The MRO Demand Challenge

Investment Rating - The MRO industry is rated positively, with expectations of continued financial performance improvement and increased investment activity over the next two years [7][8]. Core Insights - The MRO industry has fully recovered from the COVID-19 pandemic, with spending forecasted to reach $120 billion in 2024, a 7.2$156 billion [4][5]. - Key disruptors identified include material shortages, labor and material cost management, and the adoption of generative AI [10][12]. Demand and Market Trends - The MRO market reached over $114 billion in 2024, with a forecasted increase to$120 billion in 2025 due to factors like aging fleets and increased aircraft utilization [4][67]. - The MRO sector is experiencing a "super cycle" driven by higher maintenance needs of an aging fleet [67]. Business Climate - 68% of survey respondents believe the financial performance of the MRO industry improved over the past year, with 72% expecting continued improvement [7]. - Nearly three-quarters of respondents anticipate increased outside investment and deal activity in the next two years [7]. Investment Segments - Engines are expected to attract the most investment, followed by components and heavy airframes [8]. - The engine segment is favored due to pronounced supply chain challenges and better margins compared to labor-intensive segments [8]. Disruptors - Material shortages emerged as the top disruptor, followed by labor and material cost management [10]. - Changes to fleet plans and the adoption of generative AI are also significant disruptors [12]. Supply Chain Challenges - Supply chain issues persist, with over half of respondents expecting challenges to last at least another 18 months [15]. - Two-thirds of respondents indicated a need for improved supplier performance and inventory availability to regain confidence in the supply chain [16]. Material Cost Inflation - Material costs increased by an average of 7.7% last year, with expectations of a 6.3% rise next year [18][19]. - The MRO/OEM segment experienced slightly higher cost increases compared to operators [18]. Labor Market Dynamics - Labor supply remains strained, with wage inflation reported at 6.6% last year, and a projected slowdown to 5.7% next year [30][31]. - The shortfall of certified mechanics in North America is expected to grow to 19% by 2028 [33]. Labor Productivity - Over half of respondents reported improvements in frontline labor productivity, driven by better training and communication [38]. - MROs/OEMs reported slightly better productivity gains compared to operators [38]. AI Adoption - AI adoption in the MRO industry is increasing, with 64% of respondents reporting value realization from AI investments [54]. - The focus of AI applications includes cost management, efficiency, and materials forecasting [58][59]. Conclusion - The MRO industry is on a growth trajectory, surpassing pre-COVID levels and expected to exceed $150 billion in the next decade [67][68]. - Challenges remain in material and labor cost inflation, supply chain weaknesses, and labor supply constraints, but strategies are being implemented to enhance productivity and embrace AI [68].