The long-anticipated uptick in CFM56 overhauls is not only underway but is outpacing even the rosiest projections as airlines flush with cash invest in work to keep newly overhauled motors in service as long as possible.
Safran, whose Snecma subsidiary is half of the CFM joint venture along with GE Aviation, says that CFM56 parts revenue in 2016 is on pace to be double that of 2010, thanks in large part to a notable uptick in overhauls that began in 2014. Annual shop visits, which are on a long-term climb of about 5% annually, were up 7-8% over the last two years, Francois Planaud, Snecma executive vice president for Services and MRO, told analysts at a recent investors day. Analysts at Canaccord Genuity believe shop visits could jump as much as 10% this year.
Longer term, annual spare parts revenue is on pace to be triple the 2010 baseline figure by 2022. That is three years earlier than Safran projected three years ago, when it unveiled a revamped aftermarket forecasting model that factors in variations in customer behavior.
“We are on a higher trend than we were contemplating in 2013,” Planaud explains. “We’ve seen this curve materialize with an approach in maintenance activity, especially in the first shop visit, where you not only refurbish the core but also replace many [life-limited parts, or LLPs], including those outside the core.”
The added spending—made possible in large part by a combined global airline profit that topped $33 billion in 2015, International Air Transport Association figures show—means carriers are doing more preventive work to keep their revenue-generating assets in service. With airline profits set to rise 10% in 2016, Planaud sees little change ahead. We are at the stage where average dollars per shop visit will stabilize or slightly increase, and growth will be driven by total shop visits and some price [increase],” he says.
A major factor in CFM56 aftermarket growth is the 25,000-engine-strong fleet’s relatively young average age of less than eight years. A 3,500-engine backlog—including 542 ordered in the first quarter—means it will stay relatively spry; Safran projects the 2025 fleet age will be just below 15 years old, thanks to both new deliveries and retirements.
Younger engines mean more total shop visits—especially the lucrative initial one that usually comes 7-8 years after entry into service. While initial visits are almost always tied to LLPs with 20,000-cycle limits, many carriers are replacing major parts with longer hard-time limitations as well, Snecma and GE say. This helps maximize time on-wing until the second visit and drives up per-overhaul parts revenue for the OEMs.
In 2015, 60% of CFM56 overhauls were initial shop visits, and another 20-25% were second visits, Snecma’s figures show. In 2025, 60% of all visits will be either first or second.
“[The CFM56 overhaul market] is a very vibrant market, and it is still seeing new entrants coming in,” says Brian Ovington, director of services marketing at GE Aviation. “There are still a lot of people who view the -5B and -7 markets as a growth opportunity.”
Market entrants in the last several years include AeroGulf, which added CFM56 capabilities to its Sola Engine Center in Norway, and GA Telesis, which purchased Finnair’s former shop in Finland. Airlines such as Lion Air, which has more than 360 CFM56-5s and -7s in service or on order, are also ramping up CFM56 overhaul capabilities, adding to aftermarket options.
“As shop visits grow, you are going to see a greater use of capacity in MROs,” Ovington says.
CFM56 MRO activity growth will come from work on the -5s and -7s—the so-called second-generation (Gen II) models. Aviation Week’s Commercial Fleet & MRO Forecast sees CFM56 Gen II overhauls growing from about 2,000 in 2016 to nearly 3,400 in 2025. The 10-year total of 26,700 shop visits will be dominated by CFM56-7s, which will account for about 60%, or 16,200 overhauls. The CFM56-5A and -5B will make up another 5% and 30%, or 7,900 and 1,400 overhauls, respectively.
The CFM56-5C, which powers the Airbus A340-200 and -300, is projected to fall off steadily from about 240 overhauls in 2016 to just a handful in 2025. Shop visits could decline more quickly, however, as A340 operators start to park aircraft and rotate green-time engines through the remainder of their fleets, avoiding overhauls in the process.
The CFM56 Gen II market will generate nearly $78 billion in work over the next decade, with CFM56-7 service grabbing 63% of the revenue, or $49 billion. The -5B work will account for another 30%, or $24 billion.
Still to come: the ramp-up of Gen II used material. Demand is exceeding supply at the moment, and “a near-term pause” in used-parts availability could be on the horizon due to fewer retirements of older aircraft, Canaccord Genuity analysts note (see page MRO14). “However, assuming Airbus and Boeing are able to proceed with the announced rate increases on the narrowbody aircraft”—Airbus plans 60/month on the A320neo line by 2020, while Boeing’s 737 MAX will be at 52/month by 2019 they say ”there will be plenty of feedstock in terms of retirements over the next five years.”
This article has been updated to clarify that initial shop visits are almost always tied to LLPs with 20,000-cycle limits.