Boeing 737NG Just Hitting Aftermarket Stride

The steady flow of new 737NGs is feeding a pipeline that will pay aftermarket dividends for years - an estimated $118 billion by 2026.

Boeing figures indicate that it delivered more than 495 737NGs of all variants in 2015—the fourth straight record year for the U.S. airframer’s most popular model. This year’s handover figures are shaping up to be more of the same. Through July, Boeing delivered 284 737s. To put this in perspective, Boeing not long ago completed a 10-year stretch—2002-11—where its total annual commercial aircraft deliveries of all models did not top 480.

The steady flow of new 737NGs is feeding a pipeline that will pay aftermarket dividends for years.

Boeing’s 737NG maintenance program offers flexibility for operators: combining packages of work into similiarly sized phased checks or knocking them out in less frequent, higher-volume heavy maintenance visits. Certain generalities can help project demand, however. Boeing’s baseline 737 program calls for C checks every 36 months and heavy, or D, checks at nine and 12 years.

Based on Boeing’s figures, the nearly 1,200 737s delivered since 2013 have yet to undergo their first C checks, while 3,700 put into service since 2006 still have their first D checks ahead. As of July 31, Boeing had 1,100 737NGs on backlog and slated to be delivered in the next five years.

Aviation Week’s MRO Prospector highlights the high level of forecasted activity in the next few years. Total D checks for 737s are expected to reach 3,000 in 2016-18. The per-year figures are expected to ramp up steadily to 1,150 in 2018.

The Aviation Week Commercial Fleet & MRO Forecast projects that the value of airframe heavy maintenance will total $745.7 million in 2016 and steadily rise to more than $1 billion in 2025. The annual average amount will be $949.6 million, the forecast shows. The $9.5 billion in projected 2016-25 spending on airframe maintenance represents 8.1% of the $117.5 billion in expected 737NG MRO expenditure.

MRO component spending is expected to remain relatively flat: from about $2.5 billion in 2016 to slightly less than $2.6 billion in 2025. The total expenditure of $27.6 billion will account for 23.5% of the 10-year total.

One potential headwind for 737NG maintenance is in used serviceable material (USM). A Canaccord Genuity analysis showed that only 54 of the nearly 5,500 737NGs delivered by the end of 2015 had been removed from service. The combination of natural fleet-aging and the introduction of more efficient narrowbody aircraft, including the 737 MAX, will accelerate 737NG retirements, according to Canaccord.

“We believe the industry is gearing up for a significant step up in retirements of relatively new aircraft,” including the 737NG, Canaccord wrote in a mid-July research note. “Retirements will be accelerated as production rates increase on the narrowbody aircraft, and each of these aircraft is replaced by a reengined or improved variant.”

Surveys conducted by Canaccord suggest 10-15% of all material purchased is USM, which offers savings of up to 60% over new OEM parts. The manufacturers are taking notice.

One strategy for Boeing is bringing parts manufacturing back in-house from suppliers that provide build-to-print services. Boeing “is now pulling many of these licenses back in-house with the goal of producing the parts itself, or selecting another supplier or renewing with the current supplier, but at a much more favorable price for Boeing,” explains a Canaccord note from late August. “Historically, suppliers shipped these parts directly to the airlines, but under the new contracts with Boeing, they will ship the parts to Boeing, who will then distribute the parts to the airlines. This enables Boeing to capture the aftermarket economics on these parts.” 

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