V2500_4.jpg MTU Aero Engines

Engine MRO Demand Remains Strong, Parts Market Tightening

A combination of factors is driving parts sales and keeping overhaul shops full.

Rising fuel costs are not cutting into demand for MRO services even among older aircraft, engine aftermarket providers report, contributing to a logjam at many overhaul shops.

MTU Aero Engines reported a 17.2% jump in third-quarter commercial MRO revenue, leading it to revise its full-year projection to an eye-opening "mid 20s." While International Aero Engines V2500 work continues to be the company's primary aftermarket revenue generator, executives cited unexpectedly high demand on several older models, notably the GE CF6 and Pratt & Whitney PW2000.

"CF680 we [are seeing] an exceptionally high-growth year, low to mid-teens in the third quarter," said MTU CEO Reiner Winkler. "What we see is a huge demand, especially out of the freight operators."

The trend is also supported by new-program challenges that are keeping aircraft from being delivered, or creating in-service reliability problems. The Trent 1000 issues affecting the Boeing 787 fleet are well-documented, forcing operators to fly older widebodies in their place. Rolls-Royce recently disclosed it will not meet full-year targets for its large engines, with the Trent 7000 suffering the most. This could mean some A330neos are delayed, keeping a few more older aircraft in service.

Meanwhile, rising fuel prices that are pressuring airline profit margins do not seem to be affecting fleet plans--at least not yet. While prices are still reasonable by historical standards, they have risen nearly 40% in the last year, IATA's global jet fuel price monitor shows.

"There is still a very, very strong demand for also used 757s, used 767s," said Winkler. "So we don't  see any sign of slowing demand in that [older-aircraft] space."

Meanwhile, Safran reported a 19.2% increase in its civil engine MRO business last quarter, and now expects a full-year increase of perhaps 12%. Spare parts, which make up about 2/3 of the company's aftermarket business, are leading the way.

"We received more shop visits than what we had anticipated, and the value per shop visit was also higher than what we had anticipated," said Philippe Petitcolin, Safran CEO. "The traffic is there and again, we've seen, as of today, absolutely no impact of the oil price."

The natural shop-visit cycle of the V2500 and the CFM International CFM56--which is Safran's primary MRO revenue generator--are part of the upswing. But older aircraft staying in service longer, including some early A320s and 737s that are powered by the venerable engines, is another. Retirements continue to be down, which means less feed-stock for used parts providers. That drives up new-parts sales, while the entire environment lifts shop-visit demand.

"It's very difficult to get a slot in the engine market," said Jonathan Berger, managing director at Alton Aviation Consultancy. "We're seeing at many MROs, engines lining up waiting to be inducted, because they can't get parts. We're seeing significant TAT [increases], and a lot of MROs are paying their [daily delay] fines. That's just the state of the industry right now.

"The engine piece-part supply chain is maxed out," he added. "There is a shortage of material in the market. Old engines, new engines--you name it."

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