Whilst passenger demand is the key driver in the recovery of the aviation market as a whole, a core indication of health of the engine market is in shop visit demand. This can dictate value performance, lease demand, investor appetite and overall liquidity of the engine market.
The Coronavirus pandemic shifted the outlook for shop visit demand drastically. In 2019 we operated in a market of ongoing growth, with demand outstripping supply of shop visit slots. Fast forward to early 2020, we found ourselves in a market of an unprecedented rapid decline in demand.
Throughout 2020 analysis was limited by the variables and unknowns surrounding the future of the market. Though this is still largely the case as of Summer 2021, our view of the short term has cleared. Whilst we are yet to see the recovery we had hoped for, market feedback and announcements by MRO’s have at least remained largely consistent.
Owners and operators continue to avoid maintenance expense, whilst MRO’s have worked tirelessly to fill the gap of missing full scope shop visits with lighter scope work. For now, this impact means that we have not seen a significant increase in maintenance demand through 2021. This is expected to see recovery through to 2025 as market green life is consumed without being replenished, eventually flipping the supply to demand imbalance as passenger demand rebounds.
Longer term stability in shop visit demand is expected but a new wave of shop visits is likely as we move to the mid 2020’s assuming a similar level of demand is achieved. Despite this, unknowns still remain with a heavy focus on the number of mature engines that will end up being parted out before their next shop visit is still to be seen.
Mature and widebody engines will see a longer recovery curve, with international and long-haul travel expected to undergo a slower recovery. Narrowbodies will drive the majority of the short-medium term demand. The delta between the pre-covid outlook and the revised outlook represent lost shop visit events prior to the crossover in 2026, and increased short term demand after. The increased demand in the second half of the decade will represent the backlog of demand coinciding with engines naturally reaching their next shop visit. The size and duration of this wave of shop visits is yet to be seen but could put significant pressure on the MRO industry for some time.
If you have any further questions please contact David Archer.
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- Spend set to be less than half of US $90bn forecast -- Engine shop visits and spend taking the biggest hit -- Need for innovation and flexible maintenance programs has never been greater -- Lower cost options such as PMA expected to be in demand - 4th August, 2020: With MRO industry revenues directly related to aircraft utilisation, 2020's total MRO spend will be less than half of the approximately $90bn forecasted, according to the leading aviation data and advisory company IBA in its Changing Landscape of the Aftermarket Industry Webinar.
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