First-quarter figures from some of the big engine overhaul providers suggest that the consensus bullish outlook for engine MRO is warranted, but those pining for quarter-to-quarter certainty will continue to be frustrated.
Safran’s results underscore short-term lumpiness that a year-long trend can mask. The conglomerate’s civil engine aftermarket business bounced up 17.7% in the first quarter on the strength of work on second-generation CFM56s and GE90s needing work.
CEO Philippe Petitcolin said the big number, bolstered equally by MRO and spare parts sales, was not aided by any one-off events. Yet he cautioned that the company’s full-year guidance of a 7% bump over 2016--a few points below what analysts see for all engine MRO this year--remains a solid, albeit conservative, bet.
“The beginning of the year is very good, but it's difficult to say if it is an additional quantity of engines or just a shift from the second and the third quarter to the first quarter because the airlines have decided to do that,” he told analysts on a recent earnings call. “It's too early to give a change in our [guidance]. We prefer to remain on what we believe is a conservative side."
He knows of what he speaks. Last year, Safran’s quarterly civil engine MRO returns topped 8% in the first two quarters before showing 1.6% decline in Q3. Work rebounded in the fourth quarter to rise 12.5%, leaving the company with a full-year bump of 6.9%, or right at the bottom of the 7-9% projection it set out in early 2016.
One data point that bodes well for 2017: shop-visit volumes were projected to increase 5% last year, but the figure fell a bit short. That suggests a bump in current-year volumes—at least for a few quarters.
Petitcolin reiterated that while there is an early bubble in shop-visit volume, he’s not quite ready to call it a trend.
“We still believe that the number we have taken for the full year is the one we should keep," he said, "even if by definition if we are higher than the average we are expecting for the full year."