Analysts, Insiders Foresee 20% Drop In Aftermarket Revenue From COVID-19

For 2020, a Jefferies team of analysts forecasts a worldwide air traffic decline of 20%.
Credit: Joe Pries

Industry insiders and analysts are increasingly forecasting a 20% or greater falloff in commercial aftermarket revenue this year for manufacturers and other aerospace and defense companies with stakes in the business due to the COVID-19 coronavirus crisis and the collapse in Western air travel.

“Our scenario planning has a more severe drop given the broader global disruption, which has started driving deep cancellations and cuts across North America and Europe,” said a Jefferies team led by Sheila Kahyaoglu and Greg Konrad.

For 2020, they forecast a worldwide air traffic decline of 20%, compared with a 4.2% increase in 2019. “We use a one-for-one cut with global air traffic cuts and aftermarket cuts,” they explained.

The Jefferies report Mar. 17 came after at least one prominent industry consultant and an industry executive from a midsize supplier separately told Aviation Week they likewise foresee a 20% drop in commercial aftermarket revenue this year. Widebody-related work could be affected the hardest, the executive predicted. 

The Jefferies team said they no longer view the SARS outbreak of 2003 as a good comparison. Industry’s risk now is that aftermarket falls even faster given: 1) longer duration of capacity cuts; 2) deferral of maintenance with new aircraft added to fleets accelerating retirements of older models given lower traffic demand; and 3) further complications from the Boeing 737 MAX’s return to service that could lead to an additional 250 aircraft or so by the end of 2020, or 1% of the fleet.

In the universe of companies that the Jefferies analysts cover, they see Heico and TransDigm Group as the most exposed to the aftermarket downturn. The companies derive 58% and 38% of annual sales from the commercial aftermarket market, respectively.

Michael Bruno

Based in Washington, Michael Bruno is Aviation Week Network’s Executive Editor for Business. He oversees coverage of aviation, aerospace and defense businesses, supply chains and related issues.