Airlines are opting for more long-term agreements to maintain their CFM International Leap engines compared to CFM56 models, but the venerable CFM56s will continue to drive the engine maker's aftermarket revenues for years to come, with peak annual shop visits expected to occur around 2025, Safran says.
"This is really a market shift, an increased demand from customers for long-term services contracts providing maintenance-cost predictability," says Francios Planaud, Safran Aircraft Engines EVP of services and MRO.
Planaud says 28% of Leap engines sold to date have long-term service agreements (LTAs) attached. The figure rises to 65% when only the in-service fleet is counted. Planaud expects the total number range from 65-70%, reflecting new deals from customers that have bought the engine but not finalized their MRO plans.
"We have a lot of discussion with customers that have ordered Leap engines, that enter into service later down the road," he says. "So they still have some time to finalize their maintenance schemes."
Among those signing LTAs, 75% are opting for deals that call for payments when the engine is overhauled, while the rest pay a basic per-hour agreement throughout the contract. In each case, baseline overhaul costs are negotiated in advance; the only difference is when the customer pays.
The shift will re-shape Safran's engine-aftermarket revenue split significantly. Last year, it generated 12% of its sales from LTAs, with the rest coming from so-called "time-and-materials" deals and spare parts. By the middle of next decade, it expects LTAs to account for 30% of its aftermarket sales. Safran generated about 60% of its $11 billion in 2017 Aerospace Propulsion business unit revenue from services.
Leap shop visits are projected to ramp up sharply starting in 2022-23. Safran, a 50-50 partner in CFM with GE Aviation, projects annual shop visits surpassing 1,000 in 2025.
Meanwhile, CFM56 aftermarket activity is still nearly a decade from its peak. The family's two most popular members, the -5B that powers Airbus A320ceo-family aircraft and the -7B that is the Boeing 737NG's sole-source powerplant, make up about 80% of the 28,000 CFM56s in service, Safran says. Of the 22,800 -5Bs and -7Bs in service, 60% have not had their first shop visit, and 30% have been overhauled just once. In 2025, 20% of the estimated 22,000 still in service will still have their first shop visits ahead of them, while 50% will have had one.
Continued strong demand for passenger lift means airlines are pushing their equipment, which drives aftermarket spend. Safran now projects annual CFM56 shop visits will peak in 2025 or 2026, topping 3,000.
Its spares-sales volume is increasing as well. Safran, sharing its updated outlook at its Capital Markets Day last month, is now projecting that CFM56 spare-parts sales in 2022 will be 3.7 times higher than the total generated in 2010, at the bottom of the last recession. At the company's last Capital Markets Day, in March 2016, the company forecast its 2022 CFM56 spares revenue would be triple the 2010 figure.
It sees spares revenue tracking with shop visits and peaking around 2025.