The $41 billion worldwide market for the maintenance, repair and overhaul of commercially operated jet transports will expand at a compound annual growth rate (CAGR) of 4.8 percent over the next five years and then will taper off to 4.0 percent CAGR from 2012 to 2017, according to O&M's annual MRO Forecast. The increased MRO spend over the 10-year forecast period will be driven by fleet and utilization growth, solidifying labor rates in traditionally low-cost labor regions and continued significant increases in engine parts and overhaul costs. Increasing capacity, however, also will cause MRO unit costs to continue to decline, although not as steeply as in the past several years, according to TeamSAI and Ascend, the organizations that worked together to produce this year's forecast.

By 2012, the value of the MRO market for Western-built, commercially operated jet transports is expected to increase to $51.8 billion, and then to $62.9 billion by 2017. For purposes of the forecast, the market is divided into four sectors: heavy maintenance visits and modifications (HMV/mods); engine MRO; component MRO and line maintenance. Engine MRO represents, by far, the largest portion of the MRO market, accounting for $17.1 billion, or roughly 42 percent, of the total spend this year. That proportion is expected to remain steady over the next decade. Spending on engine MRO is expected to increase at a rate of 4.5 percent to 4.7 percent a year over the life of the forecast, reaching $21.6 billion in 2012 and $26.9 billion in 2017.

According to TeamSAI Executive Vice President David A. Marcontell, the ever increasing cost of OEM-made spare parts is a primary driver of rising engine overhaul costs. "That is the reason why everybody has been anxiously awaiting the real impact of Pratt's PMA effort," Marcontell said in reference to Pratt & Whitney's plan to manufacture high value, gas path and life-limited replacement parts for the CFM56-3. "What will really be interesting to see is whether the airlines will adopt them, whether they will use them with any great degree of application. If they do, that is going to have a fairly substantial impact on holding down" the growth rate of material price, he said. Pratt & Whitney plans to deliver the first gas path parts this year and the first life-limited parts in 2008 in a deal with United.

A contributing factor to the rise in engine MRO spending is that new technology engines, which utilize new and expensive alloys and coatings because they burn hotter, are more costly to maintain. But, as Christopher Doan, TeamSAI's president and chief executive officer, pointed out, the new engines stay on wing longer and are more fuel efficient so, despite the increased cost of maintenance, can have an overall positive impact on the cost of operations. "While costs are going up for the newer engines, the overall operating economy contributed to the airplane is positive," he said, "so there is an offset with the fuel side of the equation."

Airframe HMV/mods account for roughly $8.6 billion, or 21 percent, of the overall MRO market value. HMV spending is expected to grow at a compound annual rate of 4.7 percent through the next five years, and then to drop down to 3.6 percent CAGR for the second half of the forecast period as newer, less maintenance intensive aircraft are introduced into the worldwide fleet. Marcontell and Doan said the increased use of composites in newer aircraft is going to help keep airframe HMV costs down. "The technology we are seeing in airframes ... certainly is promising from the standpoint of reducing unit costs," said Doan, adding that new technology also will help keep component MRO costs in check.

Unlike with engine MRO, where the bulk of the cost is related to parts, more than two-thirds of the cost of an HMV is labor. Over the past few years, labor rates have been on the decline as financially troubled carriers have extracted concessions from their unions and increasingly outsourced labor-intensive airframe work to lower wage providers. But that situation is changing.

"We see that stopping and starting to move in the other direction as airline industry turns from red to black in terms of their financial performance," said Doan. "We are seeing a tremendous upward pressure on labor rates being charged in certain areas," he said. "Most notably, Europe is clearly pushing up into the $70 to $80 (an hour) range again. And, interestingly, China seems to be pushing upward in their rates... more in line with what the balance of Asia is seeing. Overall, I think we're going to see some leveling around the world in the next 10 years" as opposed to continued declines.

Doan and TeamSAI believe that the labor rate situation in China is being driven by increased demand for maintenance capacity and, to some extent, increased demand for qualified labor. "Not only does China have its own airplanes to maintain, but it has a lot of opportunity to maintain airplanes from other parts of the world. And as that (maintenance) capacity is tapped out, they have an opportunity to push (rates) upward," he said. If China-based MROs can demonstrate sufficient quality and turntime, they can take advantage of a tightening market and charge prevailing rates.

"The supply of licensed mechanics in both Europe and China is pretty tight," said Marcontell. "There have been a lot of incidences of MROs poaching licensed mechanics from each other and the guys bouncing around taking the best deal." In addition, labor rates in Europe also are being influenced by the value of the Euro and operator preference to keep aircraft MRO within the region