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

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.