Podcast: Has The Aftermarket Reached Its Acceptance Stage?

Has the aftermarket mood in Europe shifted as the industry comes to terms with its new reality? Listen in as editors James Pozzi, Sean Broderick and Alex Derber discuss Aviation Week’s recent MRO Europe and assess the MRO segment’s fortunes in the continent.

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James Pozzi: Welcome to the MRO podcast. I'm James Pozzi, MRO editor for the EMEA region, and today we'll be taking a further look at MRO Europe, which took place in London earlier this month. Joining me today are Alex Derber, a longtime contributor to Aviation Week's MRO coverage, and Sean Broderick, safety editor for Aviation Week, who of course was on last week's podcast recorded live from MRO Europe in London. Alex, Sean, welcome. So as I mentioned, of course last week, myself, Sean, our colleagues, Lindsay Bjerregaard and Dan Williams recorded a live podcast, which mostly looked at some of the key takeaways from the conference side of MRO Europe. And today we're going to have a broader look at the event as a whole, some of the news which has been digested over the last week or two, and some of the thoughts that have further formed since the event.

So my first observations were, it seemed a more positive event in many regards compared probably since the start of the pandemic, actually, in terms of MRO. Europe, of course, the continent is dealing with a lot of challenges right now, it's fair to say. And those challenges remain of course, and will do so for some time. But there was a little bit of a step change from what I identified in various different degrees, outlooks, attitudes, etc., and the forward planning as well. Alex, you identified, I guess, a bit of a contrast between the conference side of MRO Europe and the exhibition. Could you please elaborate more on those thoughts and where I guess you identified some of these differences between the two? Sure.

Alex Derber: So that was my third MRO Europe on the conference floor. Well, a lot of the same subjects were being covered, but if you didn't know anything else about the industry, you'd think it was a disaster. You can't get a part for five years and all the mechanics are 65 years old and all the data's a mess. And then you step out of that two days of conference onto the exhibition floor and it's trebles all around party time, everyone's having a great time. Business has never been so good. So not to understate those issues, they are real issues regarding workforce and supply chain, but it was easy to forget how well the industry's doing. And the other change I noticed was over these three years of conferences, it was a little bit like the five stages of grief with the attitudes toward the supply chain. So first there was denial. Everyone's saying, oh, we'll be all right in two years. Then there was anger. The OEMs are all bastards, they're profiteering, maybe if we all work together, we can fix it. Depression throughout that. And then this year for the first time, it seemed there generally was acceptance that this is how it is now and we're just going to have to work around it as it's a structural issue that's not going to change for quite a long time.

James Pozzi: Yeah, I mean, that's a good analogy, really comparing to that and yes, the acceptance stage that we're kind of in now. I guess that brings with it though the positive fresh clarity, an awareness of the confines or the time frames they have to work within. Do you think that's maybe given the industry a bit of a, maybe from the OEM side or the airlines, the MROs, has it given them a bit of, I guess that clarity now that they are in this environment and they have accepted where they are now with challenges and all, do you think that will maybe work out for them in the next few years?

Alex Derber: It's hard to separate what gets said at conferences with actual business strategy on the ground. I suppose people were working to that paradigm anyway to a certain extent, regardless of what they said in conferences, but maybe it affects their long-term planning, changes it a little bit. Now people have built up more inventory, for instance. So I mean that's one side of the acceptance that people have just kept on building up inventory.

James Pozzi: Yep, absolutely. Yeah. Yeah, and I think British Airways in their keynote kind of encapsulated this. Actually, Andy Best, the technical director of the airline certainly pulled no punches when talking about the OEM relationships, the supply chain performance and certain suppliers and the lack of performance in that regard. But of course as well, the planning side of things, very interesting in terms of the technology and the routes they're going to go down with workforce and some of the adoption of new platforms like AI, for example. So yeah, so he encapsulated I guess that current challenge and I guess the disillusionment still, I think it's fair to say with some of the suppliers and the European ecosystem with the OEMs, etc. But certainly there's a lot going on in terms of capability additions as well. And the embracing of new technology was notable. That seemed to be more prominent this year, I think, than say, for example, the sustainability track over the last few years was a big thing in Europe specifically compared to other regions of the world. But I think certainly that's shifted a bit now toward technology over the sustainability side of things. From what I can see, Sean bring you in. Firstly, what did you make of MRO Europe in terms of maybe some of the things following on from what Alex was talking about and some of the trends that we identified?

Sean Broderick: Well, I think to Alex's points, I think all of these things can be true, and I think at this point they probably are on the conference side. I guess I have to be among those guilty as charged with bringing out all the bad news. Maybe that's a lesson on how we should prep for future panel queries and maybe we should emphasize more of the good stuff. But it is fair that on the conference side, we tend to, the mundane and all this good stuff may not pack 'em in as much as, or maybe it'll pack them in more. Maybe we should try. The other thing we could do is more happy hour type things in the conferences, maybe some mimosas in the morning because on that show floor at 3 or 4 o'clock, it's not hard to find a party no matter what's going on. It's one thing about all the MRO shows, MRO Europe especially, but I think that a lot of what I heard, and it really echoes what I said in the podcast, the live podcast, is we're seeing acceptance.

Again, like Alex said, the tangles in the supply chain aren't simply going to untangle themselves. This is not getting wrinkles out of a shirt or a blouse. There are going to have to be some different sort of approaches to close the gaps that have been created. And we all know what the issues are. The new equipment is not staying on wing as long as it's supposed to. On the engine side, the older equipment is being pressed further, the same set of suppliers is feeding both programs in both camps. And as a result, we're seeing material, we're seeing challenges getting parts, not just in making new spares for older engines, but in harvesting them from retired aircraft because the airplanes aren't retiring. So I saw a couple of things that I think that, I mean, at least I think that there are no more latecomers to PMA.

There are no more latecomers to USM, but you hear some of the news drops at these shows and you realize that's not completely true. I mean, Chromalloy and Lufthansa Technik announced an agreement where some Chromalloy V2500 PMA critical parts, high stage, second stage HPT blades, and I think seventh stage high pressure compressor blades, two parts that are part of a growing set of PMA that Chromalloy has gotten. LHT is now going to offer them for installation on overhauls. And the more important part of the announcement, I think, is that they're actually, they field tested these parts by running them on some Lufthansa group engines on 10 or 12 engines within the Lufthansa group to sort of bench test them, if you will, or even not bench test them, bench test them in the real world. And so I think we're going to see more agreements like that where again, and that's not new Lufthansa Technik and Chromalloy have been working together on these sorts of things for a decade or so, but I think we're going to see more of that Boeing touted, its used serviceable material announcement again, and they sort of, again, for us, nothing novel in a big company or even a prime manufacturer buying up used material and in Boeing's case, managing the teardown process by using a subject matter or teardown specialists and then consigning the parts on behalf of the airline.

Not really a new concept, but the fact that Boeing has finally acknowledged that they need to do some of this to satisfy some of the demand that they are seeing on, I'm going to guess they didn't name any aircraft types. So I'm guessing the 737 is a big part of this, the NGs, it shows that the OEMs can't just be sitting at the front of the line selling the stuff and then maybe coming in at the back of the line and fixing the stuff they need to fill in some of the gaps in the middle and a lot of that theme, and it's not going to change next couple MRO Europes are going to be very similar themes, I think because the retirement rate is not going to go up anytime in the next couple of years. It doesn't sound like, especially in some of the critical equipment types, the narrow bodies. So we're going to have to find a way and get back to what Alex, we're going to have to find a way to get more good news into the conference side of this talk, accentuate the positives and eliminate a few of the negatives. And I will put that in when our conference planners, when we start planning some of these for '26, that's going to be at the top of my list. Do you think that on USM

James Pozzi: Parts, Sean? I couldn't agree more, but we will see what people want to talk about I guess. But just on the USM parts, the panel I moderated on OEMs in the aftermarket with Boeing and Airbus, it all pointed toward more OEMs wanting that more vertical integration. Of course, you mentioned the teardowns. Boeing, I think works with EPCOR and Airbus are working with Tarmac Aerosave. That's the way the market's headed. That kind of more vertical integration on that side of things.

Sean Broderick: I think, and it would be an interesting discussion and probably could take up a whole other podcast, is do they want to get there or do they need to get there? I really think that if Airbus and Boeing had their druthers, they wouldn't be dealing with this stuff at all. They would be, is there money to be made there? But the USM space isn't one that's lacking in ambitious folks pouring money into it and trying to make money, right? It's really about the efficiency of the process, making sure the parts are certified in the whole supply chain stability and integrity. But I think that really what they're seeing is they are in some of their spares bins, they're seeing more space than they want to see. And when their customers come to them on some of these power by the hour agreements for example, they say, we got to do something here.

Having issues. Again, this is old hat on the engine side, we know that the engine GE especially, I mean GE is its biggest consumer of GE and CFM USM parts, they all go back into GE and the GE Safran network and back out into all the engines that they support. So seeing this on the component side and at the airframe level, I guess it's not that surprising to me. I guess I'm a little bit surprised that it hasn't been done as much in the past. But again, if you look at the engine model, they understand how to run a shop and make a profit. They charge a lot of money on the airframe side. Every time the airframers have tried to get in that deep into the MRO supply chain in terms of getting work done, it doesn't work as well. So I guess that's part of the reason why they're so late in coming, but they just realize that they need to be in this as much as I think they want to be. That's my view. I'd be curious to see what Alex thinks about that.

Alex Derber: Well, I just wanted to pick up on your point about PMA. I agree completely with it, and I thought it was interesting on the Andy Best talk because he had the old school attitude toward PMA. He said, it's just for the cabin. It's never going to be used anywhere critical. We're not going to use it anywhere critical. Then he had another man, I can't remember who it was, I think an airline MRO saying PMA, it's not about just a cost saving option anymore. It's just an option to guarantee availability in some circumstances. Then you talk about that Chromalloy part. You've got ITP Aero who've got that deal with Chromalloy making CFM56 parts, and as people want to wring the rest of the life out of their engines as cheap as possible, we're going to see it being used more and more. I think. So there will be after years and years of not really seeing much movement in that market, maybe the current market dynamics favor it and mean that we will see it start to be used a bit more.

James Pozzi: I guess in the context of Europe, older engines, of course, maybe low cost carriers might favor that route or basically airlines with, I guess newer fleets or leased aircraft and the restrictions that would bring with them and I guess OEM obligations to buy those parts as well. Or sorry, the obligations from them to buy OEM parts too. So would you say that's the target for all the kind of people that would adopt these PMA parts for their engines perhaps?

Alex Derber: I imagine it would be. They'd be looking at usually a second or third tier airlines, but I suppose the Lufthansa contradicts that, they've been going with Chromalloy as well, but I imagine that would be the meat of the market.

Sean Broderick: Yeah, yeah, lessors, right? The lessor thing is always going to be a wall there. I mean, there is some penetration if you're a big enough airline and then you can restore your equipment back to some standard. But again, the interesting thing on the engine side though, the engine demand is getting, so some of these engines are so scarce that you wonder at what point they're like, look, I don't care about the residual value of this thing. I just need to get the thing flying. And the availability of the PMA into what Alex said, availability is just reliability is always going to be most important. But I think the PMA track records have been pretty good again, it seems to me. And so availability becoming just as important. So if you have some of these blades for CFM56s and V2500s that are coming out of places like Chromalloy, you may see more, you're certainly going to see anybody that doesn't have some sort of contracts preventing them from using PMA, you're going to see them go whether a legacy carrier like a British Airways leans in, I don't know.

James Pozzi: So yeah, of course. And just following on from the engine side, actually, I thought too, something worth noting from the event and worth mentioning, sorry, ITP Aero of course, a former Rolls-Royce business sold to Bain Capital a few years ago. Of course, it's no secret. They've got big commercial aftermarket plans and they added some new capabilities, some new parts repairs for the PW1100 engine, of course for the Airbus A320neo. And that follows on from their formal joining of the Pratt & Whitney aftermarket network for the GTF at the Paris Airshow, as I recall it was the PW1500 and the PW1900 engines, but they're building up capability over the next two to three years. So I think obviously there'll be more things to come from them. And Pratt & Whitney in my panel mentioned no surprises, sort of similar to CFM at Aero Engine Europe.

They mentioned further expansions to that network, likely with partners or internal shops. So I think the capability will be built up at ITP as they plan to do so. But I think there'll be other shops doing similar in terms of capability additions too. So that network's moving along. Of course, it's something we cover a lot, so it's something worth mentioning. And another one, actually, I know Alex has written about this before as well, the lessors building up their aftermarket capability or footprint. That's been quite an interesting one. I think at the forefront of this has been Willis and they used MRO Europe to showcase their growth up at Teesside airport. I saw the new hangar just before the show, and that's starting with two lines, the new hangar. But they're building, they are looking likely to build more just after MRO Europe. They bought several acres, it's fair to say, of land at Teesside there as an announcement from the airport. And they're going to likely build their footprint there with more hangars there, of course, base maintenance, up to C checks. They inducted a Jet2 aircraft to start that off up there or to further build on what they're doing up there. So I thought that was interesting. And that's probably signals further growth in the aftermarket for Willis. And of course, we've seen other lessors in the engine space buy parts providers for example, or repair shops in recent years too. So that's another interesting dynamic. And I noticed from MRO Europe, any closing thoughts?

Sean Broderick: The first thing you said, James, I think, yeah, this MRO Europe has grown significantly. I've been to a few more than Alex has, but not as many as you have James. And it seems to me that the show just keeps getting bigger, especially the floor. And I love that we now have one day, although I had to fly home on this one day, but I need to do my scheduling better. I love that we have one day dedicated to the show floor. That seems to be a theme that we're doing. We do that at MRO Americas, actually, we may not. We do now. OK. Yeah. But the floor is becoming so important and getting past the bigger booths and getting to some of these smaller booths.

I would love to have, I don't know if we had a TV network or a TV studio, we should just have one person running around the floor interviewing everybody that has a 10 by 10. If you have a bigger booth, the other editors will get to you. You have a smaller booth talking to some of these companies that have some, maybe they're mundane products they've introduced to the market that are disruptors, seals or lubricants or something. But then some of the other stuff that's inspecting composites, how to tell if a dent is serious or not. I mean so many things on the floor. It's neat to see it growing beyond MRO Americas, which if you've never been to that show, I mean, boy pack a lunch if you hit the show floor there because it's just unbelievable. But I'm getting that feeling on the MRO Europe floor now too. We got to find a way to maintain that or bring more of that onto the conference side. It is important we get people like Andy Best speaking, and he says a lot of interesting things. And we got a lot of top tier executives from the OEM side as well as the MRO side. And I think that maybe you're right, we need a bar in the back. Pints with Pozzi has been suggested before. Beers with Broderick.

James Pozzi: Drams with Derber, maybe.

Alex Derber: Drinks with Derber.

James Pozzi: Excellent. I couldn't agree more. I think it was just under 12,000 who attended actually in London over those three days. So really strong turnout and yeah, very strong energy to the show too, I thought and lively event. Anyway, that brings us to the end of this podcast. Alex and Sean, thank you very much for joining us today and giving your insights. It was much appreciated. And thank you for listening. And don't miss the next episode by subscribing to the MRO podcast wherever you listen. And one last request. If you're listening in Apple Podcasts or Spotify and want to support this podcast, please leave us a star rating or write a review. Thank you.