Airbus’s decision to further reduce annual production rates for its A380 aircraft from its present level of 15 aircraft per year to 12 next year and eight by 2019 could lead to significant changes in the superjumbo’s aftermarket.
Confirmed by Airbus in July 2017 to coincide with the release of its results for the first half of the year, the aircraft manufacturer’s announcement followed its decision to reduce deliveries from 27 aircraft in 2015 down to 15. Airbus Chief Executive Tom Enders described the prospect of new orders for the A380 in the near-term as “not necessarily high”—further dampening the prospects of the most expensive program in commercial aviation history.
With 214 aircraft in service as of July 2017 and with a backlog of 103 jets, the European OEM hasn’t received any new A380 orders in more than two years. Instead, carriers have been more inclined to look elsewhere at other widebody aircraft options, with some, including Air France—among the first A380 operators—canceling its two remaining orders in favor of the smaller twinjet A350.
According to data from Aviation Week’s Fleet & MRO Forecast 2017, over the next 10 years MRO for the A380 is forecast to generate $25.5 billion, with a compound annual growth rate (CAGR) of 7.2%. MRO spending on one of its engine options—the Engine Alliance’s GP7000, is expected to more than double, from $324 million in 2017 to a peak of $716 million in 2023. The other option, the Rolls-Royce Trent 900, is also predicted to see aftermarket work grow rapidly—from next year’s $189 million in MRO spending to $681 million in 2023.
While the data indicate an important opportunity for MROs, particularly in the engine segment, the unique proposition that is the A380 will still present obstacles. Jonathan Berger, managing director of Alton Aviation Consultancy, says the production cuts will present a barrier to entry for MRO providers assessing whether to enter the A380 market for several reasons. “It could be difficult to achieve economies of scale and meet shareholder return on invested capital requirements,” says Berger. “A significant capital investment is required for facilities, training, tooling, and inventory in order to enter the A380 MRO market.”
As a result, Berger feels that existing MRO providers for the aircraft who invested early in capabilities should benefit from greater leverage and pricing power. Conversely, Berger says that because a secondary market for the aircraft has yet to develop, “significant challenges” also exist for MRO providers.
“MRO investments made to date on the basis of a 20-25 year economic life for a program appear to be facing a situation where some retirements may occur at the 10-12-year stage,” Berger says. “With talk of some of early Singapore Airlines A380s coming off lease going to part-out, this would naturally lead to reduced MRO demand and increasing supply of surplus parts.”
The Asia-Pacific region, home to the largest number of A380 operators, with seven carriers running them in their fleet, has a projected MRO demand of $6.5 billion over the next decade, with around half of that figure accounted for by Singapore Airlines’ SIA Engineering Co.
The Middle East is likely the epicenter of the A380 fleet, with carriers Emirates—its largest operator, with nearly 100 aircraft in service—Etihad Airways and Qatar Airways operating more than half of the global fleet combined. The past year has also seen significant ramp-ups in the region’s A380 maintenance capabilities, with demand estimated by Aviation Week to stand at $13.6 billion from 2017 to 2026, for the highest CAGR of any region, totalling 9.4%.
In November 2016, Etihad’s in-house MRO arm Etihad Airways Engineering entered into a memorandum of understanding with Airbus to develop new A380 aftermarket-service offerings from Abu Dhabi. Specifically, these will support third-party work, with consumable and expendable parts provided by Airbus’s inventory management subsidiary, Satair. According to Airbus, the A380 services will be particularly helpful to carriers already possessing in-house MRO capabilities looking to offload some heavy checks and upgrades to third parties.
Europe, a region with the smallest A380 MRO demand—at $4.5 billion over the 10-year period—is home to three major A380 operators in the form of Air France, British Airways and Lufthansa, all of which possess MRO capabilities for the aircraft through their maintenance divisions.
AFI-KLM E&M performs line and light maintenance on the Air France fleet at its main facility at Paris Charles de Gaulle airport. For A380s reaching their sixth year of operation, checks have been performed at Airbus and ST Aerospace joint venture Elbe Flugzeugwerke in Germany, while the next ones due will be carried out at Haeco Xiamen in China.
“Air France’s first D check is not supposed to be embodied before 2021,” says Herve Page, senior vice president for engineering and aircraft maintenance. “Key repairs are embodied during six-year checks, and we do not anticipate major repairs to be done between the six-year and 12-year checks stages.” However, when viewing the wider market, Page said he remains confident of a good future supply for third-party work for the aftermarket provider, specifically in the areas of A380 engines and components.
Alton Aviation Consultancy’s Berger meanwhile foresees limited opportunities in MRO for A380 engines and components for third-party providers, due to the barriers to entry mentioned above. He says airframe heavy maintenance work, which will account for 8% between now and 2026, will mean a mass of material and man hours, while A380 modifications, estimated to drive demand of $7.8 billion with a high CAGR of 9.8% during that period, will require a large investment in developing a secondary tier of A380 aftermarket providers. c