Independent Aerospace Analysis Panel: The Future of Boeing and U.S. Aerospace

By Kevin Michaels, Managing Director at AeroDynamic Advisory

Aeroengine OEMs are facing strong headwinds after a bullish decade of changes and new technologies. Production and aftermarket revenues are being crushed while risks are increasing, and new investment is required. Aeroengine OEMs face five crucial questions:

1.  When will aftermarket demand return? Aeroengine OEMs derive all of their air-transport profits from the $30 billion aeroengine maintenance, repair and overhaul (MRO) segment, which was experiencing robust growth until the COVID-19 crisis. Shop visits and aftermarket activity are down 50-60% and will likely remain depressed for another 2-3 years as thousands of aircraft are retired. Moreover, OEMs must deal with the phenomenon of “green-time management,” which means about 15% of next year’s anticipated shop visits could be deferred, postponing the corresponding spare-parts business. AeroDynamic Advisory forecasts engine MRO demand will not return to pre-crisis levels until 2023.

2.  What is the timing of the next Boeing aircraft? Boeing needs to address its competitiveness issue versus the Airbus A321neo after canceling its new midmarket airplane (NMA) program in January. Many analysts believe a slightly smaller NMA—with perhaps 200-250 seats and requiring new engines—would be the best response. Boeing may decide to offer a a powerplant choice, diverging from its single-engine 737 approach. If Boeing moves forward, Airbus will respond, and major investments by aeroengine OEMs will be required while they are financially challenged.

Mike Stengel, Senior Associate at AeroDynamic Advisory

The COVID-19 pandemic has upended the global demand for air travel, and consequently has thrown fleets into disarray. Now that most forecasts appear to converge on a four-year recovery period, one of the new questions is: how will the crisis impact the used & serviceable material (USM) market? The likely outcome is a double whammy of surplus waves, each driven by different events and with different implications.

First, a little context. Prior to the pandemic, the air transport aftermarket was facing scarcity on multiple fronts, including materials. Due to robust air travel demand, the 737MAX grounding, and teething problems on certain new generation platforms, airlines needed as much lift as possible and were keeping older aircraft around longer than expected. As a result, aircraft retirements were stubbornly low, which meant low availability of surplus parts.

In the wake of COVID-19, scarcity has been substituted by excess and the first "initial shock" wave was already underway. The characteristics of this phase include the immediate cash-conservation measures, leading to ultra-low MRO demand. To avoid costly shop visits, airlines that have the capability and bandwidth will make the most of greentime on their engines and large components by parking fleets or swapping units. Operators will also make the most of their existing inventory to substitute for new parts purchases and repairs.

Kevin Michaels, Managing Director at AeroDynamic Advisory

After 15 years of uninterrupted growth, jetliner industry production rates are in a downward spiral, thanks to the Boeing 737 MAX production shutdown and the COVID-19 crisis.

While Airbus and Boeing will navigate through the crisis weakened but intact, the outlook for suppliers is less certain. The jetliner supply chain expanded and evolved in recent decades to cope with uninterrupted growth and new customer needs. Three major changes are likely for it in the post-COVID world.

First, aircraft and aeroengine OEMs and major Tier 1 companies will shed noncore and underperforming assets acquired or developed over the last 20 years. Rolls-Royce, which lost $7 billion in the first half of 2020, announced it will shutter several UK facilities as well as Trent engine final assembly operations in Singapore and Germany. More is on the way: It plans to sell £2 billion ($2.6 billion) in assets, including Spanish subsidiary ITP Aero.

Airbus recently terminated its initiative to insource A320neo nacelles, resulting in the loss of 350 jobs. Spirit AeroSystems also scrapped its planned acquisition of component supplier Asco and may do the same with Bombardier's aerostructures business.