White paper on MRO opportunities

Dated : 19 November 2011 Author: Ramesh Nathan

What is MRO ?MRO is a term used in the Aircraft Industry and it stands for Maintenance, Repair and Overhaul of aircrafts. MROs can be broadly split into four parts. They are Line Maintenance, Engine Overhaul, Airfare and Component Repair. Currently the MRO market is dominated by OEMs (Original Equipment Manufacturers) like EADS, Boeing, Honeywell and Engine manufacturers like Pratt & Whitney, GE, Rolls Royse, Major Airlines and third party operators. Driving maintenance costs down, faster turnaround, increasing aircraft unitization, at the same time increasing reliability and operational integrity, constitute core of MRO business from airline point of view. MRO expenses @ 10% of total costs are the second highest cost item for airlines after fuel. Generally speaking, there are two types of maintenance in use for MRO: 1. Preventive maintenance, where equipment is maintained before break down occurs. This type of maintenance has many different variations and is subject of various researches to determine best and most efficient way to maintain equipment. Recent studies have shown that Preventive maintenance is effective in preventing age related failures of the equipment. For random failure patterns which amount to 80% of the failure patterns, condition monitoring proves to be effective. 2. Corrective maintenance, where equipment is maintained after break down. This maintenance is often most expensive because worn equipment can damage other parts and cause multiple damage. Necessity of MRO in the Airline Industry Airlines are required to spend 10 man hours for ground maintenance of an Aircraft for each flying hour. The time frame for maintenance procedure is based on combination of the numbers of hours the aircraft flies, the number of take off and landings (refered to as cycles), plus the age of the aircraft. With such labour intensive nature of MRO, it is not surprising that most of the leading MRO companies, aircraft engine OEMs as well as almost half of the US airlines has outsourced heavy maintenance work. Yet, many airlines continue to subsidize their in house MRO operations, in the name of safety.

Categories of Maintenance Checks Aircraft maintenance checks are periodic checks that have to be done on all aircraft after a certain amount of time or usage. Under FAA oversight, each operator prepares a Continuous Airworthiness Maintenance Program (CAMP) under its Operations Specifications or "OpSpecs". The CAMP includes both routine and detailed inspections. Airlines and airworthiness authorities casually refer to the detailed inspections as "checks", commonly one of the following: A check, B check, C check, or D check. A and B checks are lighter checks, while C and D are considered heavier checks.

PS Daily Check Every aircraft is checked every day in its Periodic Service (PS) check. The aircraft is visually inspected and its maintenance log book is checked for entries and maintenance needs. PS check averages approximately two man hours.

A Check This is performed approximately every 500 - 800 flight hours. It is usually done overnight at an airport gate. The actual occurrence of this check varies by aircraft type, the cycle count (takeoff and landing is considered an aircraft "cycle"), or the number of hours flown since the last check. The occurrence can be delayed by the airline if certain predetermined conditions are met.

B Check This is performed approximately every 3-6 months. It is usually done in 1-3 days at an airport hangar. A similar occurrence schedule applies to the B check as to the A check. B checks may be incorporated into successive A checks, ie: A-1 through A-10 complete all the B check items.

C Check This is performed approximately every 1521 months or a specific amount of actual Flight Hours (FH) as defined by the manufacturer. This maintenance check is more extensive than a B Check, as pretty much the whole aircraft is inspected. This check puts the aircraft out of service and until it is completed, the aircraft must not leave the maintenance site. It also requires more space than A and B Checks - usually a hangar at a maintenance base. The time needed to complete such a check is generally 1-2 weeks. The schedule of occurrence has many factors and components as has been described, and thus varies by aircraft category and type.

D Check This is - by far - the most comprehensive and demanding check for an airplane. It is also known as a Heavy Maintenance Visit (HMV). This check occurs approximately every 56 years. It is a check that, more or less, takes the entire airplane apart for inspection and overhaul. Such a check can generally take from 3 weeks to 2 months, depending on the aircraft and number of technicians involved (it is not uncommon to have as many as 100 technicians working on a Boeing 747 at the same time). It also requires the most space of all maintenance checks, and as such must be performed at a suitable maintenance base. Because of the nature and the cost of such a check, most airlines - especially those with a large fleet - have to plan D Checks for their aircraft years in advance. Often, older aircraft being phased out of a particular airline's fleet are stored or scrapped upon reaching their next D Check, due to the high costs involved in it in comparison to the aircraft's value. Many Maintenance, Repair and Overhaul (MRO) shops state that it is virtually impossible to perform a D Check profitably at a shop located within the United States. As such, only few of these shops offer D checks.

Key Segments of MRO The key segments of maintenance, repair and overhaul (MRO) activity are as follows:

Line Maintenance Airframe Heavy Maintenance Engine Overhaul Components Overhaul Modifications

These four groupings vary enough to be viewed as fundamentally different businesses. They each require a different set of skills and services, and few independent maintenance companies specialize in all. Line Maintenance: This is the activity associated with routine turning round and servicing aircraft up to and including A Checks. Most of the cost of routine line maintenance is labour costs. Typically it now accounts for about 85% of the total costs. Engine Overhaul: This is essentially a material intensive process with labour only accounting for 15-20% of total cost. The OEMs control about 45% of the work with the airlines doing around 35% in-house. This then leaves the remainder (20%) split fairly evenly between airline third party contracts and independent sources.

Components: The largest share of this activity is carried out by the original equipment manufacturer (OEM). They have an advantage with technical knowledge of new products. Techniques and tools developed for the manufacturing process can readily be adapted for maintenance tasks. In addition, it is becoming increasingly beneficial for an airline operator to leave all the work to the OEM, who has the advantage of much larger scale of activity. Contracting-out this work to OEMs also saves the costs associated with procuring spare parts and tooling for a smaller number of items by the airline. Additionally, for reasons of simplicity there is tendency to transfer the ownership of inventory to the OEM or other repair agency and base charges on a per flight hour basis.

Airframe Heavy Maintenance: In airframe heavy maintenance, approximately 85% of the total cost is for labour with only a small element for materials. Table below shows an example of the maintenance requirements of the B737 new generation and of the predecessor classic type.

Share of each segment in MRO In terms of the different kinds of MRO activities, engine overhaul is the largest segment of MRO spends and generates around a third of all demand. Line maintenance and component O&M are the next largest segments.

Source: Boeing Inc The industry used to earlier operate as a captive maintenance provider earlier. However it is now gradually moving towards a total solution provider that includes a variety of maintenance and repair services. In fact airlines have started showing a preference for comprehensive solutions that include scheduled heavy maintenance and engine checks over a fixed number of years, ranging between 2 and 10 years.

CRISIL analysis

Size of the MRO market The following chart demonstrates that nearly $100 billion is spent annually on aircraft MRO. This is more than the value of new aircraft production that is estimated at about $75 billion.

It should be noted that it is not practical to mix military and civil aircraft maintenance and repair activities as the methods, constraints and priorities are very different. MRO suppliers that are involved in both sectors tend to keep military and civilian activity in separate lines or even as separate business units. The air transport portion of the MRO business is estimated to be worth over $40 billion worldwide, of which 50% is outsourced to third party suppliers.

Engine MRO is going to witness the highest rate of growth. The MRO Revenue is expected to reach $ 63 Billion by 2019 and $ 88 Billion by 2029.

The rate of growth of individual activities are expected to be as follows: 2009 - 2019 Modifications Components Engines Line Maintenance Airframe 4.4 % 5.2 % 5.3 % 3.5 % 2.7 % 2009 2029 3.6 % 4.4 % 4.6 % 3.1 % 2.3 %

Types of MRO Supplier There are three types of supplier Third party contractors, either specialist MRO providers or airlines supplying on a third party basis. Original Equipment Manufacturer (OEM) In house by the airline operator itself

The split between these categories varies according to the element of MRO activity. The chart below shows the Global MRO segment by Supplier Type.

Third party Suppliers Manufacturers OEM

Large proportions of engine and components overhaul are carried out by the manufacturers (43% and 35% respectively). Independent third party suppliers have the largest share of airframe heavy maintenance and modifications. Indeed modification activity is largely in the hands of the third party suppliers.

Global Share of MRO Market: Global airline MRO (Maintenance, Repair and overhaul) was estimated at $40.8 billion in 2006, growing modestly @ 3-5%. The Asia-Pacific aircraft and engine MRO market totaled $ 8.71 billion in 2005 and is estimated to touch $12.90 billion in 2011. North America is the largest MRO market of the world, accounting for around 40% of the world market. Western and Eastern Europe drive 28% of spending. Asia Pacific, China and India combined represent 22% of the market share. However India alone represents only 1% market share of the global MRO business.

Boeing 2006-07 survey

Breakdown of MRO Revenue across major global regions:

The core of Aerospace MRO activity is shifting towards Asia, with China & India expected to grow at the highest rate. The trend of shifting MRO activities to low cost regions is set to continue. South America, Middle East & Asia are the high growth regions. Passenger growth and fleet size growth are important factors contributing to the MRO industry. The combined fleet of India and China are projected to reach 3000, almost three times existing size by 2016. As a result of this growth in fleet size, the Chinese and Indian MRO market is likely to touch $3.8B and $ 1 billion respectively, growing at 9.5% and 10% respectively. Singapore is considered the worlds leading MRO centre enjoying 3% of global market share and 25% of Asian market share. More than 100 leading international MRO companies operate from Singapore. In 2005, Singapore Aviation industry recorded an output of USD 3.2 billion, out of which 90% came from MRO services. Further, Singapore is home to original equipment manufacturers (OEMs) of the United States, United Kingdom and France who operate either individually or in joint ventures with local companies.

OEMs are the key to development of MRO market.

The OEMs and leading airlines who has substantial in house maintenance work, constitute majority of the MRO market. With technology getting more complex, a large number of OEMs are venturing into MRO activities. Third party contractors, many of which are owned by airline consortium have niche share, which is expected to grow at faster pace. Analysis of top 3 MRO companies reveal that over 90% market share is with OEMs and other major airlines.

MRO players in our Neighborhood:Favorable policies, strong distribution and technological network of OEM players, development and availability of skilled manpower and its position as a centre for trade has contributed in the development of MRO industry in Singapore. Singapore is Asias largest MRO center (its MRO business grew 17% last year to $3.3 billion). Goodrich, in its seventh expansion since opening for business in Singapore in 1995, is more than doubling its facility near Changi (Singapore). Increasing OEM presence in the MRO segment has led to increase in the competition. Packaged deals are also gaining in popularity. These deals are cost-effective and provide exit barrier to the customers The market gets consolidated as bigger players provide more services, innovation, flexibility and competitive prices. China continues to grow as the leader in MRO service provider, as more airlines move away from Japan & South Korea

Significant partnership/joint venture expansion is taking place. Boeing/Air India JV, MAS Hyderabad, AMETEK facility in Singapore.

China, with its 300 MRO companies, generated USD 1.3 billion from MRO business in 2006. China offers tax breaks, better infrastructure, cheaper labour and a bigger market. In 2007, Dubai announced that it would set up the worlds largest Maintenance, Repair and Overhaul (MRO) centre will be established at Dubai World Central (DWC) Aviation City in Jebel Ali in Dubai. DWC Aviation City, spread over 6.7 square kilometers, is being designed as a onestop centre for all aviation related operations.

Aerospace MRO: Customers perspective The rise of low cost carriers is leading to the demand for low cost MRO solutions. Standardization of MRO service might be one solution. There is also demand for integrated support services: A one stop solution for all the MRO needs. Solutions like Seletar Park. Airlines expect value as they as they seek to remain/achieve profitable. Performance & turn-time can be turned to strategic opportunity

1. Maintenance Cost pressure from aircraft operators is changing MRO Business Model 2. Operators who used to follow a time or mileage based maintenance philosophy suffered high maintenance cost which is leading to preventive or predictive maintenance 3. This in turn requires collaboration between all the parties through information sharing / partnership. 4. Information needs to be shared on Maintenance Planning

Line & Heavy Maintenance Maintenance Control Engineering Services Material & Document Management

Air Transport story in India : Of the total 440 aircraft in use in 2010, Airbus accounts for 223 or 51%, while close to 220 aircraft come from the Boeing stable. In 2005, Indian carriers were operating close to 200 aircraft and its estimated that India will need around 1000 aircraft, valued currently at close to $100 billion (Rs 470,000 crore), over the next 20 years.(http://www.financialexpress.com/news/boeing-airbus-fight-over-market-share-in-india/568909/2)

Number of aircrafts in India is expected to rise to around 620 in 2014.

Maintenance Relationships Established by Various Airlines: While leasing is a popular mode for aircraft acquisition world-wide, in India many new airlines have opted for acquisition through purchase Acquisition through purchase puts the onus of maintenance on the airlines themselves, the airlines would therefore need to enter into comprehensive maintenance contracts. The following chart shows the maintenance relationships established by various airlines. Presently, a lot of such work is being sourced from service providers based in regions such as Singapore and Europe.

Airlines Air India Indian Jet Airways Sahara Air Deccan King Fisher Spice Jet Indigo Air Go Air

Line Maintenance Air India Indian JAECO Sahara Engg EADS Indian Hamilton Indigo Air Go Air

Base Maintenance Air India Indian JAECO Sahara Engg / Malaysian Air Engg EADS Indian Hamilton -

Component Repair Air India Indian JAECO Sahara Engg EADS Indian Hamilton Rockwell Collins (Sahara, Jet or IA)

Paramount Paramount GE (http://researchwikis.com/Aircraft_Maintenance,_Repairs_and_Overhaul_-_India_Marketing_Research)

MRO Market in INDIA: The Indian MRO market in 2010 is estimated at $800 million and is growing at about 8% annually against a 4% world average.

A recent Ernst &Young study has stated that Indian MRO market is expected to grow at an average annual rate of 15 per cent. The Indian MRO industry is relatively underdeveloped, but is experiencing rapid expansion. Presently there are few parties that provide comprehensive third party MRO services in India.

OEMs have also developed a significant market share in the component overhaul market in India. The market size of the component overhaul market was $120 million in 2007 and is expected to grow to $204 million by 2014. Modifications are another smaller market in terms of size. The 2007 market was worth $43 million and is expected to be $77.5 Million by 2014.(http://researchwikis.com/Aircraft_Maintenance,_Repairs_and_Overhaul_-_India_Marketing_Research)

PRESENT MROS IN INDIA

MRO name Indamer

Location Mumbai

Types of MRO Line maintenance Engine, Line maintenance, Heavy maintenance and Defence MRO

Services Maintenance schedules and phase inspections It provides services like Maintenance of Airframe, line maintenance, component maintenance and level of engine maintenance. NA

Clients

Air Works

Mumbai (Additional small facilities at Delhi, Jaipur, Ahmedabad, Chennai, Pune, Hubli, Coimbatur and Hyderabad)

Air India Express, Reliance, Birla, Essar.

Max Aerospace& Mumbai (Juhu Aviation ltd Airport)

Avionics, electrical Jet, Sahara, and airframe services Deccan, Blue dart, Paramount, King fisher, Spice jet, Pavan Hans Presently line and component maintenance. Avionics, electrical and airframe services, simulation and manufacturing services. Not Known

HAMCO (Hyderabad Aircraft Maintenance Company)

Hyderabad

Also planning for develop one stop MRO providing Developing Aero

each and every MRO facility.

Zone in Hyderabad which would provide one stop MRO services. This area would be spread across 250 acres. Overhaul and repair services relating to engine segment. Indian Air force, Pavan Hans etc.

HAL

Bangalore

Line and engine maintenance

Source: CRISIL Research Indian aviation sector is set for significant growth in MRO appetite, driven by growth in domestic traffic and fleet size. During the period of the 11th Five Year Plan period, passenger traffic is expected to increase by about 19% and cargo traffic by about 11%. MROs in India currently provide only primary level of services. For instance, Max aerospace is the biggest MRO in India but will not provide advanced overhauls and services. Commercial airlines use either Dubai or UK for secondary and tertiary level services. To meet the demand in advanced services, several domestic and overseas aviation players are entering MRO industry.

MRO name Jet Airways

Location Bangalore

Types of MRO Maintenance and engineering facility

Status Jet Airways has signed a land-leasing and framework agreement with Bangalore International Airport Limited (BIAL) to set up MRO at BIAL. Signed agreement to set up MRO at Rajiv Gandhi international Airport.

LufthansaTechnical of Germany with GMR group Boeing and Air India Thales International

Hyderabad

Nagpur

Boeing plans to establish a $100 million facility spreading across 100 acres of land at Mihan SEZ in Nagpur Thales International, the aerospace, defence and security major, has tentatively planned to build an avionics maintenance centre in Gurgaon, Haryana. Taneja, the first Indian private sector company to make non-military aircraft, has entered the MRO sector through joint ventures MRO and aviation It has tied up with Air Works Commercial

Gurgaon

Taneja Aerospace & Aviation Ltd

Pune

TAAL

Mumbai

park

MRO Services Pvt. Ltd to lease seven acres and up to five hanger space as part of a strategy to develop its private airfield as an MRO and aviation park Sabena technics has signed agreement with TAAL to develop an MRO at TAAL's airfield in Hosur. Tie-up with Hindustan Aeronautics (HAL), for setting up a US$ 100 million MRO facility. Also signed MOUs with Maharashtra Airport Development Company. Signed a MOU for setting up MROs in India.

Sabena technics of Hosur Manufacturing of TAT Group, France (Tamilnadu components and Outside maintenance Bangalore) Airbus Nagpur

SIA engineering of Singapore with Wadia group

Location is yet to be decided. Engine maintenance

HAL and Pratt and Bangalore Whitney Canada (P&WC) Air works Hosur

Engine Overhaul and maintenance services. This MRO would have yearly capacity of 150 aircraft.

Engine and heavy Setting up commercial MRO with 5 hanger maintenance capacity providing line, heavy and engine maintenance services.

Further to the above, there are unconfirmed reports that firms such as Timco Aviation Services of USA, Singapore Airlines, Singapore Technologies Aerospace, the Israeli national airline, and engine makers like Snecma, Rolls Royce, GE are planning to establish their base at India. Given the large number of potential entrants to the Indian MRO industry, it would be relevant to assess whether there is a supporting demand. One may assess a few pointers.

The Indian civil aviation sector has around 400 aircraft on order. While the current slowdown may lead to cancellations, the underlying market potential is huge, (if only very price elastic). However the Centre for Asia Pacific Aviation (CAPA) has predicted that India has the potential to service a fleet of 1,000 commercial planes and 500 general aviation aircraft by 2020, including replacement of current fleet. Such large expansion will also drive growth in MRO activity. It is considered more cost effective to have these facilities within the country rather than outside for cost saving. The LCC airlines are extremely sensitive to cost and domestic MRO services are likely to benefit from them.

Another factor that could drive MRO business in India is availability of low cost manpower. As per a recent E&Y study, Indian MRO industrys greatest advantage is low manpower costs (20 per cent lesser costlier than Asia-Pacific region and nearly 50 per cent lesser than that in the US).

To aid MRO viability, firms need to establish themselves near established airports. This greatly enhances their business opportunities. However busy airports like Mumbai are already congested and have little space left for functions like MRO. This could increase potential to other airports like Bangalore or Hyderabad.

Consolidate Data of Aerospace Maintenance, Repair & Overhaul (MRO) companies and organizations in India Company Air India Maintenance Ltd Air Works India (Engineering) Pvt Ltd Arrow Aviation Services Pvt Ltd Bharat Aviation Pvt Ltd Blue Dart Aviation Ltd Cochin International Aviation Services Deccan Aviation Eaton Aerospace HAMCO - Hyderabad Aircraft Maintenance Hindustan Aeronautics Indamer Company Pvt Ltd Kazi Aviation & Travel Services Max AeroSpace & Aviation Ltd NACIL - Air India Taneja Aerospace & Aviation - TAAL Topcast Aviation Supplies Co Ltd Varman Aviation Pvt Ltd NOTE: City Mumbai Gurgaon Kolkata Mumbai Chennai Kochi Bangalore Pune Hyderabad Bangalore Mumbai Chennai Mumbai Mumbai Belagondapalli Mumbai Bangalore Email enquiry@airindia.in sales@arrowaviation.in info@bharataviation.com bdal@md2.vsnl.net.in contact@ciasl.in raghuram@deccanair.com avinashthakur@eaton.com amit@hamcoindia.com Telephone +91 22 2626 3251 +91 124 464 2200 +91 33 2486 0166 +91 22 2617 3979 +91 44 2256 1112 +91 484 261 1174 +91 80 2856 7393 +91 20 3061 1526 +91 40 6677 7333 80 22 44 22 22 80 252 23639 2661 3552 3297 9751 2660 9723 2626 3555 2557 4600 Afr Eng Com Avi Rep Int Mod Hel Y Y Y Y Y Y Y Y Y Y Y

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Y Y Y Y

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gm.ohl@hal-india.com +91 info@eahc.in +91 ghazalakazi@kaziaviation.com +91 nitin.kamath@maxaerospace.com +91 s.rotkar@airindia.in +91 taal@vsnl.com +91

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Y Y

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Y Y Y Y Y Y Y Y Y

+91 80 2841 2536

Afr Airframe Heavy Maintenance Eng Engine & APU maintenance Com Component / systems maintenance Avi Avionics maintenance Rep Repair services Int Aircraft interiors MRO Mod Aircraft modification; pax to freight conversion; winglet installation Hel Helicopter MRO Line Aircraft Line Maintenance

(http://economictimes.indiatimes.com/news/news-by-industry/transportation/airlines-/aviation/airbus-mro-facility-to-come-up-in-nagpur-aviation-hub-prithvirajchavan/articleshow/10726888.cms)

14 Nov 2011The Airbus Parent EADS was to set up a USD 100 million MRO facility as part of the USD 175 million concessions the government got as part of the Rs 8,000 crore Airbus deal to supply 43 aircraft to the erstwhile Indian Airlines inked in February 2005. Maharashtra Chief Minister Prithviraj Chavan today said the world's largest aircraft manufacturer Airbus will set up the proposed MRO facility in Nagpur. "Yes, the Airbus MRO (maintenance, repair and overhaul) facility will also be part of the international aviation hub that is being developed in Nagpur," The development comes on the heels of reports that CBI is planning to lodge an FIR against the officials of Airbus' parent company EADS, Indian Airlines and the aviation ministry for the inordinate delays in executing the project. Airbus rival Boeing Corporation is also working on a USD 100 million MRO in the Nagpur aviation hub. According to Boeing India president Dinesh Keskar, the facility will be ready by the fourth quarter of 2012.

Financial Performance Below chart gives split up of MRO Expenditure by Category. It may be noted that in Component category almost 50 % of cost is taken up by Materials. Labor Cost is around 35% of the overall cost.

Aerospace MRO: Opportunity Mapping

1. Reducing Spare part inventory: Airline industry is estimated to have inventory of around $ 50 Billion in aircraft spares, most of these spares have poor turnover ratio. Airlines catogarise the stores item into four types. Airline has to achieve tradeoff between Value/Cost of a part versus cost of tracking it. 1. TL0 are the items that are items which are replaced without any repair work, no Time or location is recorded. 2. TL1 are repaired, but no Time, Location is maintained. 3. TL2 are repaired, location is maintained but time cycle is not maintained 4. TL3 are repaired, location is maintained, also time cycle is maintained. TL3 are the high cost as well as important items, which are stacked for 3 days before they are sent for repair in workshops.

2. Accessing common spare parts inventories between airlines: AeroXchange is a Software that facilitates such virtual spares part inventor. This was founded by 13 airlines and now has 33 members. AeroAOG software, allows Airlines to search for crucial part in AOG (Aircraft on Ground) situation, keep track of parts borrowed/loaned to other airlines. AeroSourcing is an online tendering process for purchase of commodity parts like Gaskets, Clamps, Brackets etc.

3. Outsourcing MRO to cheaper destination: As airlines outsource more maintenance work and focus on their core business, opportunities open up for new companies to compete in the MRO space increasing competition, expanding the potential for improving service and driving down costs. Low-cost carriers are leading the way in outsourcing MRO

4. PMA Program: The PMA program (Parts Manufacturers Approval) has approval of FAA, and allows private companies to apply for authority to produce spare parts as replacement for generally more expensive parts from OEMs. PMA approval consists of design, and production approval enabling their use on FAA approved as well as worldwide aircrafts. Today, more than 2000 PMA holders are manufacturing spare parts, compromising annual sale of $ 250 million, which constitute less than 2% of total MRO replacement market of $ 13 Billion. Airlines can save 25-30% on PMA as compared to OEM parts.

Entry Barriers to MRO: 1. Premises All types of MRO activities require premises for their work. Most suppliers, particularly the more established ones, tend to own their facilities outright although the land may be on long-term lease. 2. Labour The aircraft side of the business is the most demanding in terms of labour and of qualified staff who can certify their work and that of others. Since the completion of work in a timely fashion is critical to the success of the business, this naturally means a significant level of labour as well. Component work involves a lot of automatic testing as well as more detailed assembly. Numbers tend to be lower here. 3. Capital Investment All the above obviously require capital investment in the first instance. When the current state of the Industry is taken into account, it is easy to see why there is some reluctance to invest in new facilities. 4. Track Record It is extremely difficult to get a customer base from scratch. The industry tends to trust existing players rather than brand new entrants. Increasingly this industry sees new companies being floated off from existing ones.

Success Parameters for MRO Any knowledgeable customer will seek to have: Guaranteed and minimised downtime. An aircraft has to fly to earn and if it is in a hangar it is not earning. So, downtime has become a critical factor even above cost in deciding whom to use as a supplier. Quality in the shape of reliability is the next priority. It has become virtually an assumed issue since a long-term failure to deliver this will result in no contracts. Price. This only becomes an issue after the two criteria above are met. Most operators will pay more for delivery and quality being achieved. Availability. Particularly an issue in the component and engine fields since any aircraft on ground (AOG) occurrence will directly affect revenues.

What Next ? A company can help decide how it will play in the MRO business by answering three key questions: 1. How deeply to play? An organization can choose to, a. Do it all with the companys own resources; b. Do it together with a partner, with shared resources. 2. In what area to play? An organization can choose only to play in specific areas of the MRO business (such as line, components, engine or heavy), or can be a full-service player. 3. What value proposition to offer? A company can be a systems integrator, which is at the end of the supply chain and provides the final value to the end customer. Or it can be a supplier that serves organizations higher in the chain

More Details about Spare Parts Manufacturer: Traditionally, these companies manufacture spare parts only, under the wing of an OEM. However, the FAAs recent PMA process allows private vendors to reverse-engineer parts and sells the non-OEM parts at a reduced price. While this could be very significant in the future, the penetration of PMA parts today is still small. In short, the PMA process means that the role of a spare-parts manufacturer can change significantly as these organizations become masters of their own destiny. The strengths of spare-parts manufacturers are that they can offer PMA parts at reduced costs and are in a good position to cater to low-value, high-volume nuts and bolts requirements. Their biggest challenge is that OEMs will bundle total care programs with new aircraft sales. For example, HEICO, a PMA parts manufacturer with a strong presence in the aftermarket distribution system, has agreements/partnerships with major airlines including Lufthansa (which owns 20 percent of HEICO), American Airlines, United Airlines and Delta Airlines. The company has also established a significant global footprint with operations throughout the United States, in Europe and in Asia. Twenty- eight percent of its revenues come from international operations. Traditionally, HEICO has concerned itself with engines; however, over the next few years, it will look at other areas, such as interiors, components, cockpits and in-flight entertainment.

PMA Process:

PMA process for obtaining FAA Approval:

Product line servicing opportunity in AvionicsAntennaso o o o o o

VHF Communications Radio Altimeter Marker Beacon TCAS (Traffic Collision Avoidance System) ADF (Automatic Direction Finder) VOR / ILS (VHF omni range/instrument landing system)

Radar Receivers Transmitters Generator Control Units (GCU) Altitude Indicator Power Supplies DME Indicators (Distance Measuring Equip.) Horizontal Situation Indicators Pneumatic / Encoding Altimeters Mode Selectors Pressure Indicators Automated Test Equipmentso o o o o o o o o o o o o o

Traffic Collision Avoidance System VOR / Marker beacon Receiver ADF Receiver HF Receiver Low range Radio Altimeter Transceiver Interrogator ATC / Mode S Transponder Radio distance Magnetic Indicator VHF Communication TCAS Mode S Transponder Proximity Box A.T.E (Auto Test Equip.) Proximity Switching Electronics Unit Bus / Ground Power Control Unit Bus Protection Panel

o o o o o o o o o o o o o o o o o

Voltage Regulator Instrument Switching Unit Digital Flight Guidance Computer Flight Mode Annunciator Flight Guidance Control Panel Navigation Control Panel Status Test Panel EPR Synch Switch Brake System Control Unit Electrical Flight Control Unit System Data Analog Converter Thrust Rating Panel Electronic Flight Instrument Control Panel Flight Control Unit Electronic Flight Instrument System, Symbol Generator Unit Electronic Centralized Aircraft Monitoring Control Panel From Boeing Corp. Flap / Slat Electronic Unit Spoiler Control Unit Thrust Mode Select Panel Engine Control Monitor Thrust Reverser Relay Module Stab / Trim Aileron Control Module Flap / Stab Position Module EICAS Display Switching Module Electronic Engine Control Module Yaw Damper Module Aural Warning Module Rudder Ratio Changer Module Equipment Cooling Controller Thrust Management Computer Altitude Alert Circuit Stab Position Module Circuit Bleed Configuration Module

Bite Display Circuit EICAS Signal Consolidation Card ECS Fan Control Card Master Warning Card Master Dim Card N2 Engine Speed Card AFOLTS Card T / O Configuration Warning Card Equipment Cooling Indication Card Pack Temp Control Card Bleed Air Control Card Landing Configuration Warning Card Stall Warning Card Engine Speed Card Aural Warning Card

Cockpit Control Panelso o o o

VHF/NAV ADF (Automatic Direction finder) VOR / DME (VHF omni range/Distance Measuring Equip.) ILS (Instrument Landing System)

Communications (VHF Tarnsreceiver) Data Recorder (L3 communications)o o

Flight Data Recorder Digital Cockpit Voice Recorder

Test Equipment Calibration Misc Electronicso o o o o

Central Aural Warning Cabin Temperature Controller Windshield temperature controller Cargo smoke detector Fuel quantity Indicating system VOR / ILS ADF Receiver

Navigationo o

o o o o o

Enhanced Ground Proximity warning Radio Altimeter DME ACAS II Transponder ATC Transponder

List of Avionics OEM

Ametek Avtech* Astronautics Becker Avionics Systems* Gables Engineering* Goodrich Honeywell (AlliedSignal/King/Sundstrand/Data Control)* Howell Instruments L3 Communications (Fairchild Aviation Recorders)* Marathon Power Technologies Meggitt (Plessey Recorders) Revue Thommen* Sigmatek Southern Avionics Company* Telephonics* Tel-Instrument Electronics Corp* Thales Avionics Electrical Systems Wulfsberg* Raytheon Systems Rockwell Collins Universal Avionics

Eg. 1: RFID Opportunity

(http://www.aviationweek.com/aw/generic/story_channel.jsp?channel=mro&id=news/avd/2011/ 11/10/11.xml&headline=Boeing%20Looking%20At%20RFID%20On%20Production%20Aircra ft)Program Manager : Phil Coop Boeing, now formally offering radio-frequency identification (RFID) to keep parts records on aircraft already in service, is looking at introducing the technology as factory standard on commercial and military aircraft. The company expects the FAA to certify the system by the end of the year. The system made it to the market only a year after Boeing and electronics and software supplier Fujitsu launched the program in October 2010 primarily because its development began six years ago with the aim of fitting it as standard equipment on the Boeing 787. The technology did not mature in time, so Airbuss A350XWB will be the first commercial aircraft delivered to customers with parts carrying electronic records of their own service histories. Boeing and Airbus are cooperating to adopt common standards and thereby minimize airline costs. An aircraft would typically have about 2,000 parts that could be electronically tagged. Boeing is considering installing the system as factory standard on the 737, 777 and 787 and, in the military field, initially on the P-8, C-17, and KC-46. Tags will be affixed with Dow Corning glue that is used to hold conventional metal data plates onto parts to eliminate risk of their becoming unfixed. The weight is trivial, just 12 grams for the heaviest RFID tag. The solution will provide customers with Fujitsu's EPC Gen 2RFID tags, designed specifically for aerospace applications, as well as RFID readers from Fujitsu, Motorola or Intermec; middleware; a software solution to manage the data on a company's own back-end system, or on a server hosted by Boeing; and integration and maintenance services from Fujitsu and Boeing. Data transmission between readers/writers and UHF-RFID tags will use frequencies between 860-960 MHz.

(http://www.fujitsu.com/global/news/pr/archives/month/2008/20080109-01.html)

Boeing isolated five priorities among the 33 identified use cases for RFID in the airline industry. Those primary use cases involve the management, maintenance or repair of five different types of equipment, components or tasks: emergency equipment, such as oxygen generators and life jackets; system portables, which require regular maintenance; structural rotables, which are components not related to "systems"; reparables management, such as items removed from an aircraft for repair; and lastly, the structural repair and management of airframe degradation. If an airline customer requests the AIT Retrofit service, Boeing will first send its engineers to that airline's site to review the customer's needs, and will then return to install the system. This might include permanently attaching tags to aircraft components, installing reader portals, providing handheld readers, and integrating middleware and software, as necessary, with the end user's back-end system, as well as providing follow-up maintenance. It would be a matter of less than a few months to see a fully fitted plane with RFID-tagged parts being tracked using interrogators. As a tagged component completes a maintenance and repair procedure, a record of that procedure would be stored both on the tag itself, and in the airline's back-end system. This system will be commercially available by 2012.