Aftermarket Sales Will Lift Despite Downturn, Says UBS
Despite the increasingly uncertain economic outlook, trading conditions for companies making their living from the air transport aftermarket are improving, according to analysts at Swiss bank UBS.
In research published on August 31, analysts argued that the industry is wrong to assume that the aftermarket, including maintenance, repair and overhaul (MRO) and spare parts provision, will diminish along with a period of slow growth. The UBS team pointed to three factors underpinning aftermarket income, including changes in fleet age profile and shifting needs for spare parts.
First, UBS calculates that airlines will need to make greater than expected use of aircraft whose warranties have run out, spending more with MRO providers. It bases its assessment on an assumption that the number of new aircraft covered by warranties will grow at only 2 to 3 percent during 2011 and 2012 (compared with 4 to 5 percent in 2008 and 2009), meaning that they will continue to account for no more than a quarter of the overall fleet.
Second, UBS reckons that airlines will soon accelerate restocking of spare parts. Even though flight hours stand 10 to 15 percent above prior peak levels, spares sales volumes have remained relatively soft so far, which the analysts believe indicates that airlines have essentially deferred restocking. “So even though flight-hour growth is likely to decelerate to low levels, we believe the aftermarket still has room to grow at a faster rate,” they concluded.
Finally, the UBS team maintained, demand for spares will experience a further boost during 2012 by the entry into service of Boeing’s new 787 and 747-8 airliners. It predicts that next year will see between 1 and 2 percent growth in the spare parts sector.