Most of the supplier-attendees gathering in Orlando for MRO Americas this week should be flying high. Global airline available seat kilometer growth has been humming along in the mid-single-digits for nearly two years, driving demand for more aircraft utilization. Oil prices are still low enough to keep older, less fuel-efficient aircraft operating, so they are flying more—and needing work. And airlines are making money.
But while many MRO providers are enjoying solid returns, not everyone in Orlando is singing happy songs. One group in particular that is likely feeling a bit left out of the party is component suppliers.
It’s no secret to even casual commercial aftermarket observers that fundamental shifts in airline maintenance practices are re-shaping the MRO landscape. Airlines are getting smarter with their inventory, turning to the surplus market where they can, and banding together in pooling agreements to hold down both inventories and initial-provisioning costs for the newest-technology aircraft—notably the Boeing 787 and Airbus A350.
While these trends hit large swaths of the MRO landscape, the component folks appear to be feeling it the most. Analysts at Canaccord Genuity track aftermarket sales and revenues at a handful of publicly traded companies. A breakdown of aggregated aftermarket sales reports from eight component-heavy supplers--Crane Aerospace, Heico, Honeywell, Meggitt, Rockwell Collins, TransDigm, United Technologies Aerospace Systems, and Woodward—shows that year-over-year sales are expected to be up only 2% in the first quarter.
That’s not good, but it’s better than the 1% uptick from the 2017 fourth quarter. “While this does represent a sequential improvement,” Canaccord said in a recent research note, "it also highlights the on-going disconnect between the growth in passenger traffic and airline capacity, and the commercial [aftermarket] growth from industry suppliers.”
Airlines are getting smarter about how they manage maintenance expenditures, and more sophisticated in their service demands. Engine MRO providers—principally the OEMs--have responded by expanding service offerings and, notably, becoming the biggest consumers of used material. Such moves give their customers more options and help control costs, which under long-term agreements becomes the MRO provider's problem.
Whether component providers have similar plays remains to be seen. MRO Americas may shed some light on their current thinking.