UTC Aerospace Systems (UTAS), a bumper first-quarter of parts sales in the books, could see better-than-expected full-year growth in the sluggish initial provisioning (IP) arena, a top executive says.
“There is a little upside opportunity in the provisioning for the year,” Akhil Johri, CFO of UTAS parent UTC, said at a recent investor conference. "We still have to watch and see how the parts business . . . does for this quarter and the rest of the year. It's still early, but we feel more encouraged than otherwise with the performance there.”
UTAS entered 2017 expecting no growth in IP. But the first quarter saw a 30% year-over-year spike, driven by an A380 landing gear shipset sale. Even factoring that out, ongoing business was up 4%.
“It's still better than what our going-in position for this year was, which was flattish,” Johri says.
Large component suppliers like UTAS have seen dips in IP on new-aircraft platforms, starting with the Boeing 787. The primary driver is believed to be increased reliance on component-pooling.
The introduction of the newest narrowbodies is expected to help drive IP levels upward as industry gears up to support rapidly-expanding numbers of A320neos, 737 Maxs, and the CFM Leap and Pratt & Whitney geared turbofan-series engines powering them.
However, the trend of fewer parts supporting more aircraft appears to be here to stay.
"The percentage of the total aircraft covered by a component-support agreement has grown substantially over the past five years,” analysts at Canaccord Genuity say. “We believe that as component support agreements continue to take share on both existing fleets and new fleets, airlines will be in a position to continue to drive down inventory levels across the industry.”
This, notes Canaccord, could lead to a different problem for suppliers: downward pricing pressure.
"We have heard that pricing on component-support agreements, especially larger component agreements, seems to be more aggressive,” Canaccord says. ”[A]irlines that are signing up for them now are benefitting from pricing that is not sustainable, according to some in the industry.”