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Aviation News ANALYSIS: What will the impacts be for the MRO sector?

ANALYSIS: What will the impacts be for the MRO sector?

Romain Guillot
09 APR 2020 | 1047 words
ANALYSIS: What will the impacts be for the MRO sector?
Le Journal de l'Aviation - All rights reserved
The Covid-19 pandemic is of course hitting the MRO sector hard, with much of the worldwide commercial aircraft fleet grounded for between two and eight months... for planes which will actually start flying again. While the second quarter of 2020 will be the toughest in the entire history of air transport, here Le Journal de l'Aviation draws up the probable consequences of this crisis on integrated support programmes, engine maintenance & overhaul, airframe maintenance, component repairs & support, line maintenance, cabin modifications and conversion projects.

What's at stake in the short term
As maintenance facilities are starting to organise pretty much everywhere around the world to enable them to continue their activities under optimum health conditions, the logistics related to component and spare parts distribution are a direct victim of the reduction in worldwide air freight capacities, which means a significant increase in transport costs, lead time extensions or quite simply logistical impossibilities over the next 2-3 months. Operators are also starting to need to defer payments, a phenomenon which will have to increase over the next few weeks while their fleets remain grounded and they dig into their cash reserves.

Impact on integrated support programmes
Flight-hour based support solutions, such as Airbus's FHS, Boeing's Goldcare or CFM International's RPFH programme were, of course, directly affected by the first reductions in the number of flight hours and cycles that appeared in China, and more generally across Asia from February. This programmes will be subjected to a significant fall in revenue which by definition will be directly related to the reduction of the activity of aircraft or equipment governed by this type of contract. However, these programmes usually cover the most recent platforms which will return to service with a certain level of priority when operators start flying worldwide again. But they will of course be affected by delays or cancellations of new aircraft deliveries. A full view over the impact of the crisis on this type of activity may be possible from the third quarter of 2020.

Impact on engine maintenance & overhauls
The financial difficulties facing operators will necessarily lead to a reduction in the number of engine shop visits over the next few months, particularly as postponements. Yet this fall should only be temporary, especially for first and second visits. However, different types of engine which power old platforms and certain four-engined jet should see a significant reduction in activity volume while many of these aircraft will be forced into early retirement. Remember that engine maintenance is the MRO sector's most profitable activity, with worldwide expenditure estimated at over 32 billion dollars last year. A full view over the impact of the crisis on this type of activity may be possible from the first half of 2021.

Impact on base maintenance
As for their engines, a certain number of aircraft will be taking early retirement due to their high maintenance costs, and this phenomenon will not necessarily have anything to do with the imminent major scheduled heavy checks. This same phenomenon had also occurred in 2002 and 2009. Maintenance companies which specialise in airframe maintenance should not see a significant drop in their working volume if operators manage to restart programmes close to pre-crisis levels before next winter. However, significant new pressure on prices is due to be felt at world level, with major risks for the most fragile independent MROs, particularly in Europe. A medium-scale view over the impact of the crisis on this type of activity may be possible from the second half of 2020.

Impact on component repairs & support
OEM and shops which specialise in component repairs will also be in the front line when it comes to pressure from operators to reduce their costs. However, these companies have developed a wide range of offers which mean that they are particularly flexible when it comes to meeting their customers' needs. But this activity is still closely linked to the worldwide recovery in air traffic over the next few months. As for the integrated support programmes, a full view over the impact of the crisis on this type of activity may be possible from the third quarter of 2020.

Impact on line maintenance
The line maintenance sector was the very first to be affected by airlines reducing their flights. An upturn in activities related to flight immobilisation (cocooning) for intermediate periods (60 days) or for longer periods for certain types of long-haul aircraft have managed to soften this drop in activity, but this phenomenon will be very short-lived. Remember that line maintenance was an activity which had been developing strongly (+4% per year) and accounts for a not-insignificant share of the maintenance sector as a whole (17%), with worldwide expenditure estimated at nearly 14 billion dollars. A full view over the impact of the crisis on this type of activity may be possible from the third quarter of 2020.

Impact on cabin modifications
The consequences of the crisis on cabin modification projects are without doubt the most difficult to get to grips with, as the situations and requirements may vary from one operator to the next. Logically, the launch of this type of project would be well-down airlines' list of priorities over the next 24 months. Projects which are already well underway in terms of the number of aircraft covered, and already modified, will definitely be completed, or even sped up where possible as fleets are grounded. However, operations by leasing companies to take back their planes and transitions remain a major source of potential modifications, even if their volume is still hard to estimate in relation to pre-crisis levels. A full view over the impact of the crisis on this type of activity may be possible from the first half of 2021.

Impact on full-freighter conversions
For the moment, this sector still has a healthy future ahead of it, driven by increased demand over the last few years (e-commerce...). We are also seeing major demand for old generation aircraft, such as the 737-300F and 737-400F. Conversions of narrowbodies into full-freighters should speed up with a probable increase in the number of aircraft available to the market under 15 years old, something which had been made difficult with the 737 MAX crisis since last year.
Romain Guillot
Chief editor
Cofounder of Journal de l'Aviation and Alertavia


 
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