A380 Rob Finlayson

Canaccord: MRO Market Growing At Double-Digit Pace

The civil aftermarket is growing at a faster pace than many projected.

Airlines are continuing to consume aftermarket services at a record rate, with year-over-year sales growth projected at nearly 10% for 2019, driven by continuing demand for traffic and boosted by specific challenges—notably the Boeing 737 MAX grounding—providing short-term boosts, new research from Canaccord Genuity shows. 

Maintenance, repair, and overhaul providers “now see the full year up about 10%, as compared to up 7% in our last survey,” Canaccord analyst Ken Herbert wrote in an Apr. 22 research note. “Within this, the outlook from component and engine MROs remains the strongest.”

The outlook means the aftermarket is sustaining momentum that many expected would slow. Full-year 2018 growth was about 10%, as retirements were down and airlines pushed their equipment to keep up with demand. But the trends are holding in 2019, and sales are growing at a faster rate than many projected.

Engine maintenance providers surveyed by Canaccord see an aggregate 12% increase in 2019 sales compared to 2018. Component MRO providers see a 10% jump. Factor in modifications, line maintenance, and heavy maintenance at 10%, 9%, and 7%, respectively, and the full-year market outlook is for a 10% jump.

The key driver remains strong passenger traffic demand. IATA member airlines reported a 5.3% increase in revenue passenger kilometers in February 2019. While this figure was a 12-month low, it is in line with long-term demand trends. “Passenger traffic has come off the recent highs, but continues to run up 5-6%, in-line with historical averages,” Herbert wrote.

This demand is helping keep older aircraft in service longer. Retirements in 2019 are down 25% over 2018, which was low by historical standards. Flying older aircraft longer provides the aftermarket with two lifts: the aircraft need service, and their usable parts cannot be harvested to feed the remaining fleet. This leads to more new and alternative parts sales.

The grounding of the 370-aircraft MAX fleet is triggering some MRO demand uptick, but unless it lasts more than a few months, it will not have major ramifications for MRO providers.

“We see the grounding as a net positive, but expectations for the impact are muted unless the grounding lasts into [the fourth quarter] and airlines need to either pull parked aircraft back into service to meet capacity requirements or decide to extend current older aircraft for longer than just a few months,” Herbert said.

That could lead to other problems, as MRO demand is already at peak for key services, meaning that making a last-minute decision to extend an airframe’s life could prove challenging to execute for most carriers.

“We believe that many engine and component MROs, and even heavy airframe MROs, are largely sold out into 2020,” Herbert wrote. “Many MROs are not accepting ‘drop-in’ visits unless from a very important customer, and the growth in the backlog reflects the tightness of industry capacity through the remainder of 2019.”

The MAX was grounded Mar. 13 following two 737 MAX 8 accidents in five months. Boeing is developing software and training changes that target the model’s flight control system, which is at the center of both accidents.

The most recent edition of Canaccord’s quarterly survey reflected input from more than 40 MRO providers and 20 other industry representatives.

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