M&A activity is not expected to return, with the region’s MROs instead pursuing partnership models to strengthen their market positions while they await a full recovery of the commercial aftermarket.
James Pozzi
Credit: Joramco
The Middle East’s MRO industry has long been driven by its three largest carriers—Emirates in Dubai, Etihad Airways in Abu Dhabi and Qatar Airways in Qatar—and as the recovery picks up, this dynamic is unlikely to change.
Yet many of their widebodies remain parked after more than 18 months and some older ones could be casualties of the sluggish lifting of long-haul travel restrictions. Etihad plans to stop flying Boeing 777-300ERs after this year while Qatar has retired all its remaining Airbus A330s and plans to retire its 777s over the next few years.
The region’s commercial aftermarket recovery is expected to play out somewhat slower than in other parts of the world due to ongoing travel restrictions and the reliance on widebody traffic. Aviation Week’s Fleet & MRO Forecast 2022 projects an overall aftermarket value of $7.8 billion for next year.
Maintenance demand from the big three airlines will likely remain strong but is shifting to some degree. For instance, demand for used serviceable materials is growing amongst the operators, and an area of possible consolidation is in the region’s parts segment.
For aftermarket providers, one pre-COVID-19 trend expected to continue is the formation of partnerships through joint ventures (JV), rather than MRO M&A activity, which has been relatively subdued in the Middle East over the past five years. Joramco, an independent based in Amman, Jordan, has been chief among those following the partnership model over the past year.
In 2021 alone, it has signed a string of partnerships with providers both inside and outside of the Middle East. These include a cooperation with Dubai-based VD Gulf to explore building additional hangar capacity for maintenance, aircraft painting and conversion services. More recently, it penned memorandums of understanding (MoU) with TAT Technologies regarding the servicing of aircraft heat transfer components and Airbus subsidiary Testia for capabilities related to fluid testing.
Lufthansa Technik Middle East, a Dubai-based subsidiary of the German MRO giant, was looking to address the perceived lack of local repair specialists and component capabilities by adding new repair services for 787 nacelles and GE90 thrust reversers.
In June 2021, Ziad Al Hazmi, Lufthansa Technik Middle East’s CEO, signed an MOU with Joramco to forge a partnership around nacelle MRO. During the crisis, Lufthansa Technik Middle East also signed a cooperation agreement with GMR Aero Technic in India and Al Hazmi said he is looking at other ways to expand.
The desire of MROs in the Middle East to expand beyond the region could be a key driver of any forthcoming M&A or JV activity. Abu Dhabi-based engine MRO specialist Sanad Aerotech has plans to grow outside of its home base by establishing a 15-year partnership with Ethiopian Airlines in Africa focusing on 737 and A320 auxiliary power unit (APU) maintenance. Over time, this could grow into a fully fledged JV with expanded capabilities for components and engine MRO.
The passenger-to-freighter (P2F) aircraft conversion boom is expected to be one of the key trends of the next few years and this could see further activity from companies looking to either add new capabilities or further expand on existing ones. Joramco is one company that stepped into this recently by signing an MoU with French MRO provider UUDS Aero to carry out P2F conversion work on Boeing 737-800 aircraft. UUDS will manage the supplemental type certificates for the aircraft modifications and supply modification kits.
Israel Aerospace Industries (IAI), an established global leader in this field, has further expanded its network of P2F JVs outside of Israel. Over the past year, the company has signed several partnership agreements. In Europe, it has partnered with MRO provider Aviatic to establish a maintenance facility in Siauliai, Lithuania, from 2022. From there it will offer aircraft maintenance and overhaul services, the conversion of 737NG passenger aircraft into cargo configuration, and the training, certification, and licensing of personnel. In Asia-Pacific, IAI entered terms with South Korea’s Incheon International Airport and local MRO provider Sharp Technics to form a conversion line for the 777. Meanwhile in Africa IAI has partnered with Ethiopian Airlines on a 767-300 conversion line.
And, in a landmark regional move reflecting the closer ties between the UAE and Israel following the signing of the Abraham Accords in 2020, IAI entered a partnership with Etihad Airways Engineering in August 2021 to provide P2F conversions of Boeing 777-300ERs.
