Listen in as Aviation Week Network editors discuss MRO Middle East 2024 and share insights from the event.
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Transcript
James Pozzi:
Welcome to the MRO Podcast, I'm James Pozzi, MRO editor for the EMEA regions. And today we are talking about the Middle East region. I'm joined here today in Dubai by Lee Ann Shay, who is executive editor, MRO and Business Aviation, who also attended the MRO Middle East event with me in Dubai. And she joins me in a very swanky business center post show. And we're going to talk about some of the main topics that came up, some of the main trends and discussion points from the last two days.
Lee Ann, thank you for joining me today and welcome to the MRO Podcast.
Lee Ann Shay:
Thank you, James. Thanks for inviting me.
James Pozzi:
So the Middle East, let's talk about some of the biggest, or the main talking points from the last two days. Of course, the region generally is a hotbed of fleet growth and ambitious MRO activity, that's fair to say. What were some of your main takeaways, maybe starting with a specific area that you deciphered over the last couple of days?
Lee Ann Shay:
You bet. I think to put this into context, it's a growing fleet, like you said, in a growing region. There's about 1800 aircraft in the region this year and Aviation Week data forecasts that it will expand to 3300 in a decade. That's a lot of fleet growth, right? And right now the MRO market is $11.2 billion and it's supposed to grow at a 6.1% compound annual growth rate, so that makes it one of the fastest growing regions in the world.
And if you look at the fleet, you've got a lot of wide bodies here, you've got a lot of narrow bodies and a lot of aircraft orders. So they are managing the existing fleet and also ramping up with the new fleet, like the rest of the world. But I think some of the key topics that we've written about a lot and come up in other regions, workforce and supply chain is the same pains here as it is in other regions.
So James, what is your take?
James Pozzi:
Yeah, similar from what you were saying. Yeah, the fleet growth is interesting, there's a lot of anticipated aircraft coming in definitely. But you are correct, some of the same issues that we see in other parts of the world around supply chain, parts supply, that's impacted MRO providers, airlines in this region. And it's also interesting about how, I was talking about some of the new engine challenges with my panel and corrosion, obviously, is quite a unique challenge to this area, especially when related to engines, the environment and the sand and the damage that can do.
While we're on the topic of new aircraft, though, I think one of the interesting interactions I had yesterday was with Riyadh Air. Of course, the startup airline that is going to go into operation, or is scheduled to, in April 2025. I spoke with their CTO, Justin O'Donnell, who was on my capacity panel yesterday about the setup of the airline. And while it is still very much in that setup phase, there's some really exciting things coming along. So there's commitments and orders in place for up to 72 Boeing 787s, and, of course, a speculated large order for narrow bodies looks to be forthcoming this year. Likely the max, as reports suggest, I think.
So, yeah, it was set up as a second flag carrier, obviously, to Saudi Airlines last year. And they're in the process, of course, of establishing their MRO setup, which Justin is, obviously, overseeing. He believes they'll outsource pretty much a lot of their maintenance. And they, obviously, are looking to grow their team this year, it's quite a small team at the moment, around 12 I think he told me. But anyway, in terms of aircraft, it's going to lease its first 787 this year and that's to offset any potential Boeing delivery issues. And then, they're going to hope to work on that and hope to get initial operational capability by the end of this year [inaudible 00:04:16] the airline goes into enter service in April 2025.
But that's interesting because that airline of course is setting up in Riyadh and as it stands right now, there's a lot of announcements recently, especially at the Dubai air show last year and maybe not as many announcements as this event, but there there's a lot of activity to build that infrastructure in Saudi Arabia right now. That airline, of course, Riyadh Air, will be in Riyadh, the capital, but a lot of the MRO activity will actually be in Jeddah, the other big city in Saudi Arabia. So people seem to be setting up there a lot.
And, of course, central to this is Saudi Technic, which has a MIU, it's going to announce with GE Aerospace focusing on engine MRO. They've been prominent after their rebrand last year and their very large scale, MRO village has only just really started its growth and that's going to continue over the next how many years and just get bigger and bigger and they'll look to capture work, definitely. And I would not be surprised if more joint ventures are announced later this year or in the next few years, definitely, with that MRO.
And just one thing, as well, actually mentioning a Saudi joint venture, I spoke with Vallair, the CEO, obviously a French company, Gregoire Lebigot, and they're currently mulling where to place, they recently announced a joint venture, I think they announced it last November at the Dubai air show. Obviously, this will focus on narrow body MRO, aircraft assembly, component repair shops, aircraft painting, and full training, as well. Gregoire told me that this will basically mirror what [inaudible 00:05:47] doing in Châteauroux, and he said he's going to Saudi Arabia in April to look at potential airport locations, but he said it won't be in the big cities, i.e. Jeddah or Riyadh.
Of course, Châteauroux, where I've been before, that is very much in a quiet rural center of France and the countryside. So I think he's, obviously, he wants the Saudi Arabia location to mirror that in a way. But yeah, he thinks this is obviously during a few years, but he thinks the training school could be ready to go in the fourth quarter of this year because he says that's probably a bit more straightforward to set up compared to other operations, as well.
Lee Ann Shay:
Interesting. And like you said, Saudi, there's going to be a lot of growth as they push towards their 2030 initiatives.
James Pozzi:
Yeah, absolutely. The budget for Saudi Arabia to basically play with and spend is massive and they will definitely be aggressive in terms of how they approach the market and what they set up. But there is definitely a need there for an aviation infrastructure, not just MRO, we're talking about airports. The airline thing is a given, as well, but capability, as well. If we're looking at it from a solely MRO perspective, they need more capability. And I think the expansion of maybe the engine capabilities of Saudi Technic is an indicator of the need for that.
Lee Ann Shay:
So speaking of expanded capacity, the demand for MRO clearly exceeds supply here in the region, other parts of the world, too. But that really stuck out to me here in the Middle East. And Jaramco is adding a five bay hanger in the third quarter of this year and that links up with the expanded contract that they have with Ryanair. Ryanair now has signed for 10 lines of maintenance. The Mohammed bin Rashad Aerospace Hub at Dubai South is continuing to expand and they told me that they expect to break ground on five new hangars this year. And they also want to set up a technical training vocational school with a partner.
James Pozzi:
Absolutely. And that doesn't surprise me at all. And I think, correct me if I'm wrong, the leader of Dubai South was saying that the capacity is at such a shortfall at the moment in terms of even though they're building more, they expect to fill those facilities, correct?
Lee Ann Shay:
Yep, absolutely. And he said that they're also running out of land at Dubai South, so the MRO hangers are going to have to go up. They can't just keep going wide.
James Pozzi:
Yeah, because the danger eventually, and we've seen that in other countries, as well. You eventually become landlocked. People have said that about Singapore before. Parts have built up parts of the Philippines, for example. One prominent MRO operator there have said they've looked elsewhere in the country, or in the surrounding region, because it's landlocked. So yeah, it's always a possibility when you just build on mass and spread out, but you're in quite a confined smaller space.
But yeah, it's not uncommon in other parts of the world really to have a shortage of capacity, but they are crying out for more capacity in the Middle East, from regional repair providers arming themselves with capability.
Lee Ann Shay:
Fraser Curry from Dramco yesterday during a panel had mentioned that they have, they're operating from the same footprint as they did when they acquired Dramco back in the day. And they've just been really working on the efficiency of the hanger.
James Pozzi:
Yeah, doing it smartly. That's really important. And I think certainly MROs are looking at ways how to do that and do that effectively. Some to some great successes. Dramco are an example of that. I thought of something very interesting Fraser said, as well, actually on the topic of Dramco was that he talked about the importance of airlines looking for longer term maintenance. Having that plan in place, like Ryanair, and that agreement since it's formed was I think around five years ago, it has just grown and grown more lines of maintenance. And as you mentioned earlier, it's gone to 10 now and both parties seem really happy where that's going.
So yeah, I'd be interested to see if more maintenance maybe from Europe directed out maybe to the Middle East and gets undertaken here. You wouldn't see really why not, if it's feasible. That could be the case with Europe. Very much capacity constrained at the moment.
Lee Ann Shay:
Well, I'm glad you brought up the long-term contracts because whether it's supply chain workforce, that's another big thing. People need to be projecting and planning long term. There's certain AOGs, clearly you can't plan, but the more long-term planning you can do, the more effective it is for both the carrier and the MRO. And I think we heard that over and over again the last couple of days.
James Pozzi:
Yeah. From an airline point of view, I think one thing, the airlines I spoke to going into engines seems to be a PBH preference now, rather than time materials. They all just said whether it's leased or owned engines, they tend to favor PBH. So there's some reasons for that. But I thought that was quite interesting and that seems to be something I hear more and more of now wherever I go, that airlines are tending to favor the power by the hour approach.
Lee Ann Shay:
But if you think about the airline industry here in the Middle East is younger than in other parts of the world, but they have traditionally been more reliant on the OEMs. So now they've gotten bigger and bigger and we've got the supply chain issues, it'll be interesting to see if there is going to be a higher acceptance of alternative parts, PMA DRs, going forward.
James Pozzi:
Yeah, absolutely. Of course, you moderated a panel on that. It seems to me that there seems quite a lot of openness towards that, but what did you take from it as the moderator? Did you see that, as well?
Lee Ann Shay:
I did. And I think there is going to be more. There was a poll question and are carriers more willing to start looking for alternative parts? And the answer was yes.
James Pozzi:
Yeah, and that's interesting. It'll be interesting over the course of the year when in different regions how that PMA acceptance, maybe DER repairs, if that mirrors the attitudes in the Middle East because it did seem to vary depending on where you went and at what time you were there. Because maybe just after the pandemic there was maybe a little bit more openness to PMAs from airlines at the time.
I think parts in general though, one thing I've taken away, and we're seeing more and more of this, as well, and it's certainly the case in the Middle East, people are stocking higher inventories. Whether MROs, airlines even, which is really going against the wind of think four years ago during a word I don't like to use anymore, but COVID, when airlines were just selling off parts on masse to recoup money and revenues and to get a bit of that back out because, obviously, the bottom line was hit so hard by the pandemic.
So these mass sell-offs of entry to parts specialists were pretty common, but now they seem to be going the other way and stockpiling higher inventories really to mitigate against supply chain issues and not having the right part. Because if you end up with an AOG, it's one of the worst scenarios you can have in the industry, probably.
Lee Ann Shay:
Absolutely. And I agree with you, I heard more stocking, but even if it's not an AOG, maintenance checks.
James Pozzi:
Yeah, true.
Lee Ann Shay:
If you don't have the parts, you've got a longer turnaround time, you're not flying. Oh, Fly Dubai, they are upset with some of their suppliers, including Boeing from the Maxes and they said that they've got sometimes a two-year wait from their IFE supplier. Their seat, or was it the seats? Both the IFE and the seats had very long lead time. I think it might've been the seats that had a two-year lead time, but they do have their own MRO and they attributed that having that MRO gives them the flexibility to be able to reconfigure their aircraft.
So when they get a new aircraft from Boeing, they aren't relying on Boeing to put the seats and the interiors in. And because they can't get the first-class suites that they want to put in the aircraft because of the delays, they are now just filling some of those aircraft with economy seats. It's not ideal, but that gets the aircraft up in the air and it's generating revenue instead of sitting on the ground. But he was just saying enough, you can't just keep blaming COVID and supply chain. Do something.
James Pozzi:
Yeah, absolutely. Yeah. I think lead times are interesting. Jazeera Airways on my panel, although different from the seating angle and interior and cabins, they pretty much said the lead times are still a bit too long on engines, like parts and TATs. They might have smoothed over a bit, but they're just still way too long. And that seems to be the case, especially new engine programs at the moment. We all know the issues that the [inaudible 00:15:10] and GTF and CFM International Leap Engine are undergoing, but they're durability issues, of course, not technical issues. So there is some light there at the end of this.
So yeah, there's confidence that things will improve. But yeah, I definitely gathered from airlines over the last two days that TATs are still a bit too long.
Lee Ann Shay:
Absolutely. And one other thing that ties into two different things. I talked with Soisa Aircraft Interiors. They are based in Mexico, but they're also an interior supplier to Fly Dubai and a lot of the other airlines in the region. They provide the fabric covers for the seats and some curtains and some cushions, and they set up shop in Dubai and actually they are going to be having a grand opening for their facility that expanded by four times.
But they were saying just because of some of these things, you really do need to get close to your customers to shorten those turnaround times, be more responsive. And there's a sustainability angle to this, too. And unlike previous years when sustainability really didn't come up that often, other than maybe in some engine panels we attend, I heard sustainability and questions about the topic several times the last couple of days. Did you?
James Pozzi:
Yeah. Sustainability, definitely, it seems to be something, I'd say the United Arab Emirates, the UAE, is really going all in on at the moment that we've seen that in panel earlier. I think, generally, there's an infrastructure building here for that. And there's, of course, a lot of the things they invested and there's always a lot of ambition there to be the best or the world leader. So yeah, that seemed to crop up a lot more than other years, I'd say. Definitely.
Lee Ann Shay:
And just to wrap it up, I think the overall mood was not exuberant, but it was optimistic. I just felt like there was just a lot of deals, it was very business oriented. There weren't any huge announcements this week, but there was just a lot of activity, collaboration, just people looking for solutions.
James Pozzi:
Yeah, absolutely. I think we've seen it in even our time covering this event over the years that the industry here has matured rapidly. The capability, the engineering excellence, for example, they've really just improved and came on and some of the bigger players, especially, are very strong in their field.
So I think, yeah, that seems to be the case, but I'm not sure why. But I do think you are correct about the lack of the big announcements because there's always usually one or two really eye-catching releases coming out in previous years. But maybe there wasn't that blockbuster one this year, perhaps. But yeah, that's just, again, I'm not sure why that is, but that was quite noticeable.
Lee Ann Shay:
Exactly. But overall, a really good show and again, year-over-year growth and people were happy. It was, we're hunkering down and looking for solutions and collaboration.
James Pozzi:
Yeah, absolutely. And back to growth before we conclude. Yeah, it is all being driven ultimately by that fleet growth. There is a lot of demand here for new aircraft and everything that comes with that. There's growing fleets. That obviously means an MRO infrastructure. The things that make that MRO infrastructure tick, i.e. people, they're crying out for more people here, too. But yeah, developing countries, like Saudi Arabia, really want to develop their own pipeline of talent. And that was really, really obvious over the last two days, too, that people will go down that route.
Lee Ann Shay:
I also had a couple of people who have shops here in the Middle East and their people are being poached by European MROs.
James Pozzi:
Yeah, absolutely. And the Middle East will look to continue that cycle. The Middle East will then look to India, for example. The Philippines is a popular one, Thailand. But yeah, India especially. There's a lot of some good technical talent there that's respected, but the labor cost may not be as high to poach them rather than hiring from Europe, for example. But yeah, certainly someone told me yesterday that they were looking quite intently at India because it's a huge labor market, as I said, good engineers, skilled technicians. So that cycle is continuing, people going out back to Europe and then the Middle East recruiting from say, India.
Lee Ann Shay:
Yep. This industry just needs a lot more skilled people.
James Pozzi:
Never have enough.
Lee Ann Shay:
Nope, nope, nope.
James Pozzi:
Okay, Lee Ann. Well, thank you for joining me today and thank you for listening. So don't miss the next episode by subscribing to the MRO Podcast wherever you listen. One last request, if you are listening to Apple Podcasts and want to support this podcast, please leave us a star rating, or write a review. Thank you.
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