The commercial aviation industry should brace for a potential downturn, according to an industry forecaster.
The airframe order backlog is large, but oversold, opines Avitas Senior VP Adam Pilarski at Aviation Week’s MRO Americas Conference. “There’s no doubt there will be a downturn,” he says, citing unnaturally low interest rates, a lack of financing for used aircraft and exchange rate shifts during the financial downturn as “factors explaining why we oversold.”
“Eventually the bubble will burst,” especially in Asia-Pacific, and Boeing’s announced layoffs announcement on March 30 indicates this, says Pilarski.
Meanwhile, ICF VP Kevin Michaels points to the fact that Airbus and Boeing’s biggest gross margins are derived from the A320 and 737 families, respectively. “That’s why Boeing and Airbus are increasing production, because that’s where they make money,” he says.
But if the orderbook is inflated, Michaels says the Tier 1 suppliers will be hurt more than the airframe OEMs that do not rely as much on aftermarket revenue.
His advice to MROs: look at the ramifications of how changes in cost of capital, oil prices and profits will impact their businesses.
Consolidation could also continue affecting the aftermarket. Michaels thinks the Honeywell and UTC failed merger attempt “could be the harbinger for future consolidation,” but not at the same scale. He expects to see more mid-tier company mergers that will build scale around technology. “I think the technology landscape will look different in a few years,” he says.