DUBLIN—With inflation rising sharply across the world, the commercial aftermarket is expecting to feel a broad impact, ranging from rising labor costs to increased material pricing.
In a panel discussing on the current state of the global engine market at Aviation Week’s Aero-Engines Europe event in Dublin on Sept. 7, MRO and leasing industry representatives predicted the effects from inflation would start to take greater effect from next year.
Caroline Vandedrinck, SVP of business development at Switzerland-headquartered maintenance provider SR Technics, said the impact has not been felt immediately, but she expects material costs to increase in 2023.
“We’re working with our customers to find solutions immediately and how to mitigate against these impacts,” she said. “Each customer has its own contract and its own needs so it’s really a customer-by-customer discussion.”
Derrick Siebert, VP of commercials, engine services at Lufthansa Technik, echoed that, saying the cost increases impacting the MRO giant’s operations are related to materials, which he feels could become increasingly problematic in the future.
Siebert also sees existing workforce challenges escalating because of inflation rises, with salaries that have risen sharply over the past two and a half years increasing even more as a direct result.
“Inflation is further amplifying the problems we already had around recruitment,” he said. “There is an expectation of more attractive salaries and incentives, and amplified inflation makes all of this much more costly and difficult to grow the workforce and be attractive.”
He identified greater sustainability initiatives and greater consideration to how parts and materials are used as potential solutions to the rising costs.
Increases will also impact on the lessor-MRO dynamic. James McLoughlin, VP of powerplants at Irish lessor VMO Aircraft Leasing and Justin Phelan, SVP sales and marketing at Engine Lease Finance Corporation, both foresee rising compensation and maintenance rates as eventually having an impact on the leasing segment.
McLoughlin says many lease contracts are negotiated on specific escalation numbers, estimated at 3% to 4%. He adds that increased price escalation could mean that these percentages could eventually be higher at the end-of-lease stage and lead to increased maintenance exposure for lessors if they do not have an end of lease thru up mechanism.
Phelan agreed with the view that price escalation could mean OEMs passing on the increased costs to their customers for new engine model assets. He also sees likely increases for used serviceable materials in future should inflation continue to rise.
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