General Electric (GE) and Raytheon Technologies are bracing for a challenging first half of 2021 in their normally lucrative and increasingly important commercial aftermarket businesses.
Nonetheless, the companies are confident that recovery will be evident around mid-year, closely trailing the needed rally in global air transport flight activity.
“Our full-year plan assumes aviation revenue is flat to up [slightly] year-over-year,” GE CEO Lawrence Culp told analysts on the company’s 2020 fourth quarter (Q4) earnings call Jan. 26. “Our plan assumes departures remain close to [2020] fourth quarter levels in the first quarter, and we begin to see the commercial aviation market recover in the second half.”
GE Aviation saw commercial services revenue fall 50% in Q4, but orders, while still down 40% year-over-year, were up “more than” 50% compared to the 2020 third quarter (Q3), CFO Carolina Happe said.
While the order bump is encouraging, global scheduled departures of GE and CFM-powered aircraft were down 52% for the week ending Jan. 27—a figure that has not changed outside of seasonal adjustments since early in Q3 2020 following an initial recovery trend.
Raytheon’s Pratt & Whitney business saw commercial MRO revenues fall 32% last quarter and expects more of the same through at least the end of the 2021 first quarter. Looking ahead, large commercial engine shop visits are projected to climb 25-30% for the remainder of 2021, benefitting from an expected recovery in traffic compared to the pandemic-battered final three quarters of 2020. That should translate into a year-over-year sales increase of 10-15%, Raytheon CFO Toby O’Brien said.
Raytheon’s Collins Aerospace unit is projecting a similar path.
“After a tough first quarter, we expect sequentially 10% growth each quarter in the Collins aftermarket,” Raytheon president and CEO Greg Hayes said.
“I think we’ve got a pretty decent recovery path on aftermarket,” Hayes added. “Could it be better? Perhaps. But keep in mind, we’re sitting here at the end of January. Q2 has got to grow 10% and then Q3. That means air traffic has got to start picking up soon and has ... got to continue to grow throughout the course of the year.”
With demand for new aircraft down as airlines work to survive the deep, prolonged downturn, new-aircraft production will not offer suppliers much growth opportunity in 2021. Boeing is cutting 787 output—which will hit provisioning as well as new-production supply rates—and the 737 MAX will remain far below recent annual output for the foreseeable future. Airbus may boost narrowbody rates, but it will be at a slower pace than previously planned.
One bit of good news: the drastic cuts at airlines have left many with little inventory. For ones that make it through the crisis, re-stocking to support activity growth figures to be an early priority.
“We’re actually expecting to see a quicker rebound this time in the aftermarket than what we have seen historically because of the very, very deep cuts that the airlines have made in their stock of inventory,” Hayes said. “It won’t be a six-month delay, but it may be a quarter off.”
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