Latest IBA Data Sees Airline MRO Spend Cut in Half in 2020

 - August 4, 2020, 10:27 AM
Lufthansa Technik this week started 240 new apprentices on its training program, despite the steep downturn in demand for maintenance, repair, and overhaul services. (Photo: Lufthansa Technik)

This story is part of AIN's continuing coverage of the impact of the coronavirus on aviation.

Airline spending on maintenance, repair, and overhaul (MRO) services could be less than half the $90 billion that had been projected by aviation data and advisory group IBA before the Covid-19 pandemic. Reduced aircraft utilization, early lease returns, and accelerated fleet retirement are all driving down MRO demand, the company said at the Changing Landscape of the Aftermarket Industry webinar on August 4.

According to IBA’s analysis, the engine MRO sector could be hit hardest by the fallout from Covid’s impact on air transport demand. “IBA expects engine shop visit demand to collapse for the next two or three years as both utilization and maintenance expenditure see massive reductions,” the company said.

Demand for work on more mature engines is especially vulnerable with scheduled shop visits being deferred, the company concluded based on the latest data from its IBA.iQ platform. In some cases, “later stage” MRO tasks will never take place as equipment is withdrawn from revenue service, but the company also sees the possibility of a convergence of demand for powerplant MRO around the mid-2020s.

In the short term, IBA’s analysts estimate that around 800 airliners are expected to be withdrawn from airline fleets and approximately 450 of these might never return to service. For the most part, it expects aircraft aged more than 20 years to account for around half of the anticipated retirements, but some younger models might also be withdrawn, including types such as the Airbus A380 and A340-600 and Boeing 777-200LR. Generally, widebody equipment has seen a significantly steeper decline in utilization than narrowbody aircraft as long-haul routes have been harder hit by the Covid emergency.

The dramatic shift in market conditions seen since around March 2020 is also resulting in reduced pricing and residual values for aircraft parts. IBA argued that the MRO industry needs to urgently reassess the future shape of the market and what changes might be made to make ensure the sector remains competitive.

“The MRO industry needs to take a more creative approach to maintenance solutions,” commented IBA president Phil Seymour. “That includes OEMs and regulators devising safe and flexible ways to prevent aircraft having to undergo such extensive and expensive checks, so that savings can be made at a time when cash preservation is vital, without safety being compromised.”

IBA’s latest projections suggest a possible recovery in market conditions from early 2022. But in the interim, it warned of large-scale job losses that could reduce the sector’s workforce by between 35 and 70 percent.

Meanwhile, despite these intense commercial pressures, 240 young people this week started a new apprenticeship program with Lufthansa Technik. The MRO and logistics division of the German flag-carrier Lufthansa did have to scale back, by an unspecified amount, the intake for this year’s training program, which covers multiple technical disciplines. Around 750 apprentices are now undergoing training or studies with the company.

“Even though we have no employment for many of our staff at the moment, we continue to train,” commented Lufthansa Technik's chief executive human resources. “Because one thing is clear: we will emerge from this crisis again and must then be prepared in the best possible way for the demographic change in our workforce.”

Last month, more than two-thirds of member companies of the Aeronautical Repair Station Association in the U.S. reported an average decline in MRO revenues of 45.9 percent for the first five months of 2020. Aggregate employment of the companies surveyed fell by nearly 27 percent between January 1 and June 1.