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Analysts See a Healthy Aftermarket Future, but Challenges Identified

Industry experts from CAVOK and AeroDynamic Advisory analyze the commercial MRO market at MRO Americas 2019.

ATLANTA--The commercial aftermarket’s positive state of health is tipped to continue for years to come, but analysts have warned factors such as access to labor and supply chain bottlenecks could present challenges.

Speaking at MRO Americas in Atlanta on Tuesday (April 9), Dave Marcontell, general manager at CAVOK, the technical consulting division of Oliver Wyman, describes the global MRO industry as being in a “strong and sound” state overall.

This year, Marcontell says the global fleet of just more than 27,000 aircraft will result in a total MRO spend of $82 billion, according to CAVOK research. With the global fleet predicted to climb to just below 40,000 by 2029, he believes this will climb further to $116 billion by that time – representing an annual growth rate of 3.5%. Kevin Michaels, managing director of AeroDynamic Advisory, says the consultancy estimates an MRO industry value of just over $74 billion, with engines accounting for around 40% of this.

“One of the most interesting observations is how much MRO spend will be focused on next-generation aircraft,” Marcontell says, defining these aircraft as models certified from 2010 onwards. “These aircraft are significantly more digital and plastic than the generations of aircraft that preceded them,” he says. “This will drive significant change to the MROs and services which support them,” he adds, later referring to advances in concepts such as aircraft health monitoring as examples of how far the industry has progressed technologically.

AeroDynamic Advisory forecasts meanwhile tips the busy modifications segment, with interior work, cabin densification and a wave of KA-Band installations to drive it. “We see more than 20,000 commercial aircraft being connected with KA-Band over the next 10 years,” Michaels says. Used serviceable materials, meanwhile, is affecting the way inventory is bought, Michaels says.

Another trend the analyst sees is a continued preference by carriers for narrowbody aircraft over widebodies. Since 2012, the concentration of narrowbodies in the global fleet has been growing. This year it stands at 58%, but CAVOK forecasts a rise to 66% by 2029.

“This comes down to operating economics and flexibility,” Marcontell says. “The new narrowbodies such as the 737 MAX and the A320neo are 15%-20% more efficient than the versions they are replacing,” he says. “As a result of better structural design and materials, they have longer maintenance intervals resulting in lower heavy maintenance spend.”

Marcontell warns one hindrance to MRO growth could be a shortage of people to service the aircraft, their engines and components. Geopolitically, factors such as Brexit, climbing fuel prices and U.S.-China trade wars could also potentially impact the sector. However, he says industry respondents in Oliver Wyman’s 2018 are confident that there will be no MRO downturn in the next five years. AeroDynamic’s Michaels also agrees that labor shortages could produce potential bottle necks, along with challenges involving the MRO supply chain.

The topic of OEM incursion in the aftermarket also remains pertinent. “We’ve seen an increasing presence of OEMs in the aftermarket, particularly airframers like Boeing and Airbus”, says Marcontell. The long-term impact of the CFM-IATA agreement regarding aftermarket pro-competitive agreement, which went into effect early this year, is also unclear. “It’s way too early to tell whether that settlement is going to materially modify OEM aftermarket strategies – we honestly doubt it.”

AeroDynamic’s Michaels believes Boeing could realistically hit $25 billion in service revenues in the next few years, which would place it half way to reaching the $50 billion aftermarket revenues goal set out by CEO Dennis Mullenberg in 2017.

However, to reach the $50 billion target, Michaels believes Boeing must adopt certain growth strategies including engaging in wrench turning, making acquisitions and begin servicing non-Boeing aircraft.

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