Asset managers respond to geared turbofan problems | Analysis | Airfinance Journal

Asset managers respond to geared turbofan problems

Rarely does the debut of new aviation technology run smoothly, but the entry into service of Pratt & Whitney’s PW1100G geared turbofan (GTF) on the Airbus A320neo has been particularly fraught.

Significant problems first came to light in early 2016, when longer-than-expected start times led to Qatar Airways cancelling the first four of 50 A320neos on order. The issue was traced to a thermal deformation issue known as ‘rotor bow’, which Pratt incrementally addressed with hardware and software fixes to drag PW1100G start times towards those of the IAE V2500 and CFM56 – the A320 powerplants that the geared turbofan was designed to supersede.

Then, however, Pratt suffered production difficulties relating to the alloy-based fan blades used in all but the smallest PW1000G variants, forcing it to lower its delivery goal for 2016 from 200 to 150 GTF engines. This led to the embarrassing sight of fully assembled, but engine-less A320neos airframes marooned on the Toulouse tarmac.

Airbus said in October 2016 it had 20 A320neos outside its factory awaiting powerplants, and the delays fed through into this year. In the first half of 2017 Airbus delivered 59 PW1100G- and CFM LEAP-equipped A320neos – well behind its timetable of 200 deliveries for the year. In its first-half results Airbus attributed the delay to problems with the PW1100G – problems that extended beyond the production line and into the active fleet.

“The ramp-up remains challenging and our customers are still experiencing a number of in-service engine issues. Pratt & Whitney has introduced some fixes, but we are still waiting to see when improvements come through on a reliable basis under normal airline operational conditions,” Airbus chief executive officer Tom Enders told analysts in a July 2017 earnings call. He added that PW1100G operators were suffering a “way too high rate of removal” of engines.

Removal rates appear to have spiked in hot and harsh conditions, with Indian low-cost carriers Go Air and Indigo reported to be particularly affected. India’s parliament heard in July that the issues centred on combustion chamber distress and undue wearing on a carbon seal plate.

Speaking to shareholders last week, Indigo president Aditya Ghosh said that design changes by Pratt to address the issues would take up to 18 months to implement, and that, for now, the airline was focused on getting enough spare engines to cover its removals. Indigo has 22 A320neos in service and 408 (including A321neos) on order, according to Airfinance Journal’s fleet tracker.

Engine lessor response

Spare engine provision is the purview of engine lessors, manufacturers and MRO providers. Jon Sharp, president of Engine Lease Finance (ELFC), says that his company has a couple of PW1100Gs on long-term lease, but adds that “the current EIS problems and difficulties with production rates mean that there are no acquisition opportunities at present”.

High removal rates should boost demand and hence lease rates for an engine, though Sharp knows of “no PW1100Gs in the spot market”, so lessors are unlikely to directly benefit from the sudden need for spares. The core of their portfolios, however, are current-generation CFM56 and V2500 engines, demand for which remains strong and may be extended as certain operators convert some of their A320neo orders into ceos.

Even if lessors did have plenty of GTF "Lessors take a long-term view of asset value, so unless the problems are so bad that it provokes a fundamental engine re-design, you should be able to ride it out," says Ben Hughes, marketing and business development director for Rolls-Royce & Partners Finance.

"Under long-term operating leases, airlines take the operational risk – and for new engine types most airlines put this risk back to the OEM under warranties and maintenance contracts – so lessors shouldn't be out of pocket in the short-term," he adds.

Likewise, Sharp is confident that the PW1100G – which operators say is meeting its fuel burn target of 16% better efficiency than current-generation equipment – will move past its current problems.

“We are sure that P&W will overcome the present issues and look forward to building a substantial fleet,” he says.

Aircraft lessor response

Aircraft lessors own engines as part of their aircraft portfolios, and not usually as separate equipment to be leased in its own right. As such, they are more exposed the PW1100G’s current missteps than engine lessors.

Air Lease (ALC) has said that it may put off disposals of older aircraft to allow for delivery delays of new equipment.

“There will…be an impact in 2018 as deliveries are sliding to the right from month to month and within the year, including Pratt-Whitney-powered A320 and A321neos and 7000-powered A330neos, all due to engine issues. A few aircraft are also shifting from 2018 into 2019,” said John Plueger, ALC’s chief executive, on a second-quarter earnings call.

In 2018 the lessor is due to add three A320neos and one A321neo with PW1100G engines, and four A330-900neos with Trent 7000 engines. ALC is also due to take two Pratt-powered aircraft in the second half of this year.

SMBC Aviation Capital has chosen the PW1100G to power 30 of its 110 A320neos on order.

“There’s well-published news on delays around the GTF programme for the A320neo and that has had some impact, probably more looking forward than looking back for our customers and obviously it is disappointing,” the lessor’s chief executive, Peter Barrett, tells Airfinance Journal.

Like the engine lessors, though, Barrett is confident that Pratt will solve the production and technical problems affecting the PW1100G

He adds: “Our experience with new aircraft programmes is that these challenges do happen and although it’s disappointing, it’s not hugely surprising. You tend to see a lot of it over the years.”

Somewhat less confident is ALC chairman Steven Udvar-Hazy, who thinks the PW1100G’s issues underline his longstanding unease about aircraft production rates.

“I feel compelled to reiterate our concern over stress in the supply chain, which we fear will only grow worse if production rates increase,” he told investors over the summer.

Airbus plans to drive its A320 (neo and ceo) monthly production rate from 42 in 2016 to 60 aircraft in 2019, while Boeing plans to step up its 737 output from 42 last year to 57 per month in 2019.

Singapore-based BOC Aviation has 63 A320neo and A321neo aircraft on order, and already has delivered four neos, including one PW1100G-powered unit, to operators. So far this year the lessor has suffered one A320neo delay due to Pratt & Whitney engine issues.

“We’re always putting pressure on , but at the end of the day it’s up to the manufacturers to make sure their supply chain vendors are providing the right equipment to the right quality,” BOC Aviation’s CEO, Robert Martin, tells Airfinance Journal.

As with the engine lessors, however, increased demand for current-generation equipment is an upside of the PW1100G’s problems.

“We are seeing firmer rates in the second-hand market for narrowbodies…because people have now realised these delays aren’t going to go away in the next couple of months and they’re now taking action to make sure they’ve got either existing aircraft or used aircraft to replace that capacity,” Martin says.



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