MRO providers expect to see a growth rate that lags behind airline industry fundamentals—notably traffic growth—this year, citing newer aircraft with long-term service agreements, older aircraft that may not warrant heavy spending, and higher reliability of current-generation aircraft as primary drivers, a Jefferies survey reveals.
"Conclusions from our aerospace aftermarket survey indicate a healthy outlook for aftermarket growth (5%) but one that is slightly below investor expectations (6%-7%)" that more closely align with projected traffic growth, Jefferies analysts wrote. "The lower figures from our survey respondents may be due to some structural changes in the industry, with more aircraft under service agreements."
While the new aircraft are creating some headwinds for traditional parts and MRO business, they are balancing it out some by driving demand for initial provisioning (IP). Sixty percent of survey respondents expects a boost of 1-10% from IP, Jefferies says.
One mild surprise from the survey: respondents did not cite alternative parts—and used parts in particular—as a headwind.
"According to our survey neither surplus parts nor the PMA market appear to capture a significant share of servicing activity," Jefferies said. This despite consensus that the used-parts market will grow at a greater clip that the overall MRO market.