As a new year begins, the commercial aftermarket’s recovery remains sluggish with the COVID-19 crisis continuing to hamper global air travel. Jonas Murby, a principal at industry analyst AeroDynamic Advisory, talks to James Pozzi about what he sees for the market in 2021 and beyond.

From your current position (December 2020), how do you see the commercial aftermarket recovering? Will it be a long-term thing, or will we see some form of recovery in the shorter-term?

We don’t expect neither travel nor MRO spend to exceed 2019 levels before the end of 2023. In the coming one to two years, MRO recovery will lag travel growth as airlines will still be in poor shape and will try to defer any maintenance expenditure they can into the future. There are huge opportunities for green time management on engines and high value components, and we expect MRO spend for the full year 2021 to be only marginally better than in 2020. On the other hand, at some point the deferred maintenance will catch up with airline growth, so from 2022 and onwards we expect MRO demand recovering at a greater pace than travel. This relative growth in demand, of 20% to 30% per annum for a few years, albeit from a low base, is highly likely to create bottleneck effects on the supply side.

How do you see companies in the aftermarket adapting after the crisis? What needs to change?

Beyond being under a great debt burden, many airlines will have their fundamentals threatened by changes in business travel patterns and it’s unclear what will constitute sustainable business models for them in the future. What’s clear is that they will be leaner organizations with greater need for support from suppliers than ever. This means the MRO industry needs to take on more responsibility from the airlines, but under more flexible conditions.

In this, we see a few changes needed. Component OEMs need to adapt their propositions and capabilities to reflect an environment with more price sensitive airlines and more competition from USM. The conditions around integrated services will need to become more flexible. Plus, a number of companies need to make stronger prioritizations—for example:

• Aircraft OEMs are pulling back on some of their aftermarket ambitions.
• We’ll see some large airline maintenance organizations selling off portions of their businesses.

Which parts of the market do you feel will evolve most quickly after the crisis?

There will be a greater need for services related to lease transitions given the large portion of the fleet being in flux. Also, it could be that airlines in search of a sustainable business model will appreciate flexible solutions that more easily can adapt the aircraft to the value the airline seeks to generate—be it adding seat density, or lowering aircraft weight, or adjusting galley capabilities. Beyond this, we will see some unbundling of integrated component MRO contracts, especially on the mature fleet when a wave of USM will offer cost-efficient substitution.

Specifically, how will the USM segment alter post-COVID-19?

It will take a while before traffic sees sustained recovery and demand for parts returns. When that happens we will see an unprecedented wave of part-outs and USM that will alter the competitive dynamics of the market. USM companies will have good opportunity to advance their positions with airlines by competing with traditional integrated support programs. 

It's expected market consolidation will speed up from next year. What is your view on this and what can we expect to see?

The market is soon through its trough and with the greater certainty provided by the vaccine approvals we have a more attractive space for transactions. Already pre-COVID, there were portions of the market that were ripe for consolidation, for example European heavy maintenance. The engine MRO supply chain is another area. We have also seen more interest in independent MROs who are more weighted towards military and cargo.