Printed headline: Changing Times
CFM International is seeing a “market shift” in how customers use its aftermarket services, with more Leap-family customers opting for customized, long-term agreements, a top Safran executive says. While the change is coming, the company’s near-term services business will continue to be dominated by CFM56 work, as shop visits for the venerable narrowbody engine are not expected to peak until the middle of the next decade.
“This is really a market shift, an increase in demand from customers for long-term services contracts providing maintenance-cost predictability,” says Francois Planaud, Safran Aircraft Engines executive vice president of services and MRO.
Planaud says 28% of Leap engines sold to date have long-term service agreements (LTA) attached. The figure rises to 65% when only the in-service fleet is counted. He expects it to reach 65-70% eventually, reflecting new deals from customers that have bought the engine but not yet set up their MRO plans.
“We have a lot of discussions with customers who have ordered Leap engines, that enter into service [agreements] later down the road,” he says. “So they still have some time to finalize their maintenance schemes.”
The GE-Safran joint venture books two types of long-term agreements: engine service per flight hour (ESPH) and engine service per overhaul (ESPO). Both offer similar benefits to operators, especially predictable costs over the contract’s life, which is typically 8-12 years. The primary difference is that ESPH deals are paid on a per-flight-hour basis, while the ESPO payments are due at the time of each shop visit. In each case, baseline overhaul costs are negotiated in advance; the only difference is when the customer pays.
“The price has been negotiated, and the cost-management side really becomes the main driver for the MRO provider through time on-wing and maintenance cost management,” says Planaud. “This is really a trend of the market to request that increased scope of services.”
Safran says 75% of its Leap LTAs are ESPO agreements, while the rest are ESPHs. Customization goes beyond fleet size and often includes add-ons, such as spare engine leases and engineering support.
The Leap overhaul ramp-up will not come for several years, but otherwise will mirror the new-engine delivery stream that is underway. After delivering just 76 Leaps in 2016 and 459 in 2017, CFM was on track to top 1,100 deliveries in 2018 as the year wrapped up, surpassing legacy CFM56 annual deliveries for the first time. Leap shop visits are projected to ramp up sharply starting in 2022-23. Safran projects annual Leap shop visits will surpass 1,000 in 2025.
Meanwhile, CFM56 aftermarket activity is still nearly a decade from its peak. Less than half of all CFM56s are under LTAs, and 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. 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 have their first shop visits ahead of them, while 50% will have already had one.
Continued strong demand for passenger lift means airlines are pushing their existing equipment longer, which drives aftermarket spend. Safran now projects that peak annual CFM56 shop visits will top 3,000 in 2025.
“The two first shop visits are really the main contributors in terms of revenues,” Planaud says. “Those engines that are quite young have heavier work scope, full performance restoration and life-limited part consumption.”
Safran’s spares-sales volume is increasing as well. The company, sharing its updated outlook at its Capital Markets Day last month, is now projecting that 2022 CFM56 spares sales will be 3.7 times higher than the total generated in 2010, at the bottom of the last recession. At its last Capital Markets Day, in March 2016, the company forecast its 2022 CFM56 spares revenue would be triple the 2010 figure.
“We have benefited the last two years from quite strong tailwinds arising from very solid traffic growth, high demand, very high utilization of our products and the financial situation of the airlines that have enabled them to invest in the maintenance of the engines,” Planaud says.
The company sees annual spares revenue increasing in the high single digits for the next several years and peaking around 2025. By then, some 6,000 engines in the 20,000-strong fleet will be operating with at least two shop visits. Depending on demand for lift, this will either help create a bubble of late-life shop visits and spares sales or a flood of used parts to support younger engines.