767 airframe MRO

MRO Market Insulated From Most Macro-economic Shifts, New Forecast Says

Credit: Sean Broderick

The takeaway: The airline aftermarket, driven by aircraft usage necessary to meet demand, is growing. Perhaps the biggest question is how quickly current-generation aircraft are parked.


Absent a catastrophic, 9/11-like event with global ramifications that causes air transport demand to plummet, the airline MRO market will thrive over the next 10 years even amid fluctuating macro-economic factors, a new analysis from Oliver Wyman projects.

The consultancy’s 10-year outlook for MRO—its baseline forecast—sees a compound annual growth rate of 3.8% through 2027, boosting global spend from $76 billion this year to $109 billion in a decade. This is based in part on adding a net total 10,000 aircraft to the air transport fleet—20,000 new deliveries offset by 10,000 retirements—resulting in a fleet of about 35,000 aircraft in 2027.

In an analysis prepared for a version of its forecast released in conjunction with the Aeronautical Repair Station Association (ARSA), Oliver Wyman calculates four scenarios based on changes in major variables.

MRO demand is driven by one factor: how operators use aircraft. In the airline world, fleet planning is shaped by four primary factors: GDP, air traffic demand, interest rates (which affect aircraft acquisition costs), and fuel prices.

Near-term GDP is projected to grow at about 3.5% per year, while traffic, as measured in revenue passenger kilometers, is expected to grow by about 6% per year for at least the next decade. A jump in GDP would lift traffic. If fuel prices and interest rates do not mirror this jump, the global fleet could grow to about 40,000 aircraft by 2027. This could push the annual MRO demand to $118 billion in 2027, 8% above baseline—a “unlikely best-case scenario” that Oliver Wyman labels “Cloud Nine.”

A more likely boom scenario is GDP and demand slightly exceeding projections. This would pull fuel prices up, likely close to their early 2014 levels of about $3/gallon (U.S. Gulf Coast), or twice current levels. The result would be about 1,000 more aircraft in the 2027 fleet than the baseline forecast projects, boosting MRO spending to $116 billion, 6% above baseline.

 

On the downside, a slightly weakened economy, defined by lower-than-expected GDP and traffic demand, would trim about 1,500 aircraft from the 2027 baseline projection of 35,000. Continued low fuel prices would encourage airlines to keep older, more fuel-efficient aircraft in service at the expense of new deliveries. As a result, MRO demand in 2027 would be about $111 million, 2% above baseline, despite the projected decline in the total-fleet figure.

At the other end of the spectrum is a drop in demand triggered by a “devastating” event. GDP and traffic would dip, and both fuel prices and interest rates would rise. This “Black Swan” scenario, like Cloud Nine, is seen as an unlikely outlier.

Absent some unexpected developments, the near-term outlook for MRO appears solid.

“The likely case and base forecasts show that by 2022, the fleet will be between 30,300 and 30,700 aircraft, and the associated MRO spend will reach between $84 billion and $91 billion,” Oliver Wyman said. “Regardless of any change in the economy, the overall MRO market looks stable over the next five years.”

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