Alan Peaford takes a closer look at the questions surrounding plans for a gradual “return to normal” for the aerospace industry, particularly in relation to aftermarket services

Certainty is an aspect of life which has been in short supply over the past year.

With predictions for a gradual recovery: short haul markets, narrow body aircraft and regional markets all looking to pick up first, FINN talked to global management consultants Oliver Wyman about what that recovery might look like – and found a rare shred of good news for the MRO sector.

David Stewart, Aerospace and Defence division Partner at Oliver Wyman, has been working on an in-depth report on industry recovery, which he described as trying to “provide some light and certainty in today’s rather uncertain world.”

Border restrictions and lockdowns have seen airline revenues freefall over the past year resulting in cancelled orders and an entire industry in turmoil. Stewart said the report did contain some certainties which businesses could build on. “I think we’re not alone as Oliver Wyman in projecting the fact that the short haul market, the narrow body market, the more regional market is going to recover quicker than the wide body.”

He added: “I think that’s increasingly becoming what I call a ‘BGO’, blinding glimpse of the obvious. And there is a pent up latent demand for the VFR (visiting friends and relatives) and leisure markets – people just getting out on holiday because we’re all tired of talking to the laptop screen. So that’s one certainty.”

Stewart also predicted the decline of the four-engine passenger aircraft with aircraft including the A380, A340 and B747 becoming “niche markets at best.”

Pent up demand for aftermarket services

Once pent up demand for travel is released, pent up demand for aftermarket services will follow. Stewart explained: “I think you can actually rely on this one, the certainly that aftermarket demand is going to recover quicker than some other aviation measures. In order for airlines to stimulate the traffic and begin to recover their revenues, they’re going to have to bring the aircraft back into service, whether they’re at a low load factor or relatively low utilisation, they’re going to have to bring them back in to create the capacity, which effectively stimulates, maintenance activity, and therefore flying hours and therefore material demand.”

The pandemic has checked some of the big ambitions for the aftermarket service divisions of leading OEMs, instead airframers will be concentrating on their core products as the sector emerges from the pandemic. Stewart explains: “The bottom line is going into the crisis, they had fairly lofty ambitions for services. We all remember the 50 billion goal for Boeing Global Services and the ambition to double in size within Airbus, I think that ambition is going to be much reduced. I believe that the manufacturers are going to kind of need to focus on their core business of production and aircraft design.”

Covid will reduce fleet size growth predictions by up to three years

Predictions for the shrinking of the global fleet will come as no surprise. Pre-Covid, a fleet size of 39,000 aircraft by 2030 had been suggested, but Stewart said: “We have a number in our forecast of 36,600 in 2031. One year later, it is significantly lower than then pre-Covid projections. Pre-Covid, we were expecting a fleet of something around sort of 27,000 in Q1 2021, it is now about 23,700. Effectively, you’ve lost two to three years’ worth of growth as a result of Covid.”

MRO spend set for 2022 recovery

Stewart had good news for the MRO industry, which he expected would recover to pre-Covid levels quicker than other areas of the sector.

He said: “I think it’s reasonably rapid. It obviously depends on which lens you look at it through, but the bottom line is, yes, you’ve got a whole bunch of planes that got retired and never come back into service in 2020. But there’s also all those planes that are being parked where maintenance has been deferred and you can’t defer that maintenance forever, it’s got to be done at some point.”

“We believe MRO spend will actually recover in 2022 to 2019 levels. In the long run, the numbers show 1 per cent off in terms of the overall growth rates over 10 years, which is actually reasonably rapid recovery. As I said earlier, narrow body recovery probably comes first – you can already see pickup to bring those engines in that fleet up to scratch.”

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