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Surging Demand Could Overheat Engine MRO Market

The industry is facing growing turn-around times for engine shop visits.

The commercial aftermarket is surging, but rising demand in capacity-limited areas, notably engine overhauls, is threatening to create a bottleneck that could leave the market struggling to manage its success. 

A Canaccord Genuity survey underscores that airline MRO, driven by steady demand for passenger and cargo lift, is trending upward. “As we have been conducting research for this survey, we have not heard as much optimism for the market since 2014,” Canaccord analyst Ken Herbert wrote in a research note. Canaccord’s canvassing of more than 40 MRO providers—including both OEMs and independent shops—concluded that MRO sales were up 7% in the first quarter, with parts sales lagging just behind.

Among the risks: a jump in fuel prices that could curb demand and make airlines less likely to invest in older, more maintenance-hungry equipment. However, Herbert sees this as unlikely. “Moreover, we believe the airlines waited [about] two years before increasing investments on older aircraft as fuel prices dropped in H2/15, and the investments now we believe support the view that the industry is not viewing crude pricing as a major near-term risk,” he wrote.

Another risk that is more of a near-term threat: surging demand for engine overhauls, particularly on the global fleet’s narrowbody workhorses, the Boeing 737NG and AirbusA320ceo families. Even before the recent rise in aircraft utilization, both the CFM InternationalCFM56 and International Aero Engines V2500 families were on track to see rising overhaul demand for key models, driven by the timing on initial overhauls and engines coming back for second shop visits. Mix in some extended utilization of older aircraft supporting strong global passenger demand, and global overhaul capacity for some models is tightening.

“As a result, the industry is facing growing turn-around times for engine shop visits, and the scarcity of some narrowbody engine material has become a real risk to the growth in the engine aftermarket, in our view,” Herbert wrote. “In the near term, we believe this is a positive for the engine OEMs (more new material sales as there is less [used material] than expected), but it does pose a substantial risk if capacity and lead times do not improve ahead of the summer flying season.”

Recent earnings reports underscore the engine aftermarket’s strong position. GE Aviation reported a 12% year-over-year (YOY) increase in aviation services, while Pratt & Whitney saw commercial aftermarket growth up 18% YOY, calling out the V2500 and PW4000 as notable contributors.

Bigger-picture, companies are reporting results that support strong MRO sales across the board. UTC Aerospace Systems said its commercial aftermarket was up 16% YOY, with initial provisioning playing a major role in the jump. Honeywell said its aftermarket was up 4% last quarter—a figure that executives said is reflective of the company’s increasing reliance on long-term service agreements that deliver more consistent returns.

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