Posted on: 15 April 2015 by Ross McSweeny
With aircraft increasingly capable of hundreds of gigabytes of data from each flight, airlines are currently unable to receive and interpret that much data much less use it to lower maintenance costs, ensure the reliability of aircraft or better prepare for unplanned maintenance events, according to speakers at MRO Americas.
Both ICF International principal Richard Brown and Cavok VP Dave Marcontell indicated that airlines will have to upgrade their IT systems, some of which date back to the 1990s, to incorporate big data into their operations and translate it into cost savings.
“Right now, airlines don’t know what to do with the data,” noted Brown, “and this is a huge challenge to the industry especially when using data for health monitoring and predictive maintenance. In fact, it is getting harder and harder to improve maintenance efficiency because airlines have already captured the low hanging fruit – lean events and adopting systems that enhances productivity. That lean journey has become a challenge because it is just squeezing the lemon harder.”
ICF differed slightly in its growth forecast for MRO activity over the next decade, estimating that the industry will grow to $90 billion by 2024, or 3.8% per year, from its current $62.1 billion level. Cavok had projected $100 billion by 2025. Brown also indicated that the forecasts presented during the conference do not include the acquisition of new IT systems and software at the world’s airlines.
Industry growth will be fastest for components and engines rather than airframes and will be driven by narrow- and wide-bodies as MRO for regional jets and turboprops decline.
Neither Marcontell nor Brown could provide clarity on the fuel cost picture except to point to comments made by airline CEOs Richard Anderson (Delta) and Jeff Smisek (United) who noted that if they plan for low fuel they will always be disappointed. That indicates that airlines in the US have no plans to change their capacity strategy. Indeed, the lack of clarity on fuel prices prompted Southwest president and CEO Gary Kelly to say that falling prices, while contributing to today’s profitability, confuses the future planning picture. Clearly, airlines will retain their “assume-the-worse” mentality.
If fuel remains low, however, forecasters expect that will result in “dramatic repercussions throughout the aviation and MRO supply chain,” according to Brown.
Fuel prices are largely driven by geopolitics, which has seen a revolution in the US energy sector coupled with the Saudi Arabian desire to maintain high supply and low prices. This is compounded by the fact that OPEC no longer has tight control of its members when it comes to controlling supply.
Brown indicated low fuel prices will drive increased air travel but said that may come from airlines dropping ticket prices as the result of lower costs. Most analysts, however, do not see that happening, at least not in the US.
Low fuel costs would keep older aircraft in service longer, increasing residual values and stemming the threat of decreasing economic lives. It would delay large fleet decisions. This may, Brown noted, trigger capacity increases at a greater rate that the low single-digit rate today. It may also trigger new entrants and new start-up carriers, especially in emerging markets. Finally, he predicted that the industry may see airlines taking more risks on marginal routes. In the cargo arena lower fuel will usher in a cargo market recovery.
However, these changes won’t happen unless fuel stays low for over a year. Since airlines are well hedged, they will not realise the benefits from the fuel price decline for many months.
“According to a recent Bank of America study, a 200 basis points capital cost increase, plus a 30% fall in fuel prices from summer 2014 levels would result in a 35% reduction in aircraft retirements,” Brown predicted. “If that happens fleet orders will drop from the current prediction of 1,000 aircraft to between 700 and 800 per year.
As a result, there will be higher pressure to reduce acquisition and maintenance costs, especially for engine OEMs, he explained. This, in turn will result in higher aftermarket parts and sales, fewer aircraft retirements and less competition from surplus. The industry can also expect increased demand for airframe heavy modifications as well as for engine MRO activity. Brown expects increasing opportunities for secondary MRO clusters in emerging markets.
Kathryn Creedy, contributor, Low-Fare & Regional Airlines/laranews.net
Miami, FL, USA