IBA Insights

New Generation Engines – The Picture Is Cloudy, April 2018

In a two-part article, Kane Ray, IBA’s Head Analyst – Commercial Engines, takes a deeper look into some specific issues affecting new technology engines after entry into commercial service (EIS) and considers if these may influence airline selection and/or impact on residual values.

This first of two parts follows on from IBA’s Engine Selection webinar held in November 2017, which is still available from our on demand channel. The second part of the report will be issued later this year and will explore more closely the impact on residual values.

Buy new now, defer delivery, or stick with the old?  What factors impact the decision?

The primary purpose of all new engine types is to offer an airline customer a reduced fuel bill and longer ranges for the same fuel load. But this comes at a price. Highly complex technical innovation, particularly in material science is extremely costly so the OEMs (original equipment manufacturers), like Pratt & Whitney who invested $10 billion to develop their GTF engine, seek to recoup heavy initial investments through sticker prices and service-in-life support programmes.

The price of fuel is often the first consideration for middle tier and small airlines so the question they want to answer is will the business be better off continuing to operate current technology engines, as opposed to the cost of acquiring new more fuel efficient engines? The following tables give an overview of fuel price stability in recent years, and over a 10+ year period.

Designed at a time when fuel costs were high the new engines are now coming on stream at a time of relatively low oil prices. This is good news for narrowbody operators because it enables them to evaluate the situation that is best for their business with the luxury of choice.

IBA believes that when it comes to first engines out of new engine production , reliability, build specification and performance promises (fuel burn) are key factors for all stakeholders. Of these, fuel burn is of primary long-term importance. IBA estimates that the latest generation of engines could achieve $150 less fuel cost per hour, although this is dependent on route structures. There are potential fuel cost savings here that will be measured across the lifetime or a time period of respective aircraft.

Narrowbody Market – New Engine Options and Status of EIS Issues

The narrowbody market is dominated by the A320 and B737 families and their new iterations neo and MAX. Below we will summarise changes over the past 12 months and look mainly at ongoing issues and new problem items.

While the geared turbofan has met performance specifications in areas such as fuel burn, noise and emissions, it has also been beset by manufacturing hurdles. Airlines such as IndiGo, India’s largest carrier, have been forced to ground neos. The latest issue with modifications concerning the HPC Rear Hub Knife Edge Seal is said to be impacting 43 engines. EASA had also issued an interim emergency Airworthiness Directive citing pairings of the engine batch on one aircraft. Consequently, that required de-pairing of engines across the wing, meaning one engine serial number below P450- to be matched with P450- and above. Pratt & Whitney have validated an approved corrective action that is being incorporated on all engines delivered from the production line and MRO. Of the original 43 engines, there are still approximately 20 engines onwing that will come back for this corrective action.

GTF summary
Notwithstanding all performance improvement benefits, operators will be restricted by the engine hardware issues discussed and the resultant delay in aircraft deliveries.

Geared architecture and fan drive gear system have performed faultlessly. Whilst entry into service issues have caused some disruption and delivery delays, today’s delivered engine contains all the upgrades for the key issues and, all in services engines will get upgraded to the latest standard in the near term. The impact of unplanned visits and component upgrades are primarily handled through warranty, and OEM maintenance agreements.

In discussions, Pratt & Whitney highlighed that the GTF continues to provide the lowest fuel consumption and highest payload capability on the neo platform and, the technology of the geared turbofan is only a foundation to what is expected to be further developments and enhancements over and above the current GTF technology.

CFM LEAP-1A & -1B EIS Issues
Compared to Pratt & Whitney EIS issues CFMI issues have received less coverage as they are performance related rather than hardware related.

LEAP Summary
While the LEAP engine in comparison is making less troubled progress, the real ramp-up has yet to fully kick in. Safran partner with GE in CFM, has already acknowledged that it is struggling to stay on top of the Leap output rise. Those rate increases, to about 60 narrowbody aircraft per month for both Airbus and Boeing, will put enormous pressure on the entire supply chain. CFM delivered 459 engines in 2017 which was above initial estimates for 2017 production.

Narrowbody Summary
As has been seen, both OEMs are making strides to eradicate these early imperfections, there has been evidence from both that this is happening. Whilst there is frustration for operators with EIS issues, in our experience they are generally short lived and eventually resolved. Given the backlog of orders we trust this is the case.

The latest challenges unfortunately push deliveries to the right and we would now forecast that both programmes will be delivered problem free by 2021, assuming no further issues arise.

If you have further questions contact: Marketing@iba.aero

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