These days, with both air traffic demand and airline profits climbing, a mid-single-digit year-over-year uptick in anything airline aftermarket-related shouldn’t trigger much celebration. But word out of United Technologies Aerospace Systems (UTAS) that ongoing initial provisioning (IP) was up 4% last quarter is more than just a welcomed sign.
UTAS has not been delivering expected IP growth figures for a while. And they're not alone.
The popularity of component pooling agreements, especially tied to newer models with technologically advanced, reliable and expensive spare parts, means that fewer spares are being procured by new operators. Canaccord Genuity analysts have been sounding the alarm for some time, calling the agreements “a significant threat to the longer-term initial provisioning opportunity for suppliers” in a late 2016 research note.
Not surprisingly, UTAS, which has about 20 systems on the Boeing 787 (including the nacelle, pictured) and a smaller but still significant amount of content on the Airbus A350, has been feeling its share of the pain. The company—part of United Technologies Corp. (UTC)—saw a slight drop in provisioning in the fourth quarter, and has projected a flat line for full-year 2017.
The actual first-quarter growth figure was an eye-popping 30%, which management quickly clarified was mostly thanks to some large one-off sales. Among them: a spare A380 landing-gear ship set and some engine components to support for a higher-than-usual number of spare geared turbofans being delivered to help operators through well-reported early teething issues.
“We wanted to give you the color of 4% to make sure that you guys don't start projecting 30% growth for every quarter going forward,” UTC CFO Akhil Johri quipped on the company's April 26 earnings call.
The good news is, the maturation of the A350 and 787 program--and the ramp-up of the A320neo and 737 MAX--should provide UTAS some IP-related lift as the decade rolls on.
In the meantime, any year-over-year growth in UTAS IP revenue not tied to A380 landing gear sales is good news indeed.