Private equity has been moving into the aviation maintenance, repair and overhaul (MRO) sector at a relatively slow pace but over the past five years, the speed of private equity investment in MRO companies in the USA has increased dramatically. This has accompanied, in part, increased exposure of funds to airline and lessor investments, which have both performed well for investors and opened the door to the aviation sector as a whole.
Since the turn of the year, three major PE investments have been made in maintenance service providers in the US, and the level of investment continues to expand. Previous trends suggest that this investment should take the usual path of flooding out from the USA to European, Chinese and Indian investors.
This is all very good news but there is a cloud on the horizon which investors should be wary of – rapidly increasing staff costs. The Aviation Technician Education Council (ATEC) published a report recently backing the long-standing view that Federal Aviation Administration (FAA) Airframe and Powerplant mechanic certificate holders are retiring faster than they are being replaced. In fact, the overall average for the USA is 15 qualified mechanics leaving the sector for every new entrant.
Successful MROs need to have a training program in place that has direct links to colleges and universities. This is not a new strategy; many highly successful aftermarket providers across the globe from ST Aerospace through to MTU and SR Technics have the training capability in place to secure their future without rapid increases in staffing costs. But the reality is that private equity companies have been investing of late in US based MROs that do not have an extensive in-house training capability and at lease one of these investments is seeing significant increases in staffing costs as demand for qualified staff reaches new heights. For investors the aviation aftermarket is, like any other part of the aviation sector, a minefield that if navigated correctly will reap significant returns – The investors are out there and it seems clear that they require guidance – More potential investor engagement is needed by the MRO sector.
