A recovery market | Analysis | Airfinance Journal

A recovery market

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The engine maintenance market will see more activity in 2022 as airline operators, encouraged by a return to travelling and gradual lifts of government restrictions, will take the view of further longer-term investment.

Over the past two years, their priority has been managing cash to survive. One of the consequences has been engine shop visits rescheduling as airlines have had to maximise the green-time on their engines.

Engine shop visits are driven by flying activity and the market is anticipating an increase in engine flying hours. There is always a little bit of a lag in terms of how that comes through, but shop visits are predicted to increase this year, probably a little bit less than flying hour activity.

Last year, airlines opted to leave until last minute the decision to address capacity because they were not sure about their summer schedule. This time, airlines are more proactive in preparing for the summer season.

“We see more developments with airlines this year especially with aircraft being reactivated. Every airline is trying to add capacity,” comments a source.

But he warns that the balance between too much capacity and not capturing market share is tight. 

“Some engine shops are busy but I firmly believe airlines are still swapping engines on their active
fleet and burning green-time,” says one engine leasing source.

However, as the market recovers and airlines generate more revenues, they will take the view of further longer-term investment.

“We will probably see a more significant rampup in 2023 and 2024 on the current production engines and maybe that might be the last wave. The rest of the engine market may be more staggered and with a more consistent level of engine shop visits rather than a peak,” says the source.

Airlines still aim to optimise the engines within a fleet with swaps as much as possible rather than putting an engine into full performance restoration. 

It is the right way to go as the market recovers. 

Some engines have longer lives than others, so there is always a possibility of a longer life than
airlines want to exploit.

The part-out business is no longer flooded with materials. It is recovering and there is definitely good life limited parts, modules and high-pressure turbine blades moving quickly. There is some competition
for run-out engines, though. 

A good indicator about the recovery of the aftermarket is the value of run-out narrowbody engines.

“I believe we will hit $2 million the end of this year,” says the lessor source. 

“There are also more players in the aftermarket compared with a few years ago. Some companies were established during the Covid period but there are still a lot of entities that are purely airframe focused, and hardly touch engines. So the engine aftermarket space is never going to be as crowded as the airframe market. There are about three to four times more airframe players than engine aftermarket players.”

Widebody market
The widebody market traditionally lags behind narrowbodies, and just like aircraft investors, engine
investors are typically less attracted to this end of the market.

With a smaller installed base and a less-liquid market, the twin-aisle sector is seen as a riskier space to operate. There has always been a view that by taking more steps to address investor concerns about the aftermarket, original equipment manufacturers could do more to make twin-aisle engines a more attractive investment.

The widebody market is still struggling to recover, and activity is slow when compared with the narrowbody market. As airlines prepare for the summer period with more long-haul flights, activity in the widebody market is mainly on newer engines.

“It is still quiet on most markets but there is activity on the Trent 700 engine as more Airbus A330s head back in operations,” says the engine source.

Another source tells Airfinance Journal that inter-lessor trading activity has been relatively buoyant, with some parties only interested in established players.

“Some mid-market companies have managed to grow their fleet substantially and are now considering orderbooks,” he says.

Lessor sources also note increased scrutiny over a business strategies.

“For some, the focus is on growing the portfolio on the technology engines and not to concentrate on current/mature engines,” says the source. “That trend started in the second half of last year and the
winter period.”

The outlook for values is positive and engines are increasingly being placed on long-term leases. 

New engine residual values will continue to benefit from the absence of a narrowbody replacement.

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