Daily Memo: Demand—Too Much Of A Good Thing For Supply Chain?
DALLAS—The aftermarket is on a roll.
While most forecasts had maintenance and related activity, notably spare parts sales, trailing general flight activity by about six months, some new data points suggest the aftermarket’s recovery may be out-pacing global flight activity’s rise.
Within mega-supplier Raytheon Technologies, year-over-year aftermarket sales were up 39% at Pratt & Whitney and 37% at Collins Aerospace. GE Aviation’s commercial services business was up 37%, too. At Boeing, first-quarter commercial services revenues were 90% of pre-pandemic levels.
Global revenue passenger kilometers (RPKs), meanwhile, are nowhere near 90% of comparable 2019 levels. February’s total showed them to be 55%, in fact, while available seat kilometers (ASKs)—which drive aftermarket activity—were 63% of February 2019’s total. Domestic U.S. traffic is a notable exception, with RPKs reading 93% of February 2019 and ASKs at 97%. One likely explanation: the aftermarket is not just supporting a fleet that is steady getting busier. It is also helping operators play catch-up and conduct maintenance pushed off during the downturn as part of cash-conservation strategies.
While global flight activity remains the largest variable in determining aftermarket’s recovery pace, constraints linked to labor and material availability are emerging as significant watch items. Airlines are trimming schedules to account for fewer front-line workers than they need to ensure reliable operations, even when hit with the inevitable, such as a line of thunderstorms that trigger irregular operations.
The supply chain is suffering as well—and operators are feeling it. U.S. regional carrier Republic Airways is operating its fleet at 90% of pre-pandemic block hours but is “still dramatically challenged with consistent sources of supply,” Republic VP-supply chain Drew Staff said at the recent MRO Americas conference.
Republic is hardly alone, and the issue is not limited to smaller operators.
“We’re all saying the same thing—it’s so hard right now,” said Peter Requa, Southwest Airlines senior director, supply chain management for technical operations. “You had your [issues], but everything used to just kind of work. Now, every single day we are sending out critical-parts lists. We’re chasing stuff. We’re really running on the ragged edge.”
The situation is arguably most acute in the U.S., which is setting the global-recovery pace. February’s U.S. domestic RPKs were off 7% from comparable 2019 levels, while ASKs edged up to within 3%, the latest IATA figures show. Both were far ahead of the global market, which had RPKs down 45% and ASKs off 37% from three Februarys ago.
While the front-line worker shortage is apparent, an industry-wide departure of experienced employees is arguably more significant.
“We lost a lot of management staff, and we lost a lot of relationships in that process, a lot of knowledge base,” Requa said. “I’ve seen issues linger longer than they normally would because some of those relationships are no longer there.”
Many employees took early retirements and are unlikely to return. The gaps they left behind require more than simply filling positions.
“It takes quite a bit of time to get [supply chain management] up to speed,” Requa said. “I hear two years, typically, sometimes three years.”
Running alongside the labor crunch is the risk of materials shortages. In some cases, the issues are linked—a lack of skilled labor at some repair shops means component repair turnaround times (TATs) are lagging, for instance.
Of greater concern, at least in the MRO world, is rising new-aircraft production rates. Airbus is targeting 78 A320neo and A220s per month by 2025, up from 46 a year ago. Boeing recently reached 31 per month on its 737 line and is expected to boost output as soon as it believes suppliers can handle it.
As parts suppliers work to satisfy their largest customers—the top-tier manufacturers—the aftermarket will feel any resulting strain. The issue will grow more pressing as airlines match their labor needs to growth aspirations over the next few years, driving up demand for maintenance in the process.
“Build rates are going up [and] production comes first,” Requa said. “I’m not sure how we get to these build rates and support the in-service fleet.”