Busier Airlines Are Lifting Maintenance Providers
As even the more fortunate airlines struggle to meet unexpectedly high demand and others begin ramping up in response to solidifying travel trends, aftermarket providers are reaping the benefits.
- Aftermarket providers are seeing heavy demand
- Labor and material remain top concerns
- Retirements continue to lag recent historical trends
Data points from several major manufacturers and an RBC Capital Markets survey of maintenance, repair and overhaul (MRO) providers suggest a relatively turbulence-free ride for the next few quarters.
Raytheon Technologies subsidiary Pratt & Whitney raised its full-year revenue growth range from a top end of 10-12% to a minimum of around 13-14%, driven in part by a strong aftermarket.
Moog, a supplier to many commercial programs, boosted its projected full-year aftermarket sales 18% with just three months to go (its fiscal third quarter wrapped up July 2).
“The commercial aftermarket almost doubled in the quarter,” Moog CEO John Scannell said on a late-July earnings call. “The underlying demand for spares and repairs contributed just over half the growth and continues to run ahead of our forecast.”
Even companies seeing lags in specific areas point to silver linings. For instance, CFM56 engine shop visits ran a bit below expectations in recent months, Safran executives noted on a recent earnings call. But work scopes—the amount of material and labor put into each engine—ran above projections. The trends help balance each other out, keeping on track the company’s full-year aftermarket revenue projections—up 25-30% compared to 2021.
Long-haul travel demand continues to lag short-haul, offering another potential source of near-term growth. As longer international passenger flying continues to rebound, aftermarket demand will follow.
Rolls-Royce expects to see at least 55% of 2022’s projected 1,100-1,200 total shop visits in the last half of the year. While this estimate includes its business and regional jet engines, a rise in widebody flying on fleets such as the Boeing 787 and Airbus A330 is a factor as well.
Even if demand holds amid threats of a global economic downturn, there are several acute issues to address. China’s uneven recovery means work generated by that country’s carriers is difficult to project, for instance.
Even more threatening are labor issues that are beginning to affect aftermarket providers as much as other more visible segments of the air transport industry.
“The key headwinds for [2022 second-half] MRO sales remain labor and material shortages,” RBC analyst Ken Herbert wrote in an analysis of his firm’s survey results, noting that half of the 40-plus respondents cited the variables. “The third most-cited headwind is MRO capacity, which is related to labor shortages.”
A possible global recession was sixth on the list, just behind the pace of air travel’s recovery and higher fuel costs.
Retirements—or the lack thereof—continue to be both a benefit and a headwind. Older in-service aircraft require lots of maintenance, while retiring them feeds much-needed spare parts into the MRO ecosystem.
“The lack of a material increase in retirements continues to create supply constraints on the availability of used serviceable material,” Herbert wrote. “Spare parts availability and lead times now appear to be a greater risk to 2023 [aftermarket] growth, but this is one of the most important watch items” for the rest of this year, he added.
Commercial transport retirements totaled 182 through July, the Aviation Week Network Commercial Fleet Discovery database shows. Excluding regional aircraft, the figure drops to 157. The figures suggest a historically low retirement pace will continue. Last year, 445 aircraft were retired, including just 341 mainline aircraft—lows not seen in 15 years.
“We believe that retirements are likely to remain below expectations,” Herbert wrote. “Supply chain disruptions imply that airlines will be cautious with inventory levels, and the uneven pace of the recovery implies that airlines are not always sure which aircraft will come back to service and when.”
Official annual retirement figures are often revised upward as information about stored aircraft is updated. As the COVID-19-pandemic-induced air travel slump gripped the globe in 2020, many in the industry saw the widespread grounding and long-term storage of aircraft as a precursor to a wave of retirements. But several factors have combined to reduce the potential wave to a ripple. Among them are ongoing new aircraft production and development issues.
Both Airbus and Boeing are behind on narrowbody deliveries for various reasons. Production-quality issues meant Boeing delivered practically no 787s for nearly two years before resuming in early August. Delays in its 777-9 certification program will prevent its new, high-capacity widebody from entering revenue service until at least 2025—several years later than originally planned.
The cumulative impact on fleet plans means carriers must have alternatives as demand ramps back up.
“The consensus industry view now is that we will not see a near-term increase, or surge, in aircraft retirements,” Herbert wrote. “This is incrementally positive for the commercial [aftermarket], and it reflects the delivery delays for new aircraft as well as the inconsistent travel recovery.”
Aviation Week data projects annual mainline retirements will stay below 700 airframes until 2025.