Top-Tier OEMs, Suppliers See Slow Aftermarket Recovery

Top-tier manufacturers and suppliers are not banking on a quick commercial aftermarket rebound, financial figures and commentary from 2020 third-quarter (Q3) earnings calls underscore. 

“I don’t expect we’re going to see an upturn in aftermarket until sometime next year,” Raytheon Technologies CEO Greg Hayes told analysts Oct. 27. “Even if we start to see a recovery in the fourth quarter in commercial air traffic, which is still a question mark, I don’t think anybody should be focused on 2021 to see a big uptick in commercial aftermarket—primarily at Collins [Aerospace]—because there’s a lot of excess material out there. There’s a lot of folks still trying to do what they can to minimize costs.”

Collins posted a Q3 commercial aftermarket decline of 52%, including a 51% decline in parts and repair, a 67% reduction in initial provisioning (IP) and a 44% dip in modifications and upgrades, parent Raytheon said. 

Pratt & Whitney, which like Collins is also part of Raytheon, reported a 51% drop in commercial aftermarket sales, with PW1000G geared turbofan growth “more than offset” by a 55% decline in legacy large commercial engine shop visit inductions and a 37% reduction in Pratt Canada shop visits. 

While the engine-induction declines are not a surprise, headwinds from newly available surplus material could linger. Suppliers are working to gain more visibility on what their customers are thinking, and plan to adjust accordingly.  

“Services are critical to the recovery of [GE Aviation] as we generate much of our cash here, especially within narrowbodies, which are more than 40% of our historical revenue,” General Electric CEO Larry Culp said Oct. 27. “We typically have good line of sight into demand of about six weeks out at our internal jobs, but we have less visibility into external shop visits. We’re working with our customers to forecast shop visits as utilization recovers, supporting our operations and supply chain.” 

GE Aviation said its commercial-service revenue declined 55% in Q3—a mix of lower spares sales and fewer shop visits. Engine inductions are down 50% year-over-year, the company said. 

Boeing’s Global Services (BGS) unit saw revenue fall 21% in Q3, reflecting steady headwinds from the struggling global commercial airline business. Government services volume increased to become the majority of the business. BGS generated 59% of its Q3 revenues from government work, tipping its year-to-date ratio to 53% of the total. 

“In the commercial services market, although we believe we’ve seen the low watermark in terms of demand, the recovery has been slow,” Boeing CEO Dave Calhoun said. “We continue to anticipate it will take multiple years to reach previous demand levels. Accelerated retirements will also result in a newer fleet as we emerge from the pandemic impacts, which will reduce services demand and prolong its market recovery.” 

While airlines will plan to add capacity back as quickly as demand warrants, their new-found flexibility could hamper the MRO segment’s recovery. Spare aircraft and engines provide more options for deferring maintenance. Part-outs are expected to add used material to the market, while airline bankruptcies, fleet consolidations and delivery deferrals will free up surplus materials, including some IP stock delivered to support growing fleets.  

“This is not a one-quarter, two-quarter problem,” Hayes said. “It’s going to be here for a while. But it is exactly as we had laid out in our outlook. So I wouldn’t worry about it other than the fact that everybody just needs to be aware. This is not a quick recovery in the aftermarket.”