A technician at the Pratt & Whitney engine center in Columbus, Georgia Pratt & Whitney
A technician at the Pratt & Whitney engine center in Columbus, Georgia, services a GTF engine. The OEM is expanding its global network to service this new-generation engine.

Assessing The Engine Aftermarket Capacity Crunch

Why airlines and operators have a hard time finding used engine material and shop slots, and the future outlook.

Years of relatively low fuel prices have kept many legacy aircraft in service longer than most experts would have guessed. Express shipping is driving a flourishing air cargo industry, and new aircraft are entering service. For engine MRO providers, times are good.

According to the latest available data from Aviation Week Network’s Fleet & MRO Forecasts, the engine MRO aftermarket in 2017 accounted for $23 billion of the total $74 billion spent on MRO that year. By 2027, the global MRO market is projected to reach $118 billion. Of that, engine MRO will make up $37 billion, for a CAGR (compound annual growth rate) of 4.1%.  

Over the next decade the market will be dominated by mature engines, those currently 10-17 years old and approaching their second or third shop visit. The CFM56-5/7B and the V2500-A5 are projected to account for the largest share of shop visits—as much as 30% and 14%, respectively—in 2018-27. Both engine families will generate $133 billion in MRO demand by 2027. At the same time, the new-generation Leap and GTF families will be making their initial shop visits by 2023. These visits should total 8,900 in 2018 but may reach 11,000 in 2027, for a 2.4% CAGR as mature engines are replaced by newer models with longer intervals between shop visits but with increasing individual service-visit costs indicated by the difference in growth rates (demand versus events).

Pratt & Whitney

A technician at the Pratt & Whitney engine center in Columbus, Georgia, services a GTF engine. The OEM is expanding its global network to service this new-generation engine.

But the good news for the engine MRO industry is tempered by supply chain and capacity challenges. For mature and “sunset” engines—those older than 20 years—parts availability is a major issue, ICF Principal Richard Brown reports.

“The industry has been surprised by the number of older engines going through shop visits,” he explains. “That has created parts shortages, because no one expected this to happen. It could be at least another few years before this changes.”

Turn times are also a major concern. As Greg Mitchell, vice president for aircraft accquisition and trading at Universal Asset Management (UAM) says, “With the increase in [MRO or OEM] shop visits on key engines, slower turnaround times and lack of available repair slots have increased.” Among the reasons Mitchell cites are peak production of the 737NG and A320ceo occurring only a few years ago. 

“There is a wave of expected engine shop visits coming, and we expect [engine] MRO capacity to remain tight for the foreseeable future,” he notes, adding that airlines have also shown more interest in acquiring engines for inventory and short-term support, rather than relying on normal channels of support from MROs, lessors and traders. “But this growth in demand has not been met with an increase in supply, and overall, has caused prices to rise and, at some points, surge,” he says.

According to Mitch Weinberg, president of International Aircraft Associates, service constraints are occurring in the engine and component shops due to increasing investments in legacy engines, and the repaired used serviceable material required to support the shop visits. He also predicts that legacy engines will not disappear anytime soon, despite predictions to the contrary only a year ago. “For example, the RB211-535 has had a major resurgence,” he notes.

Lufthansa Technik

A technician at Lufthansa Technik in Hamburg welds a CFM56-5A turbine rail frame. Demand for service on mature engines—such as the CFM56 family—remains strong, even as newer engines are starting to make their first shop visits.

While the lower cost of fuel initially was the main incentive for airlines to invest in maintaining and continuing to operate older aircraft, more recently delays in new aircraft deliveries—coupled with the problems associated with new-engine models and the ongoing conversion of older aircraft to freighters—have been the primary drivers, says Weinberg. “Once these investments have been made, these aircraft will be utilized for at least 10 more years,” he says.

Matt Jessee, Aviall’s director for propulsion/engines, reports that the company’s commercial airline customers are looking to secure material spares agreements for mature fleets, to meet the strong utilization forecasts over the next 5-10 years. “They are also looking for opportunities to enhance engine maintenance budgeting through optimization tools and turnaround time reduction,” he says. 

He notes that Aviall is seeing a stronger commitment from airlines to support their mature fleets, compared to just five years ago. “We believe this is a result of the need to address industry capacity constraints and stronger global economies while onboarding entry-into-service fleets,” he explains.

Capacity Constraints

Engine MRO slot capacity constraints “have been developing globally” over the past five years, according to Leo Koppers, senior vice president for MRO programs at MTU in Germany. This, he says, is the result of new-generation engines entering shops earlier than planned, coupled with continued high demand for engine MRO services and sustained demand for mature engines such as the CF6-80, which are being flown longer or even revived.

 Asked about coming trends in the engine MRO market, Koppers agrees that the CFM56 and V2500 families are the ones to watch, given their large installed fleet. “The newer variants—the V2500-A5 and CFM56-5B and CFM56-7 are starting to mature, which will mean increasing costs due to heavier shop visits and material replacement,” he says. “In fact, many will be retired over the next 10 years, which will create an increased supply of spare engines and used serviceable material [USM].”

At the same time Koppers cites the CF6-50, CFM56-3 and CF34-3 as those that will see a declining number of shop visits as they are phased out of commercial operations. “The PW2000 and CF6-80C2—in passenger revenue service—will also continue to leave the fleets in the coming years,” he says. 

Joe Sylvestro, vice president for aftermarket operations at Pratt & Whitney, confirms that with more than 7,000 engines in service, the V2500 will be in high demand for at least the next decade. He expects the PW4000 and PW2000 to remain in service for some time. “They will continue to be an important part of our overall engine portfolio, just at lower rates than during the prior decade. In fact, PW2000-powered Boeing 757s are in very high demand in the used aircraft marketplace.”

StandardAero

At StandardAero, MRO requirements for mature engines can skew toward cost issues and customized solutions.

On mature platforms, MRO requirements can skew toward cost and customized solutions, reports Alex Trapp, senior vice president for business development at StandardAero. This, he says, is facilitated byUSM, component repair and repair development; asset acquisition and disposition; engine exchange programs and creative work-scoping, such as module-level MRO.

“Some of the ways we address those requirements have changed, such as increased repair development for parts with constrained supply chain access, and creating timely access to USM through asset acquisition and/or teardown, all in conjunction with OEM practices and procedures,” Trapp notes. As for USM, he says although there is supply constraint on certain parts on certain programs from time to time, it is not a huge issue across the board.

“Aircraft retirement will lead to availability of engine assets and USM, which will help facilitate some of the customer requirements on cost and availability of parts for maintenance,” he points out. “But it will also increase the need for customized maintenance solutions for certain customers, such as with airlines meeting lease-return conditions, and lessors/owners retaining asset value and remarketability to the next tier of operators or disposition.”

ICF’s Richard Brown sees 9,100 aircraft retirements projected for 2017-27, with about a 50/50 split between narrowbody and widebody aircraft. The widebodies, he says, will account for an increasing number of engine shop visits over that period, particularly for the Rolls-Royce Trent 700 and 900, and the GE 90. 

On retirements, MTU’s Leo Koppers says that current and rising oil price trends and growing deliveries of new aircraft indicate that retirements and storage of engines could increase once traffic growth falls below about 4-5%. “It is hard to say when this might happen, particularly as the global economy remains strong,” he stresses.

Marc Schwabe, head of business development and finance for the engine products division at Lufthansa Technik, sees no near-term fundamental changes in the engine MRO market—barring an oil-price peak or global economic collapse. However, he predicts the engine aftermarket will change dramatically in 10 or more years if the new engine types take over, in terms of volume.

“The main drivers for change will be different aftermarket strategies of the OEMs and consolidation of the market,” he says. “From an independent engine MRO perspective, it is also becoming more difficult to establish a business case. Tooling is very expensive and, along with being licensed by the OEM, it is crucial to have access to the MRO volume required to justify high ramp-up investments.” Lufthansa Technik, he says, is preparing for the new engine types, currently focusing on the Leap.

The engine OEMs and MROs are, in fact, entering a period in which a large number of newer-generation engines will be making their first shop visits while demand for older powerplant service continues. To alleviate capacity crunches, OEMs are pursuing joint ventures and third-party partnerships as well as investing in in-house infrastructure.

MTU

Aviation Week data projects the V2500 engine, shown here, will account for 14% of commercial aviation engine show visits from 2018-27.

“In GE’s and CFM’s open MRO model, third parties invest to compete for overhaul work, creating the slots and capacity that provide additional flexibility and capacity for the fleet,” says Bill Dwyer, GE Aviation’s general manager for services marketing. He reports that the OEM has not only added capability for the Leap engine at its Lafayette, Indiana, location, but announced XEOS, a joint venture with Lufthansa Technik for GE9X support at a new service center to be built in Poland. Overhaul capacity at a GE facility in Singapore for the GE9X is also being established. “Multiple third parties have announced their intent to perform Leap and GEnx overhaul in recent years,” he notes.

Dwyer further explains that most of the workscopes on engines that have recently entered service are not performed at full-performance restoration sites. “That has avoided bottlenecks in overhaul and supply chain capacity, especially now that the existing installed bases of CFM56-5B/-7, GE90-115, and CF34-8/-10 engines are going through their peak shop-visit periods.”

Rolls-Royce, which projects an installed engine fleet of 7,500 by 2025, is “growing capacity through continued investment” in OEM-owned and joint venture facilities, reports Lesley So, head of marketing services for civil aerospace. This will result in a 60% capacity increase by 2019 compared to 2017, which is the equivalent of adding two Rolls-Royce Derby shops plus another N3EOS-sized facility, he says.

“We are also growing the network by adding additional shops, which includes developing our authorized maintenance center network—with shops such as Delta TechOps and Air France-KLM Engineering & Maintenance—that will cater to young Trent fleets such as the Trent XWB,” So explains. “We have also selected StandardAero for the RB211-535, which liberates capacity within the existing network for Trent overhauls.”

He adds that the OEM also has launched initiatives to address customer disruptions caused by increased inspection requirements on the Trent 1000 Package B and Package C engines. This includes tripling maintenance capacity for those engines, introduction of a new inspection technique and accelerating a permanent fix. 

To support the future volume of its new family of geared turbofan engines (GTF), Pratt & Whitney has a network of five engine overhaul centers but projects to expand that to eight by 2020 with the addition of Delta TechOps. Currently, the GTF MRO network includes MTU Aero Engines, Japanese Aero Engines Corp. and Lufthansa Technik. Pratt & Whitney Eagle Services Asia starts GTF MRO operations next year.

“New members of the network will be announced as agreements are finalized and as engine volume grows to meet demand,” says Pratt & Whitney’s Sylvestro. “The challenge and task in the early years of a new product line is matching maintenance, repair and overhaul capacity to a growing fleet, evolving engine condition and service needs, and material flow for new spares and repairs. How well we execute this balancing act will define the customer’s MRO experience.” 

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