Podcast: MRO Reflections And Surprises From Farnborough

While this year's Farnborough Airshow did not see the huge aircraft orders announced at Paris last year, there are still plenty of interesting developments to discuss. Listen in as Lee Ann Shay, James Pozzi and Daniel Williams reflect on engine orders, aftermarket conversations and the news that really stood out.

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Transcript

Lee Ann Shay:

Sometimes hindsight is 2020, right? And the Farnborough Airshow wrapped up about a week ago. So we're here to examine MRO news from the show with this big picture insight. I'm Lee Ann Shay, Aviation Week Network's executive editor for MRO and business aviation. And I'm here with two of my UK-based colleagues, James Pozzi, who is the MRO editor for EMEA, and Dan Williams, who is our director of fleet data services. James and Dan, welcome.

Dan Williams:

Hi Lee Ann. Thanks for having us.

Lee Ann Shay:

Thanks for being here. This year's Farnborough wasn't a show filled with big aircraft orders like last year at the Paris Airshow. However, there was a lot of supply chain discussions and some aftermarket news. So to get us started, let's talk about the OEMs starting on the airframe side.

James Pozzi:

I'll just start that off really. So yeah, you're right. There wasn't as many big announcements, quite muted, although a lot of the big orders seem to come from, especially in the engine space, the lessors this year. There's some really big numbers there and a lot of these new generation engines, which I'm sure we'll talk about a bit later. But yeah, let's start with the airframe MRO side. So Farnborough traditionally doesn’t have as much activity related to the aftermarket as Paris, but that's not to say there isn't MRO activity. There was some interesting things going on a couple of weeks ago. Seems like it was just yesterday actually that I was at Farnborough. So yes, starting with Boeing. Boeing of course was quite active in terms of press at Farnborough. They held a briefing just before the event on the eve and during the week I was able to speak to Chris Raymond, who is recently appointed CEO of Boeing Global Services, and you'll read about that interview in the September issue of Inside MRO.

He had some interesting things to say about Boeing's future in the aftermarket. I mean, it has been a very, very challenging, I'm probably understating things here, very challenging few years for Boeing, but they are looking ahead to their aftermarket. He told me some interesting things really. Unsurprisingly, it's not going to rule out maybe inorganically as he calls it, making more acquisitions. They're very big on the digital side of course. They made a couple of acquisitions there over the last year or two, and they may look to obviously grow their capabilities in that. He sees that as a big part of the aftermarket future. And of course Lee Ann, you reported just Farnborough on Boeing adding Lufthansa Technik as its first authorized 787 modifications partner and Chris Raymond did talk more about its plans related to this and he thinks the modification segment could be a really good growth area for Boeing.

Of course there's a lot of fleet expansions going on at the moment. Lifecycle needs obviously come with this too. So will Boeing look for more partners in this? It definitely is seen as a growth area, so I would not be surprised to see some growth there from Boeing on that side. Airbus was relatively quiet on the aftermarket, but they've been doing some interesting things this year in general. Of course, last week they announced a partnership with Sanad, an engine MRO, but that kind of is a partnership that covers some of the engines associated with the Airbus aircraft, particularly some of the Trent engines and some of the widebody aircraft. And that's definitely something that is very interesting for that part of the world too, in the Middle East, having that kind of partnership. So that's quite interesting kind of coming out of Farnborough.

Also, another interesting OEM that I've seen on the MRO side is ATR. Now this is quite significant to me. They are developing capability in Africa. There's well over a 100 to 150 aircraft, more actually in, is around the 170, just above that mark in Africa and the neighboring Middle East regions. But there is a perceived lack of capability in both these regions. So Ethiopian, the engineering arm of the Ethiopian Airlines of course, they're a very interesting MRO who we've covered a lot over the last few years. They have a lot of capacity, hangar space and capability as well for kind of new aircraft types. Some interesting partnerships and MOUs have come into action too. They're really trying to emerge as, I guess, Africa's big MRO provider.

It's a relatively small space. There's not a lot of multi-capability MRO providers in Africa. But Ethiopian has signed this agreement with ATR to develop not just MRO, but training capabilities and also linking into the supply chain, spare parts programs too, and having that availability of those parts to reduce some of those lead times, which are impacting a lot of programs on the airframe side of course. So yeah, that could be one to watch as well, and that came out of Farnborough. It will be interesting to see how that develops over time and whether that will open up the aftermarket market a bit in Africa and the Middle East. Because quite frankly, from what I gathered when I spoke to someone at Ethiopian, that is needed. There is a big shortfall in that area they feel.

Lee Ann Shay:

Excellent. James, thanks for those insights. Dan, is there anything on the airframe side, aircraft orders in particular that stand out to you?

Dan Williams:

Oh, there's been lots. The silence was deafening. No. I'm going to jump back. I'm just going to refer to what James was talking about. Ethiopian is a great example. They operate a fleet of Dash 8s, not ATRs. So it's interesting that Ethiopian are looking to bring ATR MRO in-house. Could that suggest potential future orders? Who knows. Watch this space. In terms of new orders, we all know Farnborough's loss in terms of new orders, again compared to Paris, but Paris last year was an exception. Actually it is MRO's gain because what's happening currently due to the difficulty of new-build aircraft getting to market, be it a supply chain or workforce issue which is rampant throughout the industry, or just other issues that are going on behind the scenes with certain large OEMs that is not exclusively workforce or supply chain issue, then that's an MRO gain because what's happening is aircraft are needed to be kept around longer.

Boeing, back to what James has said, the 737 NGs, well they're going to be limping on much further than probably was originally anticipated. So that's a great news for Boeing's aftermarket team because they'll be selling a lot of spare parts that potentially they may not have thought they will be selling in the past. This does have MRO implications, however, in 15 years because of the lack of delivery today and with the D-check cycle on a 737 being every, it's 9, 15, 21, 27 years old, it has further implications. You deliver a few aircraft now you have MRO issues later on. So right now the MRO community is one of the silver linings of the industry. They're one of the few people making a reasonable amount of cash because it's the supply-demand curve. We're seeing apparently some demand slip for passengers. Now that may have MRO implications as well because if demand does wane operators are going to look to use their new more fuel-efficient fleets, which means some of those older aircraft may get parked.

We may start to see some retirements, but again, right now it's still far too early to determine what's happening in that part of the industry. So right now going is good for MRO, which is brilliant. Engine shop space is still very difficult to find. Getting that slot, getting the availability is still very difficult. So that's why you are seeing these partnerships to team up on a broader section to increase the capability and the capacity in the market. The most interesting story from a random MRO aspect for me, for Paris, bearing in mind the last MRO podcast where we were on, we were talking about the Trent 1000 and I was reasonably confident being a forecaster that British Airways would order (Rolls-Royce) Trents because they have a fleet of Trent-powered aircraft. And it just goes to show forecasting isn't always as brilliant as it can be because they went and ordered (GE Aerospace) GEnxs.

Now what is the most and single interesting points is the fact that they have a fleet of Trent 1000s. They have the capabilities, they have the tools, they have the ability to look after that engine. However, due to the durability issues that they've had, that everybody's had with the Trent 1000s, they've seen fit to go and order a competitor engine and it's a relatively small number of aircraft, therefore not a huge number of engines, but what are they going to do? Are they going to outsource the MRO on those engines to other people or are they going to invest in tooling, in training to keep that in-house? So that will be an interesting MRO story, but not for today. So today is it confidence or lack thereof in the Trent 1000? It shows that in the future it's a shift in MRO on their 787s or their newer 787s that are coming in. So that was the most interesting story for me for sure.

Lee Ann Shay:

Okay, you just gave me about three podcast ideas, Dan and James. One, the follow-up on that and the Trent 1000 upgrade just started flying. It was July 31st or August 1st, so we'll definitely keep following up on that. Supply chain for companies such as Honeywell and RTX companies: several were making some news there too, and sustainability. With these longer aircraft staying in the fleets longer, not a surprise to any of us, but there is an environmental impact. Was there much sustainability news at Farnborough?

James Pozzi:

One thing that caught my attention that I reported on was GA Telesis, obviously a company we know very well in the aftermarket. They signed a partnership to do SAF cooperation with DHL as their launch customer, the cargo airline, and that's for engine testing at their facility in Helsinki, which I'm yet to see actually as an engine shop, but hopefully will at some point. And they've been quite forward-thinking on that. And I guess SAF is one of the, although there's still a bit of a long way to go with that maybe with some of the supply and the stock of that, but that is certainly where the aftermarket, I guess is being influenced in some way in the area of sustainability of course, sustainable aviation fuels. That's going to be using fuel provided by Neste, of course one of the world's biggest sustainable aviation fuels providers.

And that's made from 100% renewable waste and they think that's going to eliminate emissions to large degree from its engine testing operation. Reduced by, I think up to 50% over the fuels life cycle in comparison to conventional kerosene they said. So that's very interesting. Of course there's a lot of airlines that we know of, a lot of companies, MROs that are really kind of getting on board with SAF. So that's kind of a bit more fast moving. Looking further ahead, one area of interest as well that caught my attention, I was doing a bit of new aircraft programs and we're talking not just from conventional commercial programs of the future, future aircraft, future engines, but eVTOLs and it's not a market I'd had a great bit of exposure to until kind of earlier this year when I covered a few stories in that space. And that was very, very interesting because the aftermarket for that, like the programs themselves is still in their infancy.

There is no developed aftermarket for these programs because pretty much all of them haven't really been certified or come into service yet, and that won't happen for a long time. But I spoke to Wisk Aero, a startup based in San Francisco. Of course, Boeing acquired them last year and they had some interesting things to say there. Their CEO Brian Yutko, I spoke to him about a potential future aftermarket eVTOLs. How does this look? They're currently going through the certification phase at the moment and their plan is to come into service later in the decade were their words. So a bit vague about timeframe, but possibly up towards 2029, maybe 2030. But it is speaking to MRO partners already right now. He said that's something they'd given quite a lot of consideration to. Now this is despite the aircraft being made with far fewer features than a conventional aircraft.

So for example, there are no wheels on the aircraft, there's skids instead, but that's all over the aircraft. Some of the features are taken away. So that of course means a lot less repair potential. But he thinks in the future market, an aircraft like this would, a lot of the repair potential would come from batteries, for example, that power the aircraft and maybe some of the life limited parts in certain areas that obviously need to be removed and taken off the aircraft and repaired or replaced. So I mean, it's an entirely automated electrical aircraft. As I mentioned, there's no features, no hydraulics for example, no pneumatics on there, and that does dramatically limit the scope of MRO opportunity. But another thing, it did capture my attention, of course, Aviation Week's, Christine Boynton, colleague of ours of course reported on Lilium and they're moving ahead in the aftermarket a bit and they've been a bit more advanced in this area, I think with their kind of future aircraft they're developing and they've released some kind of digital tools for their aftermarket services portfolio.

Now that will include flight planning software and aircraft performance ground and electronic flight bag solutions. This is AI enabled of course, and it's a customer portal that's open to would be operators to use. So that's very, very interesting. They've gone in that direction, but that doesn't really surprise me. Of course they announced that big partnership earlier this year, I think in January with AJW Group talking about inventory and handling spares and parts, etc for the aircraft.

So know Lilium seem a bit more advanced in that area for the aftermarket compared to some of the other companies developing these aircraft of the future. But very, very interesting, as I said, very much in its infancy at the moment. But yeah, it'll be intriguing one over the next five years, I think just seeing what are these conventional MRO providers, how are they planning for this future market? Do they see any potential in it at all or maybe not? We'll wait and see, but I think it wouldn't be surprised if it's a topic that comes up a bit more with a bit more regularity over the next few years at the various events and conferences we attend.

Dan Williams:

And it's funny you should say all of that, James, because during the week of Farnborough Aviation Week released our top level AAM forecast. That's how we look at the future of the AAM between now and 2050. We don't name runners and riders because there are still so many, there's still going to be people who drop away. There's still going to be consolidation in the market. Some main you mentioned may or may not exist in the future, and that's fine because it's still a new emerging market. It's also interesting to see at Farnborough, there were lots of mock-ups. There was no flying AAM. As we record this in the middle of the Paris Olympics where there was supposed to be, we go back a few years, Volocopter was supposed to have a number of aircraft ferrying athletes around, and as it stands, as of today, literally just over half way going through the Olympics, we have yet to see that.

So these things are taking longer. And again, it comes as no surprise because that's how the market is. As good as these are and people are bringing in car manufacturers, because that's how they're going to build them, there's going to be more things going to be more disposable over the future. In terms of MRO, you are right, it's going to be batteries, it's going to be LLPs. If they are hybrid, then there could be some engine MRO in the future if they are a hybrid version, not all of them are. So the MRO market for AAM is embryonic right now. It's not even in its infancy and we are years away from that.

There are Ehangs currently flying in and around China. Chinese governments have bought them. So the utilization is we're not quite sure is the answer, but at the end of the day, these things are accruing hours. So again, I applaud. Please reach out, have a look at our AAM report or also in the latest edition of Aviation Weak and Space Technology. That's where our look at our AAM forecast is available for those of our readers who wish to have a look at our numbers and see what we think. And we might not be quite as optimistic as some others, but we're certainly not naysayers as well.

Lee Ann Shay:

Dan, thank you for bringing that up. And I think because it was Eve Air Mobility and Vertical Aerospace, they were two of the ones that debuted their full scale prototypes. But going back to Eve, they were spun off from Embraer. And so Eve I think is another interesting one to watch from an aftermarket standpoint because their model's a little bit different. They're trying to develop an air traffic control system. They're looking at the aftermarket, the vehicle itself. So I agree it's a super interesting market to watch. Okay. We're kind of running out of time, but I think we're going to be remiss if we don't at least squeeze some engine aftermarket news in from Farnborough. James, a few highlights.

James Pozzi:

Yeah, so I think no surprise is really considering what we've seen in the aftermarket recently. I think confidence is still there for obviously the LEAP, but also the GTF that was reflected in some of the kind of orders placed. As I mentioned at the beginning, lessors were very active in that sense. I think depending on who you read the market at the moment of leased aircraft varies from the 50% mark through to the high 50s, but I think definitely that's taking half if not more of the market share. So yeah, there's definitely some confidence there in those programs long term I think for those future orders. The wide-body market was very interesting, and particularly what those wide-body players, GE and Rolls-Royce are planning to do in the aftermarket. I think the GEnx obviously has a much bigger market share as it stands than the Trent 1000, but that could be a very interesting future aftermarket as Dan kind of alluded to earlier.

I think GE had their tails up in some sense. They obviously had these announcements, but they announced a very big MRO investment, which is worth talking about, up to a billion US dollars in their aftermarket network. A lot of this will be covering the LEAP. Of course, on the narrow body side, there's a lot of demand there right now. A lot of engine shops are doing, for example, quick turn and hospital shop visits. Israel Aerospace Industries were the latest to get this approval for the 1A last week who I spoke to. But yeah, in their wide-body aftermarket, some of this investment obviously does cover the wide-body side. The GEnx know over time will obviously see more shop visits pick up and more demand, more overhauls in the future. So that's going to be a very strong market. That said, the more mature GE90, very much a big stalwart of the wide-body fleet for the triple seven, that's also still generating some very strong demand.

HAECO made an announcement about kind of a 15-year program for offload agreements and engine services related to that from their Xiamen subsidiary in China. So that's a strong work line for them. We obviously, I spoke to HAECO back in April in Hong Kong, and that's a market that's been successful for them. Also, that Xiamen shop will also now be part of the GE9X network for the triple seven X. That yet to enter into services course. But as of last month, GE stated there was just a bit more than 500 orders on file for that.

So yeah, kind of thinking of those established markets, strengthening in those, but also entering those new markets. Of course, like the G9X, they're kind of inserting themselves. Also, Rolls-Royce, of course, let's not forget, they've invested heavily in their Trent network this year. They're doing so in the UK and Germany and Europe, and of course there's that big joint venture in China with Air China near Beijing. I think by 2026 that becomes operational. So yeah, that particular wide-body market will be very, very interesting in the future in general, across the board, I think. And yeah, I mean there are established players of course, in the aftermarket, but it'd be interesting to see how it develops long term.

Lee Ann Shay:

Dan, any engine news that stands out to you from Farnborough?

Dan Williams:

No, aside from that British Airways announcement, other than there was lots of new orders for engines. Yes, the number of aircraft orders were low, but the number of engine orders were reasonably chunky. So again, it's good news for the future, but these are all, we knew they had to order engines at some point. It's just nice to see how they play out.

Lee Ann Shay:

I'm sure we'll be talking more about engines in future podcasts. The Aero Engines Europe event is not to be missed. September 10th and 11th in Amsterdam. But until then, don't miss the next episode by subscribing to the MRO Podcast wherever you listen to your podcasts. And one last request, if you're listening in Apple Podcasts and you'd like to support us, please leave us a star rating or write a review. Dan, James, thank you very, very, very much. Really appreciate it.

James Pozzi:

Thank you.

Lee Ann Shay:

And listeners, thanks a bunch. Stay tuned.