Rising costs, lack of widebody flights pose risks to recovery in aircraft maintenance market

Singapore Technologies Engineering

16/02/2022 06:14

* Less flying, aircraft retirements have lowered demand
    * Narrowbodies and freighters have outperformed widebodies
    * Rolls-Royce expects significant increase in shop visits in
2022

    By Chen Lin and Jamie Freed
    SINGAPORE, Feb 16 (Reuters) - The global aircraft
maintenance, repair and overhaul (MRO) sector faces fresh
challenges from rising labour costs and a weak recovery in the
widebody market as shop visits begin to rebound after a severe
pandemic-related slump.
    The MRO sector, worth an estimated $68.4 billion in 2021,
according to consultancy Oliver Wyman, has been battered by
retirements of older planes, which typically require more
maintenance, and reduced flying hours for the rest of airlines'
fleets. 
    That has led to less wear and tear on parts and given
airlines with grounded planes the ability to conserve cash and
postpone shop visits.
    Industry delegates at the Singapore Airshow said that the
outlook was improving but that labour costs were rising. They
said the recovery was lumpy and focused on specific areas where
air travel was rebounding, such as narrowbody aircraft and
dedicated freighters, with older passenger widebodies lagging
well behind.
    "There is a general labour shortage and the only way to get
labour back to work is higher rates," said Kailash Krishnaswamy,
senior vice president of aftermarket services at Spirit
AeroSystems  SPR.N . "Inflation is definitely a challenge."
    For his company, business has been solid in the Americas,
where it services narrowbodies but less so in Belfast, where it
had done a lot of work on Airbus  AIR.PA  A330 widebodies, many
of which have been retired.
    "We are trying to pursue a lot more narrowbodies in Belfast
that we used to not do in 2019," Krishnaswamy said. 
    A recent survey by broker Jefferies on aftermarket demand in
aerospace found participants expected an 11% increase in sales
this year. Half believed engines would be the area with the
biggest recovery this year, although many airlines deferred
engine maintenance during the pandemic. But Jefferies said the
expected rise may be due to the low base in 2021. 
    Rolls-Royce  RR.L  said in December that large-engine flying
hours were at only 50% of 2019 levels due to the uneven nature
of the aviation recovery, but its civil aerospace president,
Chris Cholerton, said on Wednesday that flying hours were
expected to increase significantly this year.
    Shop visits are on the rise and Rolls-Royce plans to hire
more workers in Singapore this year, he said. 
    "The modern aircraft – the 787s, the A350s, A330neos,
probably by before the middle of this year, they'll be back to
where they were in 2019," Cholerton said. "The reduction in
flying hours is from the parking of capacity from older
aircraft."
    Boeing Global Services President Ted Colbert said the
industry in Asia had been aided during the pandemic by a boom in
passenger-to-freighter conversions that helped MROs fill spare
hangar capacity.
    The biggest beneficiary of the trend, Singapore Technologies
(ST) Engineering  STEG.SI , on Monday announced a deal to
convert to freighters and lease up to five A320s to Vaayu Group.
The first one is due to be placed on lease in the second
quarter.
    As the market recovers, Malaysia's AirAsia, which as of last
week had 55% of its fleet on the ground, hopes to have all of
its planes flying again by the fourth quarter, increasing
maintenance demand.  urn:newsml:reuters.com:*:nL1N2UM07N
    "For airlines growing out of the crisis and increasing
capacity and getting access to MRO slots, that is going to be a
struggle," said Embraer Commercial Aviation President Arjan
Meijer. "The capacity is limited in terms of hangar space but
also from a human capital perspective." 
    Planning for a rebound, AirAsia's parent Capital A on
Tuesday said it would raise more than $95 million for its
engineering arm, which plans to build a large MRO facility at
Kuala Lumpur International Airport capable of heavy maintenance
of up to 14 planes at a time.

 (Reporting by Chen Lin in Singapore and Jamie Freed in Sydney;
additional reporting by Aradhana Aravindan in Singapore. Editing
by Gerry Doyle)
 ((Jamie.Freed@thomsonreuters.com;))