Excruciating wait for MRO firms as hopes for earnings recovery turn into a pipe dream

The industry will remain challenging up to 2017.

The inevitability of change is beginning to weigh down struggling maintenance, repair and operations (MRO) firms, as structural changes and new planes continue to bring new problems to the companies.

According to a report by OCBC, the challenging market conditions are so severe and long-lasting, that it has not only affected perennial player SIAEC, but even Rolls-Royce is under pressure.

“Just last month, Rolls-Royce warned that it may cut its dividend to cope with spiraling costs and profit decline, said that its 2015 earnings will be at the low end of its guidance, noted weaker 2016 earnings outlook, and even suspended medium-term earnings guidance,” OCBC said.

Meanwhile, OCBC says the focus of these firms continue to be on streamlining business operations and executing cost saving measures.

“As newer aircraft and engines are designed to be cost efficient and minimize maintenance cycles, the aircraft MRO landscape has changed. Intervals between workshop visits have increased permanently, and while capacity growth was decent in CY15, the growth in aftermarket demand is not recording the same pace,” OCBC said.

Due to new aircraft, structural changes are likely to persist for the next 12-18 months before they are due to workshop visits again, said OCBC.

“The only encouragement we can draw from this headwind is that when these aircraft/engines are due for maintenance again, the amount of works to be performed on them may be heavier than if they were sent into the workshop earlier,” OCBC said.

“This means higher revenue per maintenance job. That said, we reiterate that the outlook of the MRO industry will remain challenging in CY16, and maybe even into CY17,” OCBC added.