Viewpoint

Too early to see impact of oil price on MRO

While some airlines – those that aren’t hedged – are enjoying the benefits of the dramatic drop in fuel prices over the past 12 months, the jury is still out on whether these lower operating costs will result in an increased demand for maintenance activity.

While some airlines – those that aren’t hedged – are enjoying the benefits of the dramatic drop in fuel prices over the past 12 months, the jury is still out on whether these lower operating costs will result in an increased demand for maintenance activity.

In its outlook for the MRO sector in 2015 published yesterday (March 19), consultancy VZM Management Services, concluded that while low oil prices could offer a potential boost to the global MRO sector – as a result of airlines extending the operational life of older aircraft – but the impact was likely to only be seen “at the end of 2015” and only then if low-oil prices remain at their current low prices.

In interviews for ATE&M’s forthcoming article examining the outlook for the MRO market this year, CAVOK’s Dave Marcontell agreed: “There’s a lot of debate about oil prices and the questions is whether airlines dramatically change their capacity in the market place. The evidence that we are seeing to date indicates that they are not.”

“Even though oil and fuel prices are down substantially today, thus increasing or improving the bottomline, we’re not seeing the airlines react by trying to pursue outsized growth.”

He did confirm, however, that if carriers do decide to increase flying hours substantially they will be doing it by not retiring aircraft.

If Phil Seymour at IBA’s experience is anything to go by, that trend may already be starting. “We’ve found that on the aircraft we’re managing this year all the operators are extending the leases and that includes airlines such as IndiGo and Vueling.

“You can’t be sure that they wouldn’t have extended the lease anyway, but it’s obviously helped the situation the fuel price being where it is. Their view now is that rather than perform the end of lease checks and hand the aircraft back, they’re performing the maintenance and reinvesting in that aircraft and operating for another three or four years.”

Now this is very much a double edged sword for MRO companies.

While such decisions means what MROs benefit from an increase in heavy maintenance checks for mid-age and older aircraft, at the same time they are missing out on revenue from end-of-lease checks.

It seems that, in the short-term at least, the MRO sector is going to see a shift in where their revenues are coming from, rather than an influx of new work as a result of cheap fuel.

Look out for ATE&M’s MRO market outlook in the April/May edition.

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