How MRO Bottlenecks and Global Conflict Impact Engine Availability and Aircraft Procurement
Key Highlights
- Geopolitical conflicts, particularly in the Middle East, have led to reduced airline operations and limited spare engine availability, impacting aircraft procurement and maintenance schedules.
- OEMs are experiencing production constraints due to engine shortages, with aftermarket engine prices increasing by up to 50%, affecting airline costs and profitability.
- MRO shops are overwhelmed by demand, but limited capacity and parts scarcity are causing delays and rising costs for engine overhauls and component repairs.
With ongoing global conflicts challenging the aviation sector on all fronts, engine scarcity has emerged as a key driver of challenges for MROs, airlines and aircraft owners.
Jetcraft Commercial President Raphael Haddad outlined how these conflicts affect the availability of engines and components and how MROs and OEMs feel the impact.
How is the Iran conflict impacting engine scarcity and aircraft procurement?
Haddad explained, “The bulk of an aircraft’s value is in its engines. If we look at a narrowbody that's mid-life, the engine value is around 60% of the aircraft value, if not higher.”
He continued, “It depends on the maintenance condition of the engine, so it could be anywhere between 50% and 70% of the whole aircraft value…Now, that directly affects the aircraft values themselves.”
“If we look at an A320 mid-life, it's trading right now at 30% or 35% higher than a few years ago,” added Haddad
Framing the issue engine scarcity in the context of the ongoing conflict in Iran, Haddad said, “Engine scarcity has been heavily affecting aircraft availability. It's been affecting both the aftermarket as well as the new aircraft. There are technological issues, engine demand issues.”
“We have a huge unknown coming our way,” noted Haddad, “The unknown comes from oil prices, from interest rates, from geopolitical situations.”
Haddad drew a comparison to the conflict in the Ukraine, stating, “We thought that the Ukrainian conflict was going to be a short-term conflict, and we're now five years later and still in it. Is the Middle East conflict going to be the same thing? We don't know.”
“I was expecting that the Ukraine conflict would affect us a little bit more, but the travel industry kept on going, aircraft trading, engine trading, everything kept on humming and going and increasing,” added Haddad.
However, noting how the case has been different with the Middle East conflict, Haddad shared, “Big airlines [around the Middle East] have been grounded or have reduced their flying…Because of reduced frequencies in that region, you have the least availability of spare engines available there, as airlines don’t want to see their inventory on the tarmac or in the hangar.”
Haddad elaborated, “Even in this latest crisis, we have not seen aircraft being put on the market more than usual. There were a few aircraft that were put on the market. There was Spirit's situation…which put some aircraft on the market, but not that many.”
“And since then, we haven't seen many more narrowbodies go on the market either,” said Haddad, “I was expecting that four weeks into the conflict we would see a little bit more availability and inventory, but we still haven't seen it.”
He continued, “That tells me that the airlines being affected are still optimistic about it, that they probably see potentially a quick recovery. So, things are still hanging.”
“Their decisions are being made now. Airlines are digesting the increase in the fuel cost,” explained Haddad, “They're trying to manage that as much as possible.”
He noted, “Some airlines are actually benefiting from other airlines not flying anymore or having reduced the flight schedule, to fly their inventory higher. There is a wait-and-see the situation that's happening right now.”
How are OEMs navigating engine shortages and aircraft procurement challenges?
According to Haddad, “OEMs are the first line that feel the aircraft and engine scarcity, and if we're talking about the narrowbody segment—which is the highest demand in terms of engines—whether we're talking about Airbus or Boeing, engine availability is directly affecting the production lines of these narrowbody manufacturers.”
He explained, “Big players are meeting the demand of the market, however, with a big uptick in the pricing [of aftermarket engines] for the airlines.”
“The engine that was trading at $5 million now is trading at $8 million, and the engine that was trading at $8 million now is trading at $12 and $13 million,” added Haddad.
Haddad listed narrowbody engine types affected by this, such as:
He explained, “The effect is felt directly in the pocket of the airlines. It's a huge swing. We're talking about a 30-to-50% increase in engines that are coming out of the shops.”
How are MRO bottlenecks impacting engine scarcity?
When asked about how MRO activity and bottlenecks factor in, Haddad answered, “It’s a direct correlation…We are seeing more MROs or shops that handle engine overhaul, but not enough, because of the huge number of engines that are requiring performance restorations and shop visits versus the accreditation that is being provided by the engine OEMs to the shops.”
Discussing how demand for services is steeper than the supply and availability of engine shops, Haddad listed questions that the industry now must consider, including:
- What’s going to happen going forward?
- Are we facing a potential recession or just a slowdown?
- How long will these fuel prices continue for?
Haddad also highlighted the related issue of finding and sourcing parts, advising, “Because of the scarcity of parts—not only engines—and the fact that the existing shops cannot keep up with demands, that is having a direct effect on pricing. And we feel that at every level.”
He proceeded, “If you have a fresh landing gear that you have overhauled last year and you want to sell it today… I have seen a landing gear go up in price that used to sell for $600,000 to sell at $1 million.”
Touching on aftermarket parts solutions, Haddad stressed, “It's not just the scarcity in new parts, but also the scarcity in freshly overhauled parts, which are replacing the availability of new rotables or new parts.”
He continued, “Unfortunately, we don't see the OEMs that are maintaining their own rotables, increasing by an equivalent proportion their supply of the market. If the market's demand has increased by 35% or 40%, I don't see the OEM of landing gear increasing its production by that.”
Using the example of windshields, Haddad said, “Very few shops are doing windshields overhaul. Laminated windshields need attention, and the backlog at the shops is huge.”
He added, “The shops that were not always desired shops are benefiting from that. The top-tier windshield shops have very full lines waiting, and the shops that used to be not-as-desired are getting the spillover.”
This highlights how even shops that are smaller and may not typically be an operator’s first choice of maintenance provider are getting more and more busy due to rising demand for MRO.
“We thought that we would have the answer and be able to predict some kind of a downturn. We don't know,” said Haddad.
He advised, “We’re going to keep on working. We're going to keep on seeing how things are going to move forward and, hopefully, we'll come out from the other end very, very soon.”
Interested readers can also listen to Raphael Haddad’s interview on the Aviation Pros Podcast.
