If stock in International Aero Engines (IAE) V2500 overhauls existed, financial analysts would likely rate it a “buy,” citing strong near-term upside amid general uncertainty in the airline aftermarket space.
The V2500 engine program, best known for sharing the Airbus A320ceo engine market with CFM, is now in its 26th year of revenue service. While the program is not dead yet—it is the sole supplier for Brazil’s KC-390 transport, which will not enter service until 2018 at the earliest—the bulk of its new-sales life is in the past. But with an average age of less than eight years for its dominant model—the V2500-A5, which accounts for 96% of the 6,200 V2500s in service or on order, Aviation Week’s fleet data show—the model’s aftermarket trajectory continues to gain altitude.
Last year, V2500 shop visits totaled about 760, with the vast majority of them—about 712, or 94%—being V2500-A5s. The annual figure is expected to climb through at least 2019, when the yearly total could hit 1,200 shop visits. Aviation Week’s MRO Prospector is projecting just under that figure by the 2018-19 time frame, as V2500-A5 visits continue to climb, while the -A1s will be all but done with their overhauls.
The annual overhaul amounts are experiencing slight shifts to the right, as improvements by IAE partners are leading to longer overhaul intervals and other trends that benefit both operators and the manufacturer. About 60% of the V2500s in service are under long-term service agreements (LTA). This motivates the manufacturer to constantly seek lower overhaul costs, since LTAs shift cost-escalation risk from the operator to the MRO provider.
Many MRO industry observers expected to see aftermarket sales rebound if oil prices remained low. But despite per-barrel prices staying between 50-70% of their mid-2014 levels for the last year and robust airline earnings almost across the board, the aftermarket uptick has not materialized.
“Despite the general recovery of the aviation industry, we don’t see a trend that airlines may be spending more money on engine overhauls,” says Gert Wagner, MTU Maintenance’s director of engine programs. “On the contrary, operators continue to seek ways to better plan their MRO expenses and lower their overall shop visit costs.”
For many, that means adopting an LTA. While LTAs cover six out of 10 V2500s, the percentages even are higher for newer models, Wagner notes. MTU estimates that 70% of the A5s are under long-term deals, and that percentage jumps to 90% for Select One build standard, which entered service in October 2008.
As the LTAs become more popular, so have efforts to make them more cost-effective. MTU, which handles about 40% of the V2500 MRO market including the work it does under LTAs, has invested heavily in everything from parts to processes—all with an eye to make engines more efficient.
The efforts are paying off.
“It’s really a variety of activities which we initiated in the last year or so to keep the engines longer on-wing, and to reduce maintenance costs,” explained Michael Schreogg, MTU’s chief program officer, on a late-July earnings call. “It’s basically engineering modifications; it’s also technical modifications, contract-management modifications, and a close working relationship with our customers.”
One engineering-modification example is ErCoat, an erosion-resistant coating for engine blades and vanes. “When engines operate in harsh environments such as deserts or in salty air, the airfoils of a high-pressure compressor (HPC) are prone to erosion more easily,” explains Wagner. “This leads to an efficiency loss for the engine and to shorter on-wing times.”
Among ErCoat’s fleet-wide benefits noted by MTU: a 30% scrap-rate reduction, a boost in on-wing time by 500 or more cycles, and a specific fuel-consumption reduction of up to 0.5%, Wagner says. Another benefit is reduced CO2 emissions.
Aviation Week’s MRO Prospector puts the current V2500 overhaul market at just under $3 billion per year, with the A5s generating 96% of the demand—a figure that lines up with the variant’s market share within its family. As deliveries continue through the rest of the decade and shop visits increase for in-service engines, the annual MRO demand figure is expected to surpass $4.5 billion in 2019 and top $4.8 billion in a decade—all but about $40 million of which will be for A5 work.
One factor that could reduce these figures is increased incorporation of used serviceable material (USM). The V2500 is expected to be one of the more active USM markets in coming years. The aging of the fleet both creates and feeds the USM market—retiring engines feed spares stocks, and older engines are the most likely USM candidates as operators seek cost-effective ways to keep engines flying without investing in all-new parts during overhauls.
Note: The original version of this article listed incorrect totals for the V2500 MRO market sizes in 2019 and 2025. The figures have been corrected.
This article was originally published on August 28 in the Aviation Week & Space Technology MRO edition. To enjoy full access to premium content, subscribe here.