Maintenance firms and spare parts producers who keep airplanes running are bracing for a decline of up to 75 percent in sales this year—and more pain to follow—as airlines park or retire thousands of aircraft due to the CCP (Chinese Communist Party) virus pandemic.
Worth about $80 billion in sales last year, the industry ranges from engine makers like General Electric and Rolls-Royce, to systems companies like Honeywell International and Raytheon Technologies, and a host of smaller suppliers.
Jetliners on average cost $3 million a year to service and make up a significant portion of revenue for most of these firms. That is under threat as the crisis cripples air travel and reduces the number of hours planes spend in the air, pushing back overhauls.
“We foresee reduction in maintenance, repair, and overhaul demand of 60 percent or more for commercial aero engines (in 2020). And production will fall 40-50 percent,” said Kevin Michaels, managing director at aerospace consulting firm AeroDynamic Advisory.
“We will have an overhang of thousands and thousands of aircraft more than we require for years. To balance that out, you are going to have to retire thousands of aircraft.”
The decline of up to 75 percent in services revenue, which amounts to about $60 billion in lost sales, was estimated by analyst Richard Aboulafia at aerospace consultancy Teal Group.
Lower demand for new jets is also causing the industry to revisit projections for demand for services later on, as fewer jets come down the pipeline for future parts servicing.
Thousands of layoffs are already planned or underway but some aerospace experts suggest the impact is likely to be deeper than originally thought and point to several years of hard choices, with the market properly recovering only in 2023.
The International Air Transport Association said last week that airlines would lose $84 billion in 2020, with revenue down by half to $419 billion, the worst year in the sectors history.
“This is going to be a very brutal time for companies dependent upon aftermarket revenues,” Aboulafia said.
“The job cuts and spending cuts have only begun,” he added. “Generally, they need to fall as closely in line with output as possible, and output—of aircraft and spare parts—has only begun to be cut too.”
Some 18,000 planes, or around 65 percent of the global fleet, were grounded throughout April and most of May, and the industry is now planning for a global recession and a future where business travel is reduced and holidaymakers stay closer to home.
Estimates collected by Reuters suggest the reduced demand will result in fewer than 20,000 planes in use in 2021 compared with an active fleet of about 27,000 planes in 2019.
All analysts with whom Reuters spoke said they did not expect maintenance spending to recover to 2019 levels until 2023.
Numbers on the current age of fleets, together with indications given by some airlines, suggest between 1,500 and 2,600 aircraRead More – Source