Daily Memo: MRO Providers See Labor, Material Shortages As Biggest Threats To Growth

As the peak mid-year travel period winds down amid threats of economic recession in many major markets, some airline-industry watchers are growing concerned that big-picture demand trends are shaping up as near-term threats. 

If it’s any consolation, aftermarket service providers are not there—at least not yet. 

Data points from several major manufacturers and a survey of maintenance, repair, and overhaul (MRO) providers suggest a relatively turbulence-free ride for the next few quarters. Raytheon Technologies’ Pratt & Whitney raised its full-year revenue growth range from a top-end of 10-12% to a minimum of around 13-14%, driven in part by a strong aftermarket.  

Moog, a supplier to many commercial programs, boosted its projected full-year aftermarket sales 18% with just three months to go (the company’s fiscal third quarter wrapped up July 2). 

“The commercial aftermarket almost doubled in the quarter,” Moog CEO John Scannell said on a late July earnings call. “The underlying demand for spares and repairs contributed just over half the growth and continues to run ahead of our forecast.” 

Even companies that are seeing lags report silver linings. For instance, CFM56 engine shop visits ran a bit below expectations in recent months, Safran executives noted on a recent earnings call. But work scopes—the amount of material put into each engine—ran above projections. The trends help balance each other out, keeping the company’s full-year aftermarket revenue projections—up 25-30% compared to 2021—on track. 

All of this comes amid several additional, acute headwinds. For one, long-haul travel demand continues to lag short-haul. But as long-haul international passenger flying continues to rebound, aftermarket demand will follow. Rolls-Royce expects to see at least 55% of 2022’s total shop visit volume in the back half of the year. While this counts business-and regional-jet engines, a rise in widebody flying on fleets such as the Boeing 787 and the Airbus A330 is a factor as well. 

“We are somewhat encouraged by the view of MROs,” wrote RBC Capital Markets analyst Ken Herbert in a report on the firm’s most recent quarterly aftermarket-provider survey. “Over 50% of MROs in this survey are either not concerned or have seen no impact yet on their [2022 second-half] outlook.” 

While aftermarket providers are upbeat now, Herbert cautioned that a dip in passenger demand would not be immediately evident in MRO shops. Capacity adjustments by carriers this quarter would not hit the MRO world until next quarter or beyond. 

Even if demand holds, there are several acute issues. China’s uneven recovery means work generated by that country’s carriers is difficult to project, for instance. Even more threatening are labor issues that are beginning to affect aftermarket providers as much as other, more visible segments of the air transport industry. 

“The key headwinds for [second-half of 2022] MRO sales remain labor and material shortages,” Herbert said, noting that half of the 40-plus respondents cited the variables. “The third most cited headwind is MRO capacity, which is related to labor shortages.” 

A possible global recession was sixth on the list, just behind the pace of air travel’s recovery and higher fuel costs.