Podcast: New Generation Engines Pose Challenges For The Aftermarket

As new engine programs develop and gain further traction in the market, OEMs, MROs and operators are experiencing related challenges.

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Rush Transcript

Lee Ann Shay:

The commercial aviation industry is in a dynamic time as Airbus and Boeing try to ramp up production, yet face supply chain and workforce challenges. At the same time, travel demand is booming.

The latest generation of engines, such as the Pratt & Whitney geared turbofan and CFM LEAP families, have had normal teething problems according to several people, but lately, there are also several engine reliability issues that have grounded aircraft.

I'm Lee Ann Shay, Aviation Week's MRO editor, and here to discuss this and how the aftermarket is affected is James Pozzi, Aviation Week's MRO Editor for EMEA, and Sean Broderick, Aviation Week's Senior Air Transport and Safety Editor.

Sean, to start things out, what do you see as the main challenges for the engine MRO segment, particularly in servicing these new-generation engine types?

Sean Broderick:

Well, I think overall, across the segment, demand is certainly going to be the main catalyst and the main challenge for the next, probably, 24 to 36 months at least. We have every segment of the industry, whether it's long haul, short haul, older engines, newer engines, demand is on the rise. The demand for services is on the rise. So coming out of the pandemic, you have still some, I think, deferred work that is being caught up on, and then you have just a natural cadence of demand as utilization rises.

On the new engines specifically, both in the narrow-body world, both CFM, and Pratt, definitely have challenges because there's still a significant demand for the previous generation, so the V2500s on the Pratt side and the CFM56s on the GE Safran side. Yet you're starting to get into the initial heavy shop visits for the LEAP in the geared turbofan. You're also getting durability problems, with particularly the geared turbofan that has stymied Pratt, and the issue, if it's not getting worse, it's certainly not going to get a whole lot better, or it's not going to be better until probably the end of 2024, is what the Pratt folks are saying. The issue is relatively simple. They have some parts on the engines that are not meeting durability targets. So you're having engines needing to come off-wing before they were expected to come off-wing. Their overhaul capacity is not at a point where they can handle that surge. You have some supply chain, some parts issues as well. So they have a problem that some operators are going to feel for a couple of years.

The AOG number right now is fairly high, and it's going to stay higher than certainly Pratt wants it for a while. They're working on it. They're up to a block D deconfiguration on the engines. They're working to retrofit the engines that are out there in the fleet as quickly as possible, and they're transitioning to a new Advantage standard original build starting, I believe, later this year, and by the end of 2025 or sometime in 2026, all the engines rolling off the line will be that new Advantage standard. But it's a long way between here and there.

So capacity is a big one, and then, of course, labor and supply chain, parts availability on the overhaul side are too, if not at least equal, and perhaps larger issues for the near term, call it 12 to 24 months.

Lee Ann Shay:

Thanks, Sean. And James, what is your take on all of this, especially as the OEMs are upgrading, retrofitting those engines and you have a great demand? Do you think that demand for service is going to outstrip supply?

James Pozzi:

Definitely. It's a big fear of the industry at the moment. If you talk to anyone in the engine space, and they're optimistic about the workflows and the market demand, but they're also very aware that meeting this market demand will prove a long-term challenge and it is challenging them already. Building that readiness to meet the demand seems to be the priority across the supply chain. Having the workforce numbers, having the right market supply to customers and partners, it all needs to work effectively to be able to do this.

Now, growth, obviously, is expected more this year. I think both Pratt and Safran recently have stated they see double-digit growth in the aftermarket this year ahead, but not right now as an environment, of course, where maintenance slots are still at a premium, and this is expected to continue for the foreseeable future. A lot of demands to maintain aircraft and engines more so now than especially compared to two or three years ago during the pandemic when that market hit a slump. Of course, while demand is never a bad thing, being able to meet this, most certainly could be a bad thing if not done effectively.

A number that was interesting to me, a recent visit to Iberia Maintenance in Madrid and their engine shop, they told me they're now inducting three times the number of engines, not since during COVID, but before COVID, so 2019, they are now inducting three times as many engines as they were then. So that just shows the volume of what's going into their facility and that's just one example of many, I imagine.

Of course, Sean mentioned the readiness of overhauls for new engine types that have started to come. It's also interesting about the V2500 and the CFM56. I mean, the V2500, I recently spoke to one of their executives in a call and he estimates it around 30% of V2500s are yet to even go under their first shop visit. So that mature, stalwart narrow-body engine market, there's still a lot of activity, heavy activity to come there. So that's a consideration too.

Yeah, I think going forward, OEMs, they've already made some of their moves known. It seems everyone is looking to grow their aftermarket networks and add new partners, add new capacity, and new facilities to undertake some of this future work. As we've seen in the last year, a lot of established MRO players have signed up and joined the aftermarket networks of those new narrow-body engine types, the Geared TurboFan family and the LEAP engine, obviously, the successors to the V2500 and CFM56 respectively.

Lee Ann Shay:

You bring up a lot of really good points, like Iberia Maintenance, three times the inductions, 30% of the V2500s that haven't had a major shop visit yet. Just to put the LEAPS and the GTFs in perspective, Aviation Week data shows that there are about 6,900 LEAPs in service today and about 3,000 geared turbofans. So if there's a big number of these engines, realistically, how are they preparing for this influx, and there's been some new partnerships lately? James, can you comment?

James Pozzi:

Yeah, absolutely. It's been mostly focused on the narrow-body, for the sort of flow of traffic is, I guess, for [inaudible 00:07:07] work but the recovery of the wide-body engine market has also played a role in this. One of the very major wide-body partnerships of recent times was last year. Rolls-Royce formed a joint venture with Air China coming out of Beijing that will service some of the Trent engines, the 700, for example, and the XWB is also in the pipeline there and that's going to be set up later in the decade. That's a pretty major joint venture from Rolls-Royce's side, but also for the Chinese aviation market, which, of course, is recovering now, which is, obviously, a very positive thing for the overall global market.

But yeah, back to the narrow-body engine. We've had some major announcements already this year. StandardAero are now signed up for the LEAP-1A from their facility in San Antonio, Texas. That was announced around the same time as ST Engineering, of course, based in Singapore, who are also going to begin LEAP-1A overhaul services there. Also, the associated parts of the engine, the other repair markets related to that. I'm thinking about the nacelles. ST Engineering, again, they're going to start repairing LEAP-1A nacelles, as are AFI KLM E&M, and the ST Engineering contract covers three regions, North America, Europe, and China. So that's a lot of global coverage there for operators, and, of course, obviously in the Nacelles market as well, there's Lufthansa Technik who have also signed a similar deal recently as well to undertake repairs.

On the Pratt side, Iberia Maintenance were one of the companies that joined the GTF network late last year following on from SR Technics who did similar, I think, in April 2022. Of course, growing capacity and facilities will also entail adding locations. I think Safran have readied their Brussels location to incorporate LEAP repairs as well.

Obviously, of course, in the immediate future, a lot of the work around these engines will be related to, as you mentioned before, quick-turn hospital shop visits before the ramp-up to full overhauls, which you know would expect to see from around maybe the mid-decade, 25 onwards, although some MRIs are talking close towards 26, 27 until that flow of engine overhaul demand on those new engine types comes in and their shops are all set up and capable, the tooling, the equipment, the people, the capacity to meet those services. A bit of a long-term preparation, but certainly needed in order to keep their nose in front, so to speak, about all this demand.

Lee Ann Shay:

I'm glad you mentioned the hospital visits. We've got the demand that we just talked about, but the hospital visits and the work scopes. When I was talking with Derrick Siebert, who's Lufthansa Technik's VP Commercial Engine Services recently, he was talking about Hamburg and their major engine shops are going to remain the heavy overhaul shops, but they are looking at being closer to the customer to do more surgical visits, those hospital visits. Any comments there?

James Pozzi:

That's certainly been a good revenue stream for MROs in recent times. Some operators, of course, are still choosing to put off expensive shop visits in recent years, for example, at leasing events, they've done very well out of green-time engines because a lot of airlines have been looking to go down that route, and that's been quite a buoyant market for them.

It's interesting, some people have told me in the last year, opinions, of course, vary about the future of this market, but some people have told me that they think maybe that work scopes will never return to pre-pandemic levels and we're talking heavy work scopes and overhauls in terms of full restorations as well. They think maybe that is permanently altered what the operator wants from the MRO. Of course, one of the winners from this has been engine quick-turn and hospital visits as mentioned. During the pandemic, we saw several established MROs set up services and shops related to these in Europe, North America, and Asia Pacific. So the major regions that's been something of a fringe and yeah, expect more MROs to add engine capability over the next few years, particularly in some of these lighter work scope services.

This is actually happening near my doorstep. I recently visited STS Aviation Services who, of course, reopened a former facility in Manchester operated by Thomas Cook, the defunct British Airline, and they are going to start offering specific engine services for aircraft engines from that facility. They're hoping to get that set up, I think, either by this year or next year at the latest, and that's going to have functions such as storage, inspection, and a specific type of repairs related to engine types. So that could be something maybe we see more of. There's a few MROs as well, independent shops I've spoken to who are definitely considering either adding to their engine capabilities or setting up some of these specialist lighter services there. So that could be a trend of the market in the next few years, definitely.

Lee Ann Shay:

Sean, do you see work scopes changing?

Sean Broderick:

I do, for a couple of reasons. I think that some of the things that airlines took advantage of during the pandemic, some of the services that were rolled out to meet that quick shift in demand, are going to be advantageous for keeping aircraft in service. So I think the more you can do a hospital visit to avoid a major overhaul, I think airlines are going to like that, not just in a pandemic cost-saving environment, but in general.

Another interesting thing is with the newer engines, one thing that we're seeing is a much more rapid pace of repair and development. If you think about that, my initial reaction when I first heard this was it seemed counterintuitive. So newer engines, more advanced design, more advanced technology, you think, "Ah, they're going to need fewer repairs." Typically, it's actually the opposite. Because of the higher operating temperatures and the advanced materials, the OEMs have to develop more repairs sooner. GE and CFM is developing repairs about three times as fast on the LEAP-1A as they did on the CFM56-5B, for example. They hit around about 1,000 repairs after around 80 months in service, ballpark figures. They didn't hit the 1,000 repair threshold on the CFM56-5B until more than 210, 220 months in service, again roundabout.

So it's an interesting development that probably affects work scopes, and in terms of the work scope recovery, I looked at some of Rolls' numbers. Again, they're ballpark numbers. They divide their checks into major heavy checks and then checks and repairs. So I looked, in 2019, they did right around about 1000 total shop visits. That includes the regional and the business jets. About a third of them, about 30% of them, were major large engine overhauls, so what we would think of as the heavy work.

Last year, they did actually more shop visits. They did about 1,050 but only 248 of them, about 25%, were those heavy shop visits. Their shop visits have actually climbed each year since 2019, interestingly. Well, they had a little dip in 2020, but they went up in 2021, up in 2022. This year, they're looking at 1,200 to 1,300 total shop visits. It'll be interesting to see, at the end of the year, how many of those are major shop visits and if there is a shift here to more of the check-and-repair, or if it's just sort of the cadence of the wide-body market, which, of course, has been heavily impacted and is only now beginning to come out of it, especially on the MRO side. So Rolls, the way they report their numbers, it's unique and you can take a look at it and get an idea of what their customers are doing. So it's going to be interesting to watch.

Lee Ann Shay:

Absolutely, and now that the wide-bodies are flying, there'll probably be some news on the wide-body end too. So gentlemen, thank you so much for your insights. I greatly appreciate it.

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