United Technologies Corp. (UTC) says its commercial aftermarket business is being hit by ramifications from the Boeing 737 MAX grounding and could see additional headwinds linked to the coronavirus outbreak, but executives are confident that any dip will be short-lived.

Engine OEM unit Pratt & Whitney’s commercial aftermarket revenue was flat in the 2019 fourth quarter (Q4), despite a 6% uptick in IAE V2500 inductions, and up 2% for the full year. Declines in other legacy engine platforms helped offset the V2500 demand, but so did a lack of work on some aircraft pressed to keep flying to replace grounded MAXs. 

“In order to overhaul an engine, it needs to come off of the wing,” acting UTC CFO Neil Mitchill said on the company’s recent earnings call. “With the 737 MAX situation, the legacy planes are flying quite a bit more.” 

UTC’s Collins Aerospace unit saw its Q4 aftermarket business up 11% and its full-year figure jump 14%. This despite a dip in provisioning stemming from the MAX grounding and customers not taking aircraft. Unlike Pratt, Collins is a major MAX program supplier, and is taking a direct hit from the model’s grounding and temporary production pause. 

UTC president and CEO Greg Hayes said the production pause is projected to cost UTC $100 million per month in sales. “We’ve assumed roughly a 90-day production delay, which is consistent with direction that we’ve received from Boeing,” Hayes said. “If you think about that each month, if you add up both the OEM and the aftermarket provisioning that you’re not going to get, that costs you about $100 million in revenue.” 

Once production comes back, UTC is projecting a rate of 21 shipsets/month for its MAX products. Boeing paused MAX production in January and is projecting a resumption sometime in the second quarter, contingent upon making more once regulators that are scrutinizing changes to the model mandated following two fatal accidents in five months near the completion of their evaluation.

The MAX’s uncertainty is only one of the forecasting headaches that industry is managing. The coronavirus outbreak has led to major flight disruptions in Asia-Pacific markets, notably China. The last time industry faced such disruptions, during the 2003 SARS outbreak, the commercial aftermarket fell 20% for two quarters. 

“While we expect there will be some impact to the commercial aftermarket ... I don’t expect it’s going to be that bad this time,” Hayes said. “Airlines are a hell of a lot healthier than they were in 2003. You were coming off of 9/11 and airline bankruptcies and nobody had any money. The fact is air traffic remains pretty strong, but there will be a blip in Asia this quarter as a result of this.”

UTC is projecting Pratt’s full-year 2020 commercial aftermarket to be up in the low- to- mid-single-digits, while Collins will be up slightly. The MRO segment as a whole is expected to be up in the mid-to high-single-digits in 2020. Respondents to Canaccord Genuity’s latest quarterly survey pegged the full-year growth at about 7%. 

“While the prolonged MAX grounding and slower delivery ramp will continue to be a headwind for initial provisioning sales, and the extended use of the 737NGs has pushed planned maintenance on the CFM56-7B engines to the right to an extent, we believe the on-going MAX grounding will be a source of upside,” Canaccord’s Ken Herbert wrote in a research note.