MRO aftermarket Set for 7% Growth in 2019

 After a year that approached double-digit growth, the commercial aftermarket will return to more ‘normal’ expansion in 2019 as retirements increase demand decreases slightly, Canaccord Genuity analyst Ken Herbert projects.

Feedback from Canaccord's latest quarterly survey of MRO providers suggests that 2019 will see the market rise 7%, Herbert shared in a research note.

"We believe the more unusual items (new aircraft delays, lack of [used serviceable material, or USM], better pricing and strong spare parts sales) in 2018 have added [about] 5% to the annual growth," Herbert said. "For 2019 we currently expect a more normal year, but do not yet see any factors that would drive this growth down below normal levels."

 The engine market remains the most active, with the survey projecting a 9% year-over-year increase. This is creating some challenges, Herbert said. 

Turnaround times continue to be high in many cases. Demand for International Aero Engines V2500 and CFM56-5B overhauls is approaching its peak, pushing shops and material providers to their limits. 

"Additional engine MRO capacity will help ease some of the surge in demand for both legacy engines and the teething issues faced by the new engines," Herbert said, noting that entry-into-service problems with both the CFM Leap and Pratt & Whitney PW1000G families have stressed supply chains. "However, the strength in narrow-body shop visits is expected to push for at least another few years, which will help support the outlook for engine MRO services."

"Turnaround times on GE90 MRO checks appear to be running about [twice] the normal 75 days, with much of this delay due to material availability," Herbert said. "We have heard that lead times for the [GE] CF6 are up to six months."

A shortage of USM is contributing to the delays, but this is expected to change. Canaccord is projecting an 8% rise in retirements of mainline air transport aircraft in 2019, following declines in 2016 and 2018. The projected retirement figure of about 400 large-transport aircraft is still well below the recent historical trend.

"In addition to the benign fuel price environment, retirements have also been down due to delays with new aircraft deliveries, and some select engine issues with in-service aircraft, such as on the A330 and the 787," Herbert noted. "We believe these issues will largely correct in 2019, but as long as fuel remains in check, we are not expecting a surge in retirements."

Canaccord's full-year outlook sees line maintenance increasing 8%, components climbing 7%, and both heavy maintenance and modifications rising 6%. Canaccord's projections are based largely on feedback from about 50 MRO providers queried between late December and mid-January.

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