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Canaccord: MRO Sales Figures Underscore Market's Strength

MRO sales approached double-digit growth last quarter, survey finds.

Sales of airline aftermarket services approached double-digit year-over-year growth in the third quarter (Q3), reflecting some of the strongest MRO market conditions in years, a Canaccord Genuity survey shows.

"MRO sales in Q3/18 were the highest we have ever seen in this survey, coming in at just under 10%," Canaccord Genuity analyst Ken Herbert wrote in a research note. "This is not surprising considering the strength of the market we heard about in discussions, and the continued strong passenger traffic growth."

The survey, which received input from "over 45" MRO providers, showed that parts sales grew a bit slower, at about 8%, than MRO services, Herbert said. While the Q3 spread is larger than normal, a gap between the two "is not unusual," he continued. "We do not view this as a particularly bearish sign, and we are not hearing about de-stocking or other inventory-specific actions on a widespread scale," he added.

The Q3 figures continue a steady climb that began in late 2017, when YOY growth for both MRO and parts-purchasing was down around 3% in the survey. The parts figure has not been at 8% since a spike in mid-2011. MRO services moved above 8% for the first time ever in Q2, and edged up last quarter. The last three quarters have seen the sales figure increasing at a rate not approached since 2011, the survey shows.

While many factors explain the surge, the most fundamental is continued strong demand for lift, which is driving demand for work on both new and older aircraft. Retirements continue to lag, which means more older aircraft are staying in service, as well as fewer older aircraft being parted out for used serviceable material. The trends bode well for MRO service providers and parts providers. 

Another factor: program-specific delays that have held up deliveries or, in cases such as the Rolls-Royce Trent 1000-powered Boeing 787 fleet, grounded in-service aircraft. The challenges have forced carriers to turn to other sources—often older aircraft—for supplemental lift.

Looking ahead, higher fuel prices could help slow aftermarket growth in 2019, making older aircraft less economical to operate. Rising production rates could also squeeze some older aircraft out of the global fleet, assuming demand does not step up to keep pace with higher delivery figures. Freight growth is also slowing some, and freighters—which tend to be older and require more maintenance—represent a larger share of MRO spending than their fleet-percentage suggests. Freighters make up about 7% of the global commercial air transport fleet.

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