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By Rob Morris, Global head of consultancy, Cirium Ascend Consultancy
The past few weeks have featured an intensive schedule of industry events in New York, Frankfurt, Dubai and finally London (for ISTAT EMEA). Each of these conferences has featured a large number of industry interactions, as well as our own presentations. Amongst these interactions there have been many questions about the commercial aviation sector outlook in general, now that Covid is largely behind us. But there is one question which dominates almost every conversation – What is the likely impact of the Pratt & Whitney Geared Turbofan (GTF) issue on aircraft supply, and by extension aircraft values and lease rates?
At present there seem to be more unknowns than knowns. The knowns largely arise from official statements from RTX (Pratt & Whitney’s parent company) and GTF programme partner MTU. From these comments we know that:
- Around 3,000 PW1100G engines are identified as requiring inspection, albeit not all need early shop visits and thus some of these could be accommodated in scheduled events. (As an aside, Cirium fleets data indicates that 1,393 A320neo family aircraft have been delivered to date with P&W engines so it appears that substantially all installed engines plus likely most spares delivered need to be inspected);
- Some 600-700 engines must be removed (in addition to regular shop visits) from now through 2026 for inspections;
- The majority of these inspections are expected during 2023 and early 2024;
- This will result in a peak aircraft-on-ground tally of 600-650 PW A320neo aircraft in H1 2024. (Again as an aside Cirium’s data currently shows around 160 aircraft parked but that is likely a conservative number as we await the 30-day inactivity lag to classify more aircraft as parked);
- Inspections will mean an average of up to 350 aircraft will be out of service at any one time between now and 2026;
- Wing-to-wing turnaround time is expected to be 250-300 days (~50% of which is shop waiting time).
The key point seems to be the 350 aircraft expected to be out of service at any one time through 2026. That is almost one-quarter of the current installed fleet, so a very significant element of capacity which will not be available to the market. Set in an even wider context, there are around 17,000 passenger single-aisle jets in service globally today. So 350 aircraft parked represents more than 2% of the total fleet which will be unavailable at any time through 2026, a not insignificant capacity shortfall.
This issue further exacerbates an already tight single-aisle capacity position, where we presently estimate that the new aircraft delivery deficit induced by supply chain and other issues, of which this latest GTF woe is one, is expected to endure through at least 2027.
Remember also that through 2026 Cirium’s fleet data estimates more than 1,100 P&W-powered A320 family deliveries are scheduled. There must be a reasonable expectation that some portion of these deliveries will be delayed, in the event that P&W is forced to divert production engines away from Airbus and into a spares pool to seek to mitigate the increasing parked fleet and allow airline customers to continue to operate their aircraft gainfully at a time of renewed demand growth and higher fuel prices. The obvious conclusion here is that further delivery delays simply extend the period through which the estimated delivery deficit endures. Hence, there is a risk that even by 2027 airlines do not have sufficient capacity to fulfil their passenger demand.
And so we stray into the territory of unknowns, of which there are many:
- When and how will P&W remedy the technical issue?
- When and how will RTX/P&W compensate customers for operational and other disruption?
- What will the impact be on values and lease rates of GTF-powered A320neo family aircraft?
- Will GTF suffer in market share terms (vs Leap) as a consequence of this issue?
Of note for the second is that RTX reported a $3.5 billion pre-tax charge in Q3 as a consequence of the required inspections, so this helps us start to understand the financial quantum of this ‘event’ (remembering that RTX/P&W ‘own’ only 51% of the engine programme). And in market share terms we can observe that LEAP has a 53% share of the installed market, plus a 61% share of the firm order backlog where an engine decision is already made. This latest issue surely cannot help P&W’s share, where a lag is already potentially becoming evident in any case.
But generally the answer to these unknowns is that it is simply too early to tell. All we can do as industry observers and appraisers is follow the data, collect intelligence and try to work out what it might all mean in the longer term.
At present though we do know that this is one more issue which will prolong capacity shortages and continue to drive positive pressure on aircraft lease rates, and by extension values.
As I have heard my colleague George Dimitroff say many times in meetings over the past few weeks, the rising tide lifts all boats. So for now, as the tide is driven ever higher by aircraft shortages, the news remains positive for lessors but perhaps less positive for airlines.
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