we saw pre-covid unless we get up faster than expected recovery in those long-haul routes. And really what this is going to do, and I think which is fascinating in an MRO respect, it’s going to accelerate that shift, like you said, we saw coming already were narrow bodies were going to take over. But narrow bodies are going to be predominantly fleet type in the global fleet in the next 10 years. Also, it's going to shift to newer technology, younger aircraft, new engine, new engine variants, and new technologies, which I think is also then going to drive a little bit of a different requirement for the MRO community. Tom, as you are thinking about what's going to happen as we make this shift into younger aircraft and narrow-body aircraft wide bodies aren't going to go away entirely. But we’ll definitely see extra-large variance, very large aircraft, and we saw some of those fleets parked and impacted very, very dramatically during COVID-19. What do you think that’s going to do both from an MRO perspective but also maybe from availability of used materials and long-term impact on the MRO market?

      Tom

      Yeah, your observations there on the wide-body fleet and retirement in general are dead on. There's definitely been spiking retirement as a result of the COVID cutbacks. We've seen entire fleets of wide body aircraft really in North America, and the western European market, you see airlines just basically retire entire fleets of wide-body. There will be a little bit of a delay as those aircraft enter that tear down cycle. But ultimately over the next couple of years, that material will flow into the pipeline and that USM will have a significant material price on those models.

      Brian

      I agree, it’s going to take a little bit for time for that USM to hit into the market. But there’s always another use for retired wide body or old aircraft is conversion into freighters, so, as you think about the mix and the shift of aircraft over time, do you think that this new supply of retired passenger aircraft for available for freighter conversion? Is it going to change the balance between the number of cargo aircraft and passenger aircraft? How do you think about that over the next decade?

      Tom

      Yeah, well, just in terms of sheer numbers, passenger aircraft dominate the fleet and that will continue of the more than 36,000 aircraft that we anticipate being in the fleet by 2031, 34,000 of those are going to be passenger aircraft. On the cargo perspective as measured by freight ton kilometers, they declined by 11% in 2020, but capacity was down 24%. And that's really a result of the reduction in passenger travel in 2020. Especially wide bodies on long-haul routes that have abundant amounts of belly cargo space which is typically offered to fly cargo and does move a lot of cargo in normal times. So, all of that capacity was taken out of the market as the international after traffic has declined. And so, the cargo carriers have had to pick that up and they are extremely busy right now. Cargo carriers are going to have a significant impact on global recovery, as we go forward. They are a key part of the vaccine distribution network. IATA has estimated that providing a single dose of vaccine to each person in the world would fill up 8,000,747 cargo aircraft. The number of cargo aircraft, now 9% of the fleet is expected to grow 2.4% annually over our forecast period which is on par with a 2.3% growth in the previous decade. Historically cargo growth has been concentrated in widebodies, but those aircraft will count for just about a third of the growth in cargo over the forecast period especially since narrow body aircraft enter cargo fleet in bigger numbers and really fill out the fleets of the e-commerce providers.

      Brian

      That’s super interesting, Tom, the pandemic has already hit different sectors of the aviation market differently. So, cargo operators are definitely flying more and seeing increase volumes cargo only operators. From a passenger perspective, it’s played out very differently, and we are starting to see the recovery play out differently as well. There are some domestic markets around the world that are already close to return to demand levels pre-pandemic and others aren't even halfway there yet. But one of the things that is common around the world is that international traffic is down and is down dramatically across all regions. Could you talk a little bit about how you see those regional trends emerging for the next couple of years? And then also, how does that impact the recovery forecast from the MRO perspective that we've made?

      Tom

      Sure. So, it’s a pretty complicated picture and they’re a lot of things driving that passenger demand recovery, there’s obviously the COVID epidemiological factors and how that's playing at around the world that are critical. Also, we have the product of that, our government restrictions that get put in place that really affect cross border travel as governments worry about importing COVID inspection into their own domestic populations. So, the way all that plays out over time is really going to affect the way the international demand recovers, but in regions where we have significant domestic travel, the recovery can be somewhat better, and that's China, a great example of that. China, in spite of the international restrictions, China is one of two regions that actually experienced growth 2020. And that was driven by their early success containing the virus and then their sizable domestic market. India, similarly, had some early success with the virus and grew during the COVID peak of 2020. The situation there has changed significantly, and we can expect India to be, to really struggle in their recovery in the near term as they go through a peak. North America and western Europe had a very difficult time in 2020. Western Europe, more so than North America, where we see government restrictions and restrictions on travel really, really affecting their recovery. North America did better domestically and is leading North America a little bit right now, but we really saw in both of in North America and western Europe, a significant contraction and a staggering number of retirements really, as North America and western Europe carriers realign their fleets for the pandemic and post-pandemic market. They really represent the bulk of retirements that we’ve been seeing in the world. Western Europe right now is only flying 77% of the fleet it was flying pre-COVID, much, much lower and they've had a low of 22% of the fleet flying in April 2020 and they still have more than 1,200 aircraft in storage. Eastern Europe is a much brighter story. They benefit from the low-cost carriers that are very well positioned and have been very successful in operating in the COVID environment. The Middle East is a very interesting situation, most all of their traffic is heavily weighted toward international flows. They were particularly hardened by the pandemic and the restriction on international travel and their recovery is going to be paced by government actions, for sure. And they're likely going to receive some significant financial support.

      Brian

      By region, by country, and by segment we’re seeing different rates of recovery around the world and definitely going to be a different trajectory for each one of these market segments. The good news is it’s still a pretty healthy market and by 2030 the MRO demand, anticipated to get back that 115 billion, a little bit less about 15% less than our pre-COVID estimates of about 135 billion for 2030. But these long-term decreases, we talked about earlier, lack the change in the underlying fleet and number of aircraft that are going to be operating out there. In the next couple of years, many of the aircraft that were either just delivered or will be delivered, are going to hit pretty expensive and pretty large maintenance events. And if we have an accelerated recovery or if things start to come back and OEMs can increase production rates slightly faster than we think now and we see some positive upside, MRO spend could go up a little bit and a prolonged recovery in a worst-case scenario, or maybe we think OEMs key production rates low and we have slower growth. The MRO spend could be as little as it may be a hundred and three billion by 2030, but that's really, not a huge range, given the way that MRO is structured and the requirements to keep aircraft operating, it still seems to be a very good, it's a strong, it's a robust market and a good time, good place for us all to be. As you think about the next decade, where do you think real opportunities could come from for folks in the MRO industry or in the MRO services to provide better services and opportunities for them and their customers?

      Tom

      Yeah, I think you're exactly right, Brian. Certainly, the environment is going to be challenged, and rates of growth will probably be less over the long-term than maybe we would have hoped pre-COVID. There is a lot of near-term recovery expected as we come out of the trough and that we experience last year and we see airlines restore fleets and flying schedules very, very quickly. So opportunity is really going to lie in MRO’s that focus on the fleets that we expect to see grow in the near-term and of course, you know, you are going to see your 737Max, A320s, Neos, 787s, A350s will really carry the bulk of the growth going forward.

      Brian

      Thanks Tom. You know one other topic that the MRO survey hit on this year and it’s something we’ve talked about over the last couple of years, is the availability of trained, skilled and effective labor around the world. During the pandemic, couple of things happened, right. As volumes dropped off for a lot of MROs, what we saw through our MRO survey was that most of the airlines and MROs did the best that they could not to reduce their labor workforces understanding that this work was going to come back. But one of the challenges as we look forward, is it there is a labor shortage on the horizon both in terms of just the pure number but also the skill sets that are going to be required to maintain the new younger and different technology fleet. As you take a look at that, are there any thoughts that you have around what can both industry and maybe even industry groups or individual operators or users of technical talent do to prepare for this upcoming labor shortage?

      Tom

      First off, the shortage is in many parts of the world is real and it will very quickly become a real impediment to the industry and meeting the level of growth that we expect. We need to prepare the workforce to work on the newer, more technical, more digital aircraft that are coming today. Just continued evolution in the training of curriculum that's been underway for some time now. The biggest thing we need to do is get a lot more proactive in taking control and stimulating the pipeline of AMT’s and we need to think about it differently to, you know. The work force today is overwhelming male and it's not terribly diverse. We need to think about really, you know, our efforts toward inclusion and diversity as a means to increase the population from which we pull folks into the AMT profession. If we start to think about inclusion and diversity, as a way to meet this labor challenge then that really can be the key to unlocking a huge supply of technicians that we’re not, quite frankly, just not reaching out to today.

      Brian

      Couldn't agree more, Tom. As I think about the next decade in this conversation, there's a lot of challenges that are going to be facing the market from a shift in the types of aircraft, in the number of aircraft, the labor challenges, just challenges with a very uneven recovery around the world, but the market itself is going to be strong and it's going to continue to grow and I'm excited to see how history responds to that. Tom, thanks for a great conversation today. We've covered a very wide range of topics on our episode. All these topics are covered in our 2020 to 2030 Global Fleet and MRO forecast that can be found at Oliverwyman.com. On the website there's an interactive dashboard that lets users explore the results of the forecast in a deeper fashion. So, to further complement this report and a little bit more look into the data that we have, users can take a look at the size, growth and share of the Global MRO Market, while also filtering by aircraft class and within specific MRO segments, and regions. I definitely would encourage you to visit the website and work on that interactive dashboard to answer any of your own individual questions.

      Tom

      Yeah. Thanks, Brian. And additionally, I would like to mention to our listeners, you can download the full MRO forecast report and have a deep dive into where, how, why, the fleet MRO demand will expand over the coming decade. And I’d like to thank all our listeners at home for joining us on the show. If you have any questions or comments on what we’ve discussed today, please write to us at Oliver Wyman on LinkedIn and Twitter.

      This transcript has been edited for clarity.

        Before COVID-19, the global aviation industry enjoyed 10 years of steady growth, especially in the latter half of the decade when low jet fuel prices boosted profitability. However, as this decade begins, the industry is facing its greatest uncertainty in over 20 years, starting with the disruption caused by the pandemic.

        In this episode of the Velocity Podcast, industry experts Tom Cooper and Brian Prentice discuss the implications for the maintenance, repair, and overhaul (MRO) market as signs of recovery begin in 2021 and over the next decade.

        The 2021-2031 edition of our Global Fleet And MRO Market Forecast Commentary reflects on over 20 years of dedication to understanding the commercial airline fleet and MRO market outlook. It serves as a key resource for aviation executives, manufacturers, operators, aftermarket providers, and those in financial sectors such as private equity and investment banks.

        Key talking points:

        • How the pandemic caused a 24 to 36-month setback for the MRO industry.
        • Narrow-body aircraft will dominate future fleet growth, while wide-body aircraft production will decline.
        • Labor shortages and new technology will challenge MRO providers in the coming years.
        • By 2030, MRO demand is expected to reach $115 billion, 15% below pre-COVID projections.

        This episode was first broadcast in May, 2021.

        This episode is part of the Velocity Podcast series, which delves into innovation in transportation, travel, and logistics. We discuss new mobility’s impact on global movement of people and goods, and address industry challenges from tech and economic disruptions.

        Subscribe for more on: Apple Podcasts | Spotify | Youtube

        Brian Pentice

        The pandemic has really hit different sectors of the aviation market differently.

        Narrator

        Welcome to the Velocity Podcast by management consulting firm Oliver Wyman. Join Tom Cooper and Brian Prentice for this episode where they discuss the implications to the MRO Market as we start to see signs of recovery in 2021 and over the next 10 years. Thank you and enjoy the show.

        Brian 

        Hello everyone and welcome to the Velocity Podcast. I'm Brian Prentice, a partner in the transportation practice at Oliver Wyman. And joining me today is my good friend and colleague Tom Cooper, who's a vice president with our Oliver Wyman CAVOK Division. Tom, we have a really interesting conversation today around fleet forecast and MRO's survey we've done and I'm really looking forward to hosting this conversation with you.

        Tom Cooper

        I couldn’t agree more, Brian. We've got a great discussion planned and in today's episode we’ll be having a conversation around MRO demand, and critical market trends and their corresponding applications for airlines as the aviation industry emerges from the COVID-19 crisis and fall out.

        Brian

        Great. Thanks, Tom, looking forward to it. Why don’t we jump straight into the conversation? From all the work you and your team has done over the last year, could you talk a little bit about what are the implications for the MRO market as we start to see signs of recovery in 2021 and over the course of the next 10 years?

        Tom 

        Before COVID-19, the global fleet and industry at large had been on a very positive trajectory. And this was particularly true in the second half of the last decade when low jet fuel prices really enhanced profitability. As this decade begins, the industry faces more uncertainty than it has in more than 20 years, starting off with the destruction brought by the pandemic. The 10-year forecast period starts slowly, with growth picking up steam in the second half of 2022. After, the fleet finally recovered to its pre-COVID January 2020 level. Still, aviation MRO is not expected to catch up with pre-COVID projections by the end of the 10-year forecast period.

        Brian 

        Tom, looking at the numbers, it looks like at the end of 10 years, we're going to be about a year or two shy of previous projections, almost like the COVID-19 pandemic has really set the MRO industry back 24 to 36 months. As we think about the last decade of aviation and you said it earlier, you said low fuel prices, there was great growth of the middle-class, there was constrained capacity around the world. It really drove great profitability and great growth for airlines globally. As we look at the post COVID-19 pandemic world, do you see the growth returning for the MRO market? How do you see it really impacting, or maybe we won't get to the numbers that we saw before? But do you think the growth will be as strong year over year, coming out of the pandemic or once we're back into a normal level of activity for airlines?

        Tom

        The recovery is going to be very interesting as we come out of this incredible trough that we've experienced with covid in the significant drop in demand that took place. We're going to see a pretty steep recovery into the middle of the 10-year forecast period. And we'll achieve a level in MRO activity in the middle of the forecast, that's roughly on par with what we would expect in pre-COVID. But I think growth really flattens it out for the second half of the forecast period. And the growth is significantly less than it would have been pre-COVID in the second half. Over this 10-year period, we're going to see about 132 billion dollars less of MRO activity over the 10-year period than we would have pre-COVID.

        Brian

        Wow, is that driven primarily by utilization? Or is there a fundamental shift in the number and types of aircraft that are going to be operating around the world?

        Tom

        It's a fundamental shift in the fleet mix that we're experiencing. We're going to see growth rate for narrow body aircraft rise. And that's really coming at the expense of wide bodies. Popularity of narrow body aircraft is increasing, and this has been going on for some time now, as the capability of narrow-body aircraft has improved. They have longer range now. They have great seat mile economics and they've been just incredibly more versatile in their role in most airline fleets and have really fit the trend toward up gauging that many carriers have experienced. And, very good for low-cost carriers as well. We expect the trend toward narrow bodies to continue as airlines get realigned as a result of COVID-19.

        Brian

        I agree with you wholeheartedly. The story is narrow body seemed to really be the future of the operations and you can see that really in wide-body aircraft production. We’ve seen a significant decline because of COVID-19 impact on long-haul travel demand and really over the next ten years. We expect wide body production to be as much as 40% below what we saw pre-covid unless we get up faster than expected recovery in those long-haul routes. And really what this is going to do, and I think which is fascinating in an MRO respect, it’s going to accelerate that shift, like you said, we saw coming already were narrow bodies were going to take over. But narrow bodies are going to be predominantly fleet type in the global fleet in the next 10 years. Also, it's going to shift to newer technology, younger aircraft, new engine, new engine variants, and new technologies, which I think is also then going to drive a little bit of a different requirement for the MRO community. Tom, as you are thinking about what's going to happen as we make this shift into younger aircraft and narrow-body aircraft wide bodies aren't going to go away entirely. But we’ll definitely see extra-large variance, very large aircraft, and we saw some of those fleets parked and impacted very, very dramatically during COVID-19. What do you think that’s going to do both from an MRO perspective but also maybe from availability of used materials and long-term impact on the MRO market?

        Tom

        Yeah, your observations there on the wide-body fleet and retirement in general are dead on. There's definitely been spiking retirement as a result of the COVID cutbacks. We've seen entire fleets of wide body aircraft really in North America, and the western European market, you see airlines just basically retire entire fleets of wide-body. There will be a little bit of a delay as those aircraft enter that tear down cycle. But ultimately over the next couple of years, that material will flow into the pipeline and that USM will have a significant material price on those models.

        Brian

        I agree, it’s going to take a little bit for time for that USM to hit into the market. But there’s always another use for retired wide body or old aircraft is conversion into freighters, so, as you think about the mix and the shift of aircraft over time, do you think that this new supply of retired passenger aircraft for available for freighter conversion? Is it going to change the balance between the number of cargo aircraft and passenger aircraft? How do you think about that over the next decade?

        Tom

        Yeah, well, just in terms of sheer numbers, passenger aircraft dominate the fleet and that will continue of the more than 36,000 aircraft that we anticipate being in the fleet by 2031, 34,000 of those are going to be passenger aircraft. On the cargo perspective as measured by freight ton kilometers, they declined by 11% in 2020, but capacity was down 24%. And that's really a result of the reduction in passenger travel in 2020. Especially wide bodies on long-haul routes that have abundant amounts of belly cargo space which is typically offered to fly cargo and does move a lot of cargo in normal times. So, all of that capacity was taken out of the market as the international after traffic has declined. And so, the cargo carriers have had to pick that up and they are extremely busy right now. Cargo carriers are going to have a significant impact on global recovery, as we go forward. They are a key part of the vaccine distribution network. IATA has estimated that providing a single dose of vaccine to each person in the world would fill up 8,000,747 cargo aircraft. The number of cargo aircraft, now 9% of the fleet is expected to grow 2.4% annually over our forecast period which is on par with a 2.3% growth in the previous decade. Historically cargo growth has been concentrated in widebodies, but those aircraft will count for just about a third of the growth in cargo over the forecast period especially since narrow body aircraft enter cargo fleet in bigger numbers and really fill out the fleets of the e-commerce providers.

        Brian

        That’s super interesting, Tom, the pandemic has already hit different sectors of the aviation market differently. So, cargo operators are definitely flying more and seeing increase volumes cargo only operators. From a passenger perspective, it’s played out very differently, and we are starting to see the recovery play out differently as well. There are some domestic markets around the world that are already close to return to demand levels pre-pandemic and others aren't even halfway there yet. But one of the things that is common around the world is that international traffic is down and is down dramatically across all regions. Could you talk a little bit about how you see those regional trends emerging for the next couple of years? And then also, how does that impact the recovery forecast from the MRO perspective that we've made?

        Tom

        Sure. So, it’s a pretty complicated picture and they’re a lot of things driving that passenger demand recovery, there’s obviously the COVID epidemiological factors and how that's playing at around the world that are critical. Also, we have the product of that, our government restrictions that get put in place that really affect cross border travel as governments worry about importing COVID inspection into their own domestic populations. So, the way all that plays out over time is really going to affect the way the international demand recovers, but in regions where we have significant domestic travel, the recovery can be somewhat better, and that's China, a great example of that. China, in spite of the international restrictions, China is one of two regions that actually experienced growth 2020. And that was driven by their early success containing the virus and then their sizable domestic market. India, similarly, had some early success with the virus and grew during the COVID peak of 2020. The situation there has changed significantly, and we can expect India to be, to really struggle in their recovery in the near term as they go through a peak. North America and western Europe had a very difficult time in 2020. Western Europe, more so than North America, where we see government restrictions and restrictions on travel really, really affecting their recovery. North America did better domestically and is leading North America a little bit right now, but we really saw in both of in North America and western Europe, a significant contraction and a staggering number of retirements really, as North America and western Europe carriers realign their fleets for the pandemic and post-pandemic market. They really represent the bulk of retirements that we’ve been seeing in the world. Western Europe right now is only flying 77% of the fleet it was flying pre-COVID, much, much lower and they've had a low of 22% of the fleet flying in April 2020 and they still have more than 1,200 aircraft in storage. Eastern Europe is a much brighter story. They benefit from the low-cost carriers that are very well positioned and have been very successful in operating in the COVID environment. The Middle East is a very interesting situation, most all of their traffic is heavily weighted toward international flows. They were particularly hardened by the pandemic and the restriction on international travel and their recovery is going to be paced by government actions, for sure. And they're likely going to receive some significant financial support.

        Brian

        By region, by country, and by segment we’re seeing different rates of recovery around the world and definitely going to be a different trajectory for each one of these market segments. The good news is it’s still a pretty healthy market and by 2030 the MRO demand, anticipated to get back that 115 billion, a little bit less about 15% less than our pre-COVID estimates of about 135 billion for 2030. But these long-term decreases, we talked about earlier, lack the change in the underlying fleet and number of aircraft that are going to be operating out there. In the next couple of years, many of the aircraft that were either just delivered or will be delivered, are going to hit pretty expensive and pretty large maintenance events. And if we have an accelerated recovery or if things start to come back and OEMs can increase production rates slightly faster than we think now and we see some positive upside, MRO spend could go up a little bit and a prolonged recovery in a worst-case scenario, or maybe we think OEMs key production rates low and we have slower growth. The MRO spend could be as little as it may be a hundred and three billion by 2030, but that's really, not a huge range, given the way that MRO is structured and the requirements to keep aircraft operating, it still seems to be a very good, it's a strong, it's a robust market and a good time, good place for us all to be. As you think about the next decade, where do you think real opportunities could come from for folks in the MRO industry or in the MRO services to provide better services and opportunities for them and their customers?

        Tom

        Yeah, I think you're exactly right, Brian. Certainly, the environment is going to be challenged, and rates of growth will probably be less over the long-term than maybe we would have hoped pre-COVID. There is a lot of near-term recovery expected as we come out of the trough and that we experience last year and we see airlines restore fleets and flying schedules very, very quickly. So opportunity is really going to lie in MRO’s that focus on the fleets that we expect to see grow in the near-term and of course, you know, you are going to see your 737Max, A320s, Neos, 787s, A350s will really carry the bulk of the growth going forward.

        Brian

        Thanks Tom. You know one other topic that the MRO survey hit on this year and it’s something we’ve talked about over the last couple of years, is the availability of trained, skilled and effective labor around the world. During the pandemic, couple of things happened, right. As volumes dropped off for a lot of MROs, what we saw through our MRO survey was that most of the airlines and MROs did the best that they could not to reduce their labor workforces understanding that this work was going to come back. But one of the challenges as we look forward, is it there is a labor shortage on the horizon both in terms of just the pure number but also the skill sets that are going to be required to maintain the new younger and different technology fleet. As you take a look at that, are there any thoughts that you have around what can both industry and maybe even industry groups or individual operators or users of technical talent do to prepare for this upcoming labor shortage?

        Tom

        First off, the shortage is in many parts of the world is real and it will very quickly become a real impediment to the industry and meeting the level of growth that we expect. We need to prepare the workforce to work on the newer, more technical, more digital aircraft that are coming today. Just continued evolution in the training of curriculum that's been underway for some time now. The biggest thing we need to do is get a lot more proactive in taking control and stimulating the pipeline of AMT’s and we need to think about it differently to, you know. The work force today is overwhelming male and it's not terribly diverse. We need to think about really, you know, our efforts toward inclusion and diversity as a means to increase the population from which we pull folks into the AMT profession. If we start to think about inclusion and diversity, as a way to meet this labor challenge then that really can be the key to unlocking a huge supply of technicians that we’re not, quite frankly, just not reaching out to today.

        Brian

        Couldn't agree more, Tom. As I think about the next decade in this conversation, there's a lot of challenges that are going to be facing the market from a shift in the types of aircraft, in the number of aircraft, the labor challenges, just challenges with a very uneven recovery around the world, but the market itself is going to be strong and it's going to continue to grow and I'm excited to see how history responds to that. Tom, thanks for a great conversation today. We've covered a very wide range of topics on our episode. All these topics are covered in our 2020 to 2030 Global Fleet and MRO forecast that can be found at Oliverwyman.com. On the website there's an interactive dashboard that lets users explore the results of the forecast in a deeper fashion. So, to further complement this report and a little bit more look into the data that we have, users can take a look at the size, growth and share of the Global MRO Market, while also filtering by aircraft class and within specific MRO segments, and regions. I definitely would encourage you to visit the website and work on that interactive dashboard to answer any of your own individual questions.

        Tom

        Yeah. Thanks, Brian. And additionally, I would like to mention to our listeners, you can download the full MRO forecast report and have a deep dive into where, how, why, the fleet MRO demand will expand over the coming decade. And I’d like to thank all our listeners at home for joining us on the show. If you have any questions or comments on what we’ve discussed today, please write to us at Oliver Wyman on LinkedIn and Twitter.

        This transcript has been edited for clarity.

        Before COVID-19, the global aviation industry enjoyed 10 years of steady growth, especially in the latter half of the decade when low jet fuel prices boosted profitability. However, as this decade begins, the industry is facing its greatest uncertainty in over 20 years, starting with the disruption caused by the pandemic.

        In this episode of the Velocity Podcast, industry experts Tom Cooper and Brian Prentice discuss the implications for the maintenance, repair, and overhaul (MRO) market as signs of recovery begin in 2021 and over the next decade.

        The 2021-2031 edition of our Global Fleet And MRO Market Forecast Commentary reflects on over 20 years of dedication to understanding the commercial airline fleet and MRO market outlook. It serves as a key resource for aviation executives, manufacturers, operators, aftermarket providers, and those in financial sectors such as private equity and investment banks.

        Key talking points:

        • How the pandemic caused a 24 to 36-month setback for the MRO industry.
        • Narrow-body aircraft will dominate future fleet growth, while wide-body aircraft production will decline.
        • Labor shortages and new technology will challenge MRO providers in the coming years.
        • By 2030, MRO demand is expected to reach $115 billion, 15% below pre-COVID projections.

        This episode was first broadcast in May, 2021.

        This episode is part of the Velocity Podcast series, which delves into innovation in transportation, travel, and logistics. We discuss new mobility’s impact on global movement of people and goods, and address industry challenges from tech and economic disruptions.

        Subscribe for more on: Apple Podcasts | Spotify | Youtube

        Brian Pentice

        The pandemic has really hit different sectors of the aviation market differently.

        Narrator

        Welcome to the Velocity Podcast by management consulting firm Oliver Wyman. Join Tom Cooper and Brian Prentice for this episode where they discuss the implications to the MRO Market as we start to see signs of recovery in 2021 and over the next 10 years. Thank you and enjoy the show.

        Brian 

        Hello everyone and welcome to the Velocity Podcast. I'm Brian Prentice, a partner in the transportation practice at Oliver Wyman. And joining me today is my good friend and colleague Tom Cooper, who's a vice president with our Oliver Wyman CAVOK Division. Tom, we have a really interesting conversation today around fleet forecast and MRO's survey we've done and I'm really looking forward to hosting this conversation with you.

        Tom Cooper

        I couldn’t agree more, Brian. We've got a great discussion planned and in today's episode we’ll be having a conversation around MRO demand, and critical market trends and their corresponding applications for airlines as the aviation industry emerges from the COVID-19 crisis and fall out.

        Brian

        Great. Thanks, Tom, looking forward to it. Why don’t we jump straight into the conversation? From all the work you and your team has done over the last year, could you talk a little bit about what are the implications for the MRO market as we start to see signs of recovery in 2021 and over the course of the next 10 years?

        Tom 

        Before COVID-19, the global fleet and industry at large had been on a very positive trajectory. And this was particularly true in the second half of the last decade when low jet fuel prices really enhanced profitability. As this decade begins, the industry faces more uncertainty than it has in more than 20 years, starting off with the destruction brought by the pandemic. The 10-year forecast period starts slowly, with growth picking up steam in the second half of 2022. After, the fleet finally recovered to its pre-COVID January 2020 level. Still, aviation MRO is not expected to catch up with pre-COVID projections by the end of the 10-year forecast period.

        Brian 

        Tom, looking at the numbers, it looks like at the end of 10 years, we're going to be about a year or two shy of previous projections, almost like the COVID-19 pandemic has really set the MRO industry back 24 to 36 months. As we think about the last decade of aviation and you said it earlier, you said low fuel prices, there was great growth of the middle-class, there was constrained capacity around the world. It really drove great profitability and great growth for airlines globally. As we look at the post COVID-19 pandemic world, do you see the growth returning for the MRO market? How do you see it really impacting, or maybe we won't get to the numbers that we saw before? But do you think the growth will be as strong year over year, coming out of the pandemic or once we're back into a normal level of activity for airlines?

        Tom

        The recovery is going to be very interesting as we come out of this incredible trough that we've experienced with covid in the significant drop in demand that took place. We're going to see a pretty steep recovery into the middle of the 10-year forecast period. And we'll achieve a level in MRO activity in the middle of the forecast, that's roughly on par with what we would expect in pre-COVID. But I think growth really flattens it out for the second half of the forecast period. And the growth is significantly less than it would have been pre-COVID in the second half. Over this 10-year period, we're going to see about 132 billion dollars less of MRO activity over the 10-year period than we would have pre-COVID.

        Brian

        Wow, is that driven primarily by utilization? Or is there a fundamental shift in the number and types of aircraft that are going to be operating around the world?

        Tom

        It's a fundamental shift in the fleet mix that we're experiencing. We're going to see growth rate for narrow body aircraft rise. And that's really coming at the expense of wide bodies. Popularity of narrow body aircraft is increasing, and this has been going on for some time now, as the capability of narrow-body aircraft has improved. They have longer range now. They have great seat mile economics and they've been just incredibly more versatile in their role in most airline fleets and have really fit the trend toward up gauging that many carriers have experienced. And, very good for low-cost carriers as well. We expect the trend toward narrow bodies to continue as airlines get realigned as a result of COVID-19.

        Brian

        I agree with you wholeheartedly. The story is narrow body seemed to really be the future of the operations and you can see that really in wide-body aircraft production. We’ve seen a significant decline because of COVID-19 impact on long-haul travel demand and really over the next ten years. We expect wide body production to be as much as 40% below what we saw pre-covid unless we get up faster than expected recovery in those long-haul routes. And really what this is going to do, and I think which is fascinating in an MRO respect, it’s going to accelerate that shift, like you said, we saw coming already were narrow bodies were going to take over. But narrow bodies are going to be predominantly fleet type in the global fleet in the next 10 years. Also, it's going to shift to newer technology, younger aircraft, new engine, new engine variants, and new technologies, which I think is also then going to drive a little bit of a different requirement for the MRO community. Tom, as you are thinking about what's going to happen as we make this shift into younger aircraft and narrow-body aircraft wide bodies aren't going to go away entirely. But we’ll definitely see extra-large variance, very large aircraft, and we saw some of those fleets parked and impacted very, very dramatically during COVID-19. What do you think that’s going to do both from an MRO perspective but also maybe from availability of used materials and long-term impact on the MRO market?

        Tom

        Yeah, your observations there on the wide-body fleet and retirement in general are dead on. There's definitely been spiking retirement as a result of the COVID cutbacks. We've seen entire fleets of wide body aircraft really in North America, and the western European market, you see airlines just basically retire entire fleets of wide-body. There will be a little bit of a delay as those aircraft enter that tear down cycle. But ultimately over the next couple of years, that material will flow into the pipeline and that USM will have a significant material price on those models.

        Brian

        I agree, it’s going to take a little bit for time for that USM to hit into the market. But there’s always another use for retired wide body or old aircraft is conversion into freighters, so, as you think about the mix and the shift of aircraft over time, do you think that this new supply of retired passenger aircraft for available for freighter conversion? Is it going to change the balance between the number of cargo aircraft and passenger aircraft? How do you think about that over the next decade?

        Tom

        Yeah, well, just in terms of sheer numbers, passenger aircraft dominate the fleet and that will continue of the more than 36,000 aircraft that we anticipate being in the fleet by 2031, 34,000 of those are going to be passenger aircraft. On the cargo perspective as measured by freight ton kilometers, they declined by 11% in 2020, but capacity was down 24%. And that's really a result of the reduction in passenger travel in 2020. Especially wide bodies on long-haul routes that have abundant amounts of belly cargo space which is typically offered to fly cargo and does move a lot of cargo in normal times. So, all of that capacity was taken out of the market as the international after traffic has declined. And so, the cargo carriers have had to pick that up and they are extremely busy right now. Cargo carriers are going to have a significant impact on global recovery, as we go forward. They are a key part of the vaccine distribution network. IATA has estimated that providing a single dose of vaccine to each person in the world would fill up 8,000,747 cargo aircraft. The number of cargo aircraft, now 9% of the fleet is expected to grow 2.4% annually over our forecast period which is on par with a 2.3% growth in the previous decade. Historically cargo growth has been concentrated in widebodies, but those aircraft will count for just about a third of the growth in cargo over the forecast period especially since narrow body aircraft enter cargo fleet in bigger numbers and really fill out the fleets of the e-commerce providers.

        Brian

        That’s super interesting, Tom, the pandemic has already hit different sectors of the aviation market differently. So, cargo operators are definitely flying more and seeing increase volumes cargo only operators. From a passenger perspective, it’s played out very differently, and we are starting to see the recovery play out differently as well. There are some domestic markets around the world that are already close to return to demand levels pre-pandemic and others aren't even halfway there yet. But one of the things that is common around the world is that international traffic is down and is down dramatically across all regions. Could you talk a little bit about how you see those regional trends emerging for the next couple of years? And then also, how does that impact the recovery forecast from the MRO perspective that we've made?

        Tom

        Sure. So, it’s a pretty complicated picture and they’re a lot of things driving that passenger demand recovery, there’s obviously the COVID epidemiological factors and how that's playing at around the world that are critical. Also, we have the product of that, our government restrictions that get put in place that really affect cross border travel as governments worry about importing COVID inspection into their own domestic populations. So, the way all that plays out over time is really going to affect the way the international demand recovers, but in regions where we have significant domestic travel, the recovery can be somewhat better, and that's China, a great example of that. China, in spite of the international restrictions, China is one of two regions that actually experienced growth 2020. And that was driven by their early success containing the virus and then their sizable domestic market. India, similarly, had some early success with the virus and grew during the COVID peak of 2020. The situation there has changed significantly, and we can expect India to be, to really struggle in their recovery in the near term as they go through a peak. North America and western Europe had a very difficult time in 2020. Western Europe, more so than North America, where we see government restrictions and restrictions on travel really, really affecting their recovery. North America did better domestically and is leading North America a little bit right now, but we really saw in both of in North America and western Europe, a significant contraction and a staggering number of retirements really, as North America and western Europe carriers realign their fleets for the pandemic and post-pandemic market. They really represent the bulk of retirements that we’ve been seeing in the world. Western Europe right now is only flying 77% of the fleet it was flying pre-COVID, much, much lower and they've had a low of 22% of the fleet flying in April 2020 and they still have more than 1,200 aircraft in storage. Eastern Europe is a much brighter story. They benefit from the low-cost carriers that are very well positioned and have been very successful in operating in the COVID environment. The Middle East is a very interesting situation, most all of their traffic is heavily weighted toward international flows. They were particularly hardened by the pandemic and the restriction on international travel and their recovery is going to be paced by government actions, for sure. And they're likely going to receive some significant financial support.

        Brian

        By region, by country, and by segment we’re seeing different rates of recovery around the world and definitely going to be a different trajectory for each one of these market segments. The good news is it’s still a pretty healthy market and by 2030 the MRO demand, anticipated to get back that 115 billion, a little bit less about 15% less than our pre-COVID estimates of about 135 billion for 2030. But these long-term decreases, we talked about earlier, lack the change in the underlying fleet and number of aircraft that are going to be operating out there. In the next couple of years, many of the aircraft that were either just delivered or will be delivered, are going to hit pretty expensive and pretty large maintenance events. And if we have an accelerated recovery or if things start to come back and OEMs can increase production rates slightly faster than we think now and we see some positive upside, MRO spend could go up a little bit and a prolonged recovery in a worst-case scenario, or maybe we think OEMs key production rates low and we have slower growth. The MRO spend could be as little as it may be a hundred and three billion by 2030, but that's really, not a huge range, given the way that MRO is structured and the requirements to keep aircraft operating, it still seems to be a very good, it's a strong, it's a robust market and a good time, good place for us all to be. As you think about the next decade, where do you think real opportunities could come from for folks in the MRO industry or in the MRO services to provide better services and opportunities for them and their customers?

        Tom

        Yeah, I think you're exactly right, Brian. Certainly, the environment is going to be challenged, and rates of growth will probably be less over the long-term than maybe we would have hoped pre-COVID. There is a lot of near-term recovery expected as we come out of the trough and that we experience last year and we see airlines restore fleets and flying schedules very, very quickly. So opportunity is really going to lie in MRO’s that focus on the fleets that we expect to see grow in the near-term and of course, you know, you are going to see your 737Max, A320s, Neos, 787s, A350s will really carry the bulk of the growth going forward.

        Brian

        Thanks Tom. You know one other topic that the MRO survey hit on this year and it’s something we’ve talked about over the last couple of years, is the availability of trained, skilled and effective labor around the world. During the pandemic, couple of things happened, right. As volumes dropped off for a lot of MROs, what we saw through our MRO survey was that most of the airlines and MROs did the best that they could not to reduce their labor workforces understanding that this work was going to come back. But one of the challenges as we look forward, is it there is a labor shortage on the horizon both in terms of just the pure number but also the skill sets that are going to be required to maintain the new younger and different technology fleet. As you take a look at that, are there any thoughts that you have around what can both industry and maybe even industry groups or individual operators or users of technical talent do to prepare for this upcoming labor shortage?

        Tom

        First off, the shortage is in many parts of the world is real and it will very quickly become a real impediment to the industry and meeting the level of growth that we expect. We need to prepare the workforce to work on the newer, more technical, more digital aircraft that are coming today. Just continued evolution in the training of curriculum that's been underway for some time now. The biggest thing we need to do is get a lot more proactive in taking control and stimulating the pipeline of AMT’s and we need to think about it differently to, you know. The work force today is overwhelming male and it's not terribly diverse. We need to think about really, you know, our efforts toward inclusion and diversity as a means to increase the population from which we pull folks into the AMT profession. If we start to think about inclusion and diversity, as a way to meet this labor challenge then that really can be the key to unlocking a huge supply of technicians that we’re not, quite frankly, just not reaching out to today.

        Brian

        Couldn't agree more, Tom. As I think about the next decade in this conversation, there's a lot of challenges that are going to be facing the market from a shift in the types of aircraft, in the number of aircraft, the labor challenges, just challenges with a very uneven recovery around the world, but the market itself is going to be strong and it's going to continue to grow and I'm excited to see how history responds to that. Tom, thanks for a great conversation today. We've covered a very wide range of topics on our episode. All these topics are covered in our 2020 to 2030 Global Fleet and MRO forecast that can be found at Oliverwyman.com. On the website there's an interactive dashboard that lets users explore the results of the forecast in a deeper fashion. So, to further complement this report and a little bit more look into the data that we have, users can take a look at the size, growth and share of the Global MRO Market, while also filtering by aircraft class and within specific MRO segments, and regions. I definitely would encourage you to visit the website and work on that interactive dashboard to answer any of your own individual questions.

        Tom

        Yeah. Thanks, Brian. And additionally, I would like to mention to our listeners, you can download the full MRO forecast report and have a deep dive into where, how, why, the fleet MRO demand will expand over the coming decade. And I’d like to thank all our listeners at home for joining us on the show. If you have any questions or comments on what we’ve discussed today, please write to us at Oliver Wyman on LinkedIn and Twitter.

        This transcript has been edited for clarity.

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