M&A activity in aviation software is as hot as it has ever been, with the maintenance, repair, and overhaul (MRO) segment emerging as a particular hotspot. Here are just a few examples of recent MRO software M&A deals (I could include many more):
- LGM Aviation acquired Aerotrax in July 2024.
- IFS purchased EmpowerMX in July 2024.
- Veryon acquired Rusada in October 2023.
- AAR acquired Trax in March 2023.
- Lufthansa Technik acquired Swiss Aviation Software in January 2023.
Each of these companies provides a slightly different product than the other. And each was acquired for slightly different reasons. But the trend is clear: MRO software is in high demand.
So what’s driving this acquisition spree?
To understand the rationale, we first need to look at what’s driving the broader aviation MRO landscape. From surging passenger demand to mounting maintenance backlogs, the operational challenges facing MRO providers have created a perfect storm – MROs are growing at the exact time that they need technology and automation the most. Combine that with the fact that many of the largest MRO software companies have already been acquired, and it’s a race for who can buy the other ones.
In this article, I’ll unpack the MRO software M&A frenzy, highlighting recent deals like the IFS-EmpowerMX acquisition. I’ll also explore how the winning MRO software platforms of tomorrow will be the ones best equipped to help maintenance providers navigate the labor shortages, supply chain disruptions, and other operational complexities that lie ahead.
Increased demand for MRO
Before talking about the software behind MRO, we need to talk about MRO and its drivers.
MRO, which stands for maintenance, repair and overhaul, includes a number of activities related to improving or fixing an existing aircraft. Some of these activities are relatable to anyone who owns a car. They are the large-scale version of getting tires replaced or changing oil (called “fluid checks”). Some of the activities, however, are much more detailed, complicated and expensive. For example, a commercial aircraft typically goes through what’s called a “heavy maintenance visit” every 6-10 years where the entire aircraft is disassembled and checked for damage. Some of the MRO checks are best practices by aircraft owners and operators while others are mandated by the FAA as a way to ensure passenger safety.
There are a few recent market updates that are driving higher revenues in the industry as it relates to MRO operators.
The first is higher passenger travel. Covid put a dent in the industry and put the future into question. But as soon as restrictions were lifted, passengers started traveling again. After dropping from 1.05m flights in 2019 to a little over 400k flights in 2020, they have once again surpassed pre-Covid levels today.
Some speculate that passenger travel will continue to grow at an even faster clip than we saw in the 2010s. From 2009 to 2019, passenger flights grew by an average rate of 2.5%. Early 2024 monthly data is showing year-over-year growth rates between 4% and 9%. In theory, you might have more belief in these numbers continuing than the 75% increase in 2021, as 2023 was a year completely without Covid restrictions.
But regardless of the future growth rate, the rolling 12-month passenger data from April 2024 (the most recent available data) is the highest number of flights in a 12-month period ever.
The second driver of MRO services is a backlog of deferred maintenance on aircraft fleets. This deferred maintenance needs to be addressed, and MRO’s are the service providers to take care of it.
How did we end up with a deferred maintenance backlog? There are a few factors.
One of the main ones is that airlines were experiencing unprecedented hardships in Covid. Demand was low and profits were low. They did everything in their power to survive, including deferring any maintenance that they could.
The crisis forced airlines to drastically cut MRO spending. Oliver Wyman estimated a 45% decline in 2020, reducing their pre-COVID forecast of $91.6 billion to $50.3 billion. The most significant reductions were in engine and airframe maintenance. Airframe spending dropped 59% from $17.9 billion to $7.9 billion, and engine spending fell from $43.5 billion to $23.2 billion due to deferred overhauls and parked fleets.
Now that the demand has returned, the deferred maintenance has piled up too. Airlines and operators are staring at a backlog of maintenance.
The third and final driver is the increased age of fleets (and thus cost of maintenance), a result of manufacturing delays.
The data for aircraft age is a bit harder to come by, but I found a couple examples. Here, we can see the average age of aircraft across segments for European countries and travel.
One to highlight is the pale yellow line in the middle of the graph. This is “All Segments” and you can see that it begins in 2012 a little bit below 10 years and is called out at 12 years by the time we get to 2022. An increase of ~20% in average age.
The number of new aircraft being added to the fleet—and relatedly, the number of aircraft being “parted out” (when an operator disassembles a plane and sells off the parts)— is one of the biggest factors in the average age of an aircraft fleet. In most years, the amount of new orders slightly outpaces the deliveries. This gives a little slack to the system, as it takes a lot of capital and time to manufacture airplanes.
But as you can see in the chart below, things changed during Covid. Orders and deliveries fell in 2020 as the industry’s future was in question, as might be expected. But in the years since Covid, orders have far outweighed deliveries. Demand has returned a lot faster than supply.
Now consider the three factors combined together. Higher passenger travel is bringing back demand, putting strain on existing planes. The airlines may have deferred maintenance on these planes over the past few years, just as the demand is returning. Delayed aircraft deliveries are increasing the average age of aircraft fleets. Older aircraft require more maintenance than newer aircraft.
All of these factors are driving increased MRO service activity.
Why MRO software matters
The above outlines why MROs are experiencing high demand, but the M&A activity has also included the software companies that power MROs. There are two reasons there has been lots of M&A in MRO software: there are serious operational challenges MROs face, and there aren’t a ton of MRO software companies that already have scale.
MROs face operational challenges such as labor shortages and supply chain issues. On the labor side, some estimate that by 2028 there could be a shortage of 40k technicians. Hourly wages have risen by over 20% since 2019. Labor pools are getting older and retiring. Additionally, younger workers don’t have a desire to work as an airline technician or just flat out don’t know about the industry.
The airline supply chain issues have been more widely covered in the mainstream media. Shortages are present at every step of the manufacturing process: planes, parts, engines, and pilots are all in short supply. Manufacturers like Airbus and Boeing face staffing and material shortages (a big reason deliveries have been delayed), while regulatory delays and Pratt & Whitney’s (a large engine manufacturer) engine inspections further exacerbate the situation, with these issues likely extending into 2024.
If there’s good news, it’s that software can address the issues MROs are facing. The aviation industry has been slow to adopt new technology. They didn’t need it. But the factors outlined above have created the perfect storm. MROs are more active than ever and are facing new problems. Software can help solve these, which is why they are getting acquired.
Just a few months ago, McKinsey released an article outlining several specific applications of AI for aviation MRO. There are more in the article, but a few I thought stood out:
- Virtual AI Maintenance and Repair Experts (“Copilots”) – AI can help automate aircraft maintenance by enabling technicians to interact with data through digital assistants, reducing time spent on both research and troubleshooting. These AI copilots can do things like provide real-time recommendations by accessing and interpreting lots of unstructured data sourced from some of the data sources connected with airline maintenance: airline manuals and repair logs.
- AI-Augmented Reliability Engineering Tools – Right now, reliability engineers wade through hundreds of maintenance records in order to ensure the right tasks are getting completed in the right way. AI can speed up this reliability engineering by quickly analyzing these maintenance records, pulling out the right data, and offering prompts to the engineers.
- Permanent Quality Control Supervisors – Some airlines are considering using AI to monitor and evaluate technician work through continuous video feeds in order to reduce mistakes and missed items during maintenance. The AI learning models would analyze the footage, flagging potential issues for managers to review and provide feedback on. This system is similar to Flight Operations Quality Assurance (FOQA) programs, which analyze deviations in what happened during a flight compared to what was supposed to happen in service of improving pilots through training.
These ideas aren’t just ideas, either. These products are already being created and implemented, and the software companies that developed them are getting acquired.
M&A highlight: IFS acquired EmpowerMX
In July 2024, IFS purchased EmpowerMX as one example. IFS (short for Industrial and Financial Systems) is a multi-decade-old software company that provides solutions for a number of industrial end markets (manufacturing, oil and gas, etc.). The majority owner is EQT, a large Swedish private equity fund, and two other PE funds own the rest of the business.
EmpowerMX is a software platform focused on helping aviation maintenance, repair, and overhaul (MRO) organizations save time and automate workflows. MROs can be both internal departments at airlines like Delta or American, or they can be outsourced providers (there are hundreds of these across the world). Some of these outsourced providers have specialties like heavy maintenance, engine, or interior, while others only provide services to certain kinds of aircraft or regions of the world.
EmpowerMX is an interesting acquisition partly because of their core workflow software and their AI tool. It launched in 2023 and is called EMX Vision. EMX Vision functionally takes a bunch of data (both on the workflow side – task flows and milestones – and OEM data about the parts and materials) and uses AI to run models that predict their reliability and useful life. This is all in service of making MROs more efficient in both time and money.
EmpowerMX was founded in 1999 and raised a small amount of venture capital (total of ~$7m) from 2001 to 2007 over several rounds. However, their trajectory changed in 2018 when they took growth equity from Argentum Group, a software investor. They focus on companies with $4-8m in annual recurring revenue (ARR) so it’s like how big EmpowerMX was at that time. With this extra backing and expertise, it’s no surprise that they started building AI tools and were acquired shortly after they launched.
What does the future hold?
The future looks bright for continued M&A activity in the MRO software space, with the strong demand drivers for MRO services and the operational challenges facing MRO providers. As MROs seek to digitize their operations and leverage AI to boost efficiency, the leading MRO software platforms will remain attractive acquisition targets.
We can expect to see more large enterprise software providers like IFS acquire specialized MRO software companies to expand their aviation industry footprint and capabilities. Private equity firms will also likely continue to be active, identifying promising MRO software startups to purchase. The consolidation trend may also extend beyond just software companies, as larger MRO service providers seek to vertically integrate by acquiring their own software subsidiaries.
Ultimately, the winners in this space will be the companies that can best support MROs in navigating the labor shortages, supply chain issues, and operational complexities they face in the years ahead.
