Part Prices Still Stable, Could Remain So For A While.jpg Air France KLM
Boeing 777 light maintenance at CDG Air France KLM E&M

Part Prices Still Stable, Could Remain So For A While

MRO outgoings have been driven more by labor costs than parts prices in the past few years.

In recent years, labor rates, not part prices seem to have been driving escalation in aircraft maintenance costs. For example, civil aircraft engine part prices actually dropped 0.7% in the 12 months to September 2017, according to the U. S. Producer Price Index. Non-engine parts were down 0.1% over the same period.

Part of the reason may simply be that demand for many of the underlying part materials is not increasing rapidly. ICF Principal Richard Brown estimates that aerospace demand for steel will increase only 0.5% annually from 2016 to 2021, and demand for aluminum will actually be flat over the same period. Virtually all the increases in demand for aerospace materials will come in the newer, high-performance commodities like titanium, superalloys and composites. And even here, the annual pace of increase is modest, generally 1-2% a year.

No or modest increases in material demand trace largely to lower OEM production. For example, 777 and E-Jet production will decline in the next serval years, before resuming growth in the early 2020s.

Of course metal prices are set not just by aerospace demand, but by total demand for all sectors. The expectation is that metal prices will recover from their deep 2015 trough, but not necessarily too much. For example, aluminum prices in 2018 are expected to recover only to their 2014 levels, while nickel and titanium edge up only slightly from earlier levels.

Both Boeing and Airbus are putting pressure on their suppliers, which tend to be much more profitable than the mainframe OEMs. That could have the effect of making these firms leaner in costs, or it could mean they will seek to recover more costs from the aftermarket. But that would be tough as the new aircraft demand less frequent maintenance.

On balance then, it looks like recent pattern may hold for a while: even as some MROs struggle with increasing labor costs, part and material pricing will provide a margin of comforting stability. 

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