Positive trends in a few key markets have commercial aftermarket providers increasingly optimistic that engine maintenance demand will be very strong in 2023, an RBC Capital Markets survey showed.
Suppliers surveyed in mid-January see engine maintenance, repair, and overhaul (MRO) demand growing 16% in 2023, RBC reported. The figure is 6% higher than the previous survey, done at the beginning of October 2022.
“The outlook for 2023 MRO sales has improved by 2% since our [last] survey,” RBC analyst Ken Herbert wrote in an investor note discussing the latest version of the firm’s quarterly survey. “The increase was the result of a more positive view in North America (now looking for ~14% growth vs 10.6%) as fears of a recession in the U.S. have moderated.”
China’s expected re-opening also will add momentum in an already strong aftermarket segment benefiting from strong post-downturn demand in most of the rest of the world.
“With China accounting for ~15% of total air travel, the pace of the travel recovery (and subsequent aftermarket spending) is a key factor for the continued 2023 growth,” Herbert said. While some MRO business lines, notably airframe heavy maintenance, may not see major gains from increased activity in China, engine and component suppliers stand to see significant boosts. “ [We] believe the impact on parts sales into China can be at least a 25% increase, which should be a strong tailwind for the sector,” Herbert wrote.
Data points reported by public companies show the trend is in full swing. Raytheon’s Pratt & Whitney business reported an 11% uptick in commercial MRO business in the 2022 fourth quarter. The company is projecting a 20-25% bump in 2023, due in part to a 15-20% increased in legacy shop visits.
Component supplier Triumph Group, which generates 25% of its revenues from the commercial aftermarket, is bullish on near-term growth prospects.
“What’s leading us out of the pandemic is the MRO growth,” Triumph president and CEO Dan Crowley said on a recent earnings call. “We do overhauls of gearboxes, engine accessories and then nacelles, thrust reversers, structural repair, even some interiors MRO. It’s all going up. And this is a reflection of just how much volume the carriers have.”
Triumph saw year-over-year revenues from commercial spares and MRO jump 55% in the three months ended Dec. 31. While similar increases will be difficult due to tougher year-over-year comparisons that reflect commercial aviation’s steady recovery in 2022, Crowley expects the solid aftermarket growth to continue.
“In the short term, the demand for MRO for both the legacy fleet, which [airlines] are keeping in operation until the new aircraft arrive, and then their newer fleet, is quite high,” he said.
With a lack of demand no longer a concern, labor and related supply-chain issues are firmly entrenched as the top watch items for MRO providers. RBC survey respondents overwhelmingly cited labor availability and spare-part and material lead times as the two most critical issues that will affect their 2023 performances.
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