The newest COVID-19 wave is not altering commercial customers’ maintenance plans, though any sustained rise in travel restrictions could hamper its parts trading activity, maintenance provider AAR Corp. said.
“As of now, the omicron variant has not impacted our customers’ maintenance plans,” AAR President and CEO John Holmes said on the company’s fiscal 2022 second-quarter earnings call Dec. 21. “As such, we expect MRO activities to remain at the current levels, which are near full capacity.”
Demand for parts was “stable” for the three months ended Nov. 30, though volumes fell from levels seen in the previous quarter, before the delta coronavirus variant emerged.
“Parts demand for narrowbody aircraft, particularly here in North America, has recovered,” Holmes said. “The areas that we’re waiting to see recover are the international markets. And again, parts is our most international business. So, once we have clarity on consistent borders being open and travel restrictions being lifted, that’s when we would expect to see more continued, more consistent demand in the parts business. Unfortunately, the timing of that is obviously very difficult to predict.”
Holmes said AAR is benefiting from collaboration with customers that has helped the company smooth out typical seasonal lumps in its business. The effort is mutually beneficial—steady work allows heavy maintenance providers to keep skilled workers busy, avoiding ramp-ups and ramp-downs often associated with large airframe maintenance providers. That positions the company to better handle demand when operators need it.
“Customers have worked very closely with us to keep the hangars and the loading in the hangars relatively consistent,” Holmes said. “So, what we used to experience with major dips during the summer and significant dips during the holiday season, which resulted in up and down moves in the overall labor force, the customers have worked with us to level load through those periods, which has allowed us to keep the labor force together.”
One trend AAR is seeing is increasing demand for used serviceable material (USM). Holmes pointed to a few factors, including burn-down of existing parts stock and customers’ desires to keep costs low coming out of the pandemic.
“We believe that once you get more consistent demand as markets fully reopen, there’s going to be quite a run on [used] material because shelves are empty and airlines will have more confidence in consistent flying,” Holmes said. “It’s difficult to predict when that’s going to occur, but we do expect when it does, it will be a pretty meaningful uptick.”
The USM market is facing a shortage of parts on many popular platforms as operators approach asset sales with caution. That is expected to change soon, however, as recovery patterns—and related fleet plans—become clearer. AAR said on its last earnings call that it was seeing signs of increased retirements, a necessary precursor to expanding USM availability.
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