How Will The Aviation Aftermarket React To Rising Fuel Costs?

Airline profitability the past few years has been buoyed by low fuel prices, but as brent crude futures increase—they were $55.63 per barrel on Jan. 17, according to Reuters—expect airlines and MROs to react.

Delta Air Lines has decided to keep capacity flat for the first quarter as it anticipates fuel prices during the period to be $1.68-1.73 per gallon, which is 30% higher than in 2016, when oil prices were closer to $35 per barrel, reported Aviation Daily, another Aviation Week Network publication.

United Airlines surprised the industry earlier this month by announcing that it will retire its Boeing 747-400 fleet by the end of 2017, which is a year earlier than was expected. “Our forward-looking fleet plan will cover 747 replacements and anticipated growth opportunities,” United President Scott Kirby stated in a memo to employees posted on the company’s blog.

The airline operates 20 of the Pratt & Whitney PW4000-94 powered 747-400s that average 21 years of age, according to Aviation Week’s MRO Prospector tool.

For the MRO community, the super jumbo signifies an aging aircraft that generates work. Globally, MRO Prospector pegs 212 747-400s, minus freighters, to operate this year and generate $1.5 billion in maintenance.  That is significant. But in five years, the fleet is forecast to drop to 114 and to 29 in 10 years.

That’s quite a drop off, but keep in mind that there is skepticism about the broader widebody market in 2017. As AerCap CEO Aengus Kelly said at the recent Airline Economics Growth Frontiers conference in Dublin, “We see big deferrals in the widebody market.”

Beyond that market, the International Air Transport Association cautions that airline profitability will be lower this year than last, so the supply chain and aftermarket will feel it.

Therefore, the MRO sector should focus on productivity.

Latam Airlines is an excellent example of this. Using five MROs—two internal and three external—it cut the installation time for a new wireless inflight entertainment system across its narrowbody fleet from six days to less than two (page MRO14). At the same time, it worked with the vendor, Zodiac Aerospace, to upgrade the product four times to improve its availability—all while keeping the overall project with budget.

Part of this success stems from its Blue Book, which is a playbook of best practices across projects. Although airlines and MROs have vast amounts of institutional knowledge and best practices, they often are not captured so that other projects or business areas can benefit from them. Documenting the best of the best and incorporating them into daily workflows—to make them measurable and visable—is key.

How is your business improving productivity? I’d love to hear your ideas and actions.

If you are looking for suggestions, I would recommend the additive manufacturing advances article (page MRO8) that shows how the technology could change entire business models, for starters. 

Keep up with Shay at AviationWeek.com/mro and on Twitter @AvWeekLeeAnn

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