Aircraft Lessors Throttle Up Focus On Engines

Companies that lease aircraft to airlines are increasingly focusing on engines and becoming more active in that element of MRO, according to one industry executive.

Companies that lease aircraft to airlines are increasingly focusing on engines and becoming more active in that element of MRO, according to one industry executive.

Moreover, in their efforts to maximize use of cash in leases, they are beginning to show behavioral changes that could catch others off guard, if audience reaction by participants at one panel discussion here during Aviation Week’s MRO Americas 2014 is a good indicator. For instance, Paolo Lironi, executive director for leasing at SGI Aviation, says lessors appear to be opting toward cannibalizing, or parting-out, engines instead of submitting them to their second major overhaul appointment.

While such a decision depends significantly on the details of an engine and the marketplace involved, Lironi asserts that on a large scale the parting-out move represents a growing trend with lessors. A few audience members voiced skepticism and questioned Lironi further, but he did not waiver from his observation.

Audience members suggested that writ large, engines can have a lifespan of 25 years, and such an early parting-out makes for a major change in industry behavior. But Lironi says lessors tend to believe engines have a shorter lifespan, maybe 18-20 years, and with the business focus on optimizing cash income from leases, parting-out the engines at 14-16 years is more appealing than spending on a second, expensive shop visit. In addition, with parting-out on the rise and a subsequent surplus of parts for other engines, it makes more business sense for lessors to simply replace the engine in question on the aircraft.

“It’s a matter of economics,” he says. “Lessors are trying to convert life into cash.”

Speaking on a panel discussing engine MRO trends and forecasts, Lironi says the trend comes as engines in general are receiving more attention by lessors, and as lessors show more interest in higher-aged aircraft.

With new aircraft, lessors are making deals with OEMs and MRO providers at the time of aircraft purchase, according to Lironi. “Engine selection on new aircraft is becoming more and more a strategic decision,” he says, pointing to the AFI Airbus A350 decision. Also, OEMs, which are becoming more active in providing MRO, in turn have programs to suit, including the RR Opera, GE OnPoint and CFM MPA.

Regarding midlife aircraft, lessors are making deals directly with MRO providers off lease but also discounted for engines on lease. They are also becoming better informed about engine repair work itself and are speaking up.

As for end-of-life aircraft, lessors are paying more attention toward engines, but Lironi acknowledges that the airframe, landing gear and other parts remain key focal points.

Tom Cooper, executive vice president and principal at TeamSAI, told the audience that there are more than 48,000 engines in the MRO marketplace worldwide now and that the figure should grow to around more than 68,000 by 2024. The engine fleet will show a compound annual growth rate (CAGR) of 3.4% over that time, although there will be differences – for example, through 2019 there will be a CAGR of 3.7%, while from then to 2024 it will be 3%.

Engines make up 38% of the total aircraft MRO marketplace, worth about $22 billion now. That figure should show a CAGR of 4.1% over the next 10 years globally, although North America, the largest region by market share, will be flat as most new aircraft entering that marketplace are expected to replace older airplanes.

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