Airline Results Show MRO Costs Up

Annual results recently released by U.S. airlines show maintenance expenses grew in 2022 for the “Big Three” carriers.

American Airlines spent $2.68 billion on maintenance, material and repairs, which is 35.6% higher than in 2021. That number was $2.38 billion in 2019.

United Airlines spent $2.15 billion in 2022, which was 20% more than the previous year. This compares to $1.79 billion in 2019.

Delta Air Lines spent $1.98 billion on maintenance in 2022, compared with $1.40 billion in 2021 and $1.75 billion in 2019.

They all logged double-digit increases that can be attributed to increased flying year-over-year, but the broader market constraints—supply chain disruptions and labor shortages—which impact MRO capacity and turnarounds, most likely were factors as well.

Ken Herbert, an RBC Capital Markets analyst, expects airline MRO costs to keep climbing in 2023 for three reasons:

• Airlines have not reached their ideal fleets yet because both Airbus and Boeing are still ramping up narrowbody aircraft production. In short, deliveries are slow. This means older equipment continues to fly, which usually means more maintenance expense.
• “Material pricing was up more than 7% in the fourth quarter 2022, and the pricing should continue to be a headline for airlines,” Herbert writes.
• Supply chain disruptions are prompting airlines to buy more inventory as a safeguard and are lengthening turnaround times at MROs.

Since expenses on one side equal sales on the other, the MRO market should continue to be strong this year—especially as recession concerns recede and travel in the Asia-Pacific region rebounds.

On the commercial aftermarket supplier side, revenues jumped 26% in 2022 compared with the previous year and were 102% of 2019 revenue levels, according to Jefferies analysts. This indicates that the aftermarket, at least for publicly traded companies, has reached pre-pandemic levels.

Jefferies estimates that aftermarket revenues will grow 15% this year. While less than the 26% figure in 2022, it is still a healthy margin.

One wild card is parts pricing. How much will OEMs raise prices? While Aviation Week forecasts that aircraft owners will retire about 650 commercial aircraft this year, will those lead to part-outs and more used serviceable material?