Covid-19 sets back fleet & MRO forecasts for the whole decade

Ten-year forecasts for the global aviations sector are much dimmer this year than they were in January 2020. A new Oliver Wyman report details how Covid-19 has affected the sector’s fortunes till 2030.

Aviation was among the industries at the front line of Covid-19 economic impact, as travel dried up almost overnight. The International Air Transport Association (IATA) pegs the total loss for the sector at a staggering $118 billion through 2020.

The outlook for 2021 is better, even if the numbers are still dire. “Losses in the tens of billions of dollars are expected again this year, although the industry will suffer less than half of the hit it sustained the first year of Covid-19,” explained Tom Cooper, partner at Oliver Wyman’s transportation & services practice.

Several airlines entered restructuring and bankruptcy protection last year, and subdued travel for the start of this year – at the very least – will see many more burn through their cash. Not many carriers will be buying new planes as a result, while existing planes will either be retired before their time or repurposed as cargo vehicles – trends that were commonplace through last year.

Oliver Wyman’s aviation forecast from early 2020 put the global fleet size at nearly 29,000 aircraft in 2021 and over 39,000 by 2030. New figures reveal the current fleet size to be less than 24,000, with projections for 2030 having shrunk to 36,500. Irrespective of how things pan out, the researchers don’t expect this gap to close over the next decade.

Still, these figures reflect that the worst of the crisis is over. At its lowest point last year, the global operational fleet size was 13,000 per the report. With that phase in the past, the industry will likely inch ahead at a compound annual growth rate (CAGR) of over 2.5% till 2031 – with a larger share of this growth unfolding in the second half of the decade.

Covid-19 has left a lasting impact on the composition of this fleet as well. Whatever activity persists in the aviation sector is made up largely of short distance flights – a trend that might be here to stay for a few years at least. Correspondingly, narrowbody aircraft that run short distances are likely to drive most growth for the next decade, with long-haul, widebody types seeing subdued growth. 

Subdued MRO demand

Yet, despite growth in fleet size, the outlook remains worrying for most in the aviation supply chain – be it airlines, producers, or maintenance, repair & overhaul (MRO) service providers.

Air traffic is expected to take three to four years on average to return to pre-pandemic levels. Operating below capacity and strapped for cash, airlines will likely opt to retire planes rather than invest in MRO. Indeed, forecasted MRO demand for the next ten years is now half of what it was early last year – a $95 billion hit for the segment.

Producers will have it just as hard. “Given the inventory backlog of new planes that are built but undelivered or still not sold, more aircraft will be delivered to airlines over the next several years than will be produced by aerospace manufacturers,“ explained Cooper.

“The early retirement of planes may reduce aerospace sales of new parts because of increased competition from the surge in supply of used components and green-time engines harvested from retired aircraft. It will take as much as three years to work through the excess of used serviceable material.”

Silver lining

So the entire ecosystem has been set back. That being said, Oliver Wyman points out certain opportunities emerging in the post-pandemic scenario. One is a shift in regional focus. While people continue to avoid international travel, domestic travel has resumed to some extent – most notably in large Asian markets such as India and China.

With high fleet volume and flight frequency, these countries will likely be the epicenter of MRO growth over the next decade, while airlines might also take note of such pockets of concentration as far as travel is concerned. Another bright spot is the investment appeal of aviation as it stands.

“The combination of near-term lower demand and long-term growth prospects has created an attractive environment for private equity investors, and interest in MRO is high,” said Cooper. Stakeholders in the industry could benefit from this scenario, as they seek ways to tide over some tough years incoming.