The COVID-19 pandemic has had a major impact across the aviation industry, but not all of its effects have been adverse. Fresh players have emerged, subsectors (such as cargo operations) are flourishing, and activity is rapidly catching up to pre-pandemic levels. However, some things have changed, such as the engine MRO environment.
The CFM56 green-time engine market has grown drastically during the pandemic, and the market has been reshaped. Operators have not wanted to lease engines long-term under the normal scheme due to uncertainty about the future. Instead, airlines have terminated or renegotiated long-term contracts. When possible, they have converted contracts to power-by-the-hour terms so they are paying for maintenance only when engines are operated.
Most operators and asset owners also have halted or postponed heavy engine repairs and started to rotate their engine fleets. At times in 2020-21, the lease rates for CFM56-5B or -7B engines were only around 50% compared to pre-COVID-19 levels.
Surprisingly, the demand for CFM56-3 engines in 2020-21 was so high that it exceeded our expectations at Magnetic Engines. We were even forced to increase our capability for CFM56-3 engine repairs. During 2020-21, cargo operators doubled their operations while the majority of CFM56-5Bs and -7Bs were grounded. But by the start of this year, we saw the situation slowly returning back to normal. While widebodies are still heavily affected, the narrowbody fleet has been very active since the second quarter of 2022.
That means demand has returned for narrowbody engine leasing. The most in-demand narrowbody engines are Pratt & Whitney V2500-A5s, followed by the CFM56-7B and -5B. Demand for the V2500-A5 family is partially driven by some airworthiness directives, and CFM56-7Bs are popular thanks to the faster recovery of the Boeing 737NG family due to cargo conversions.
Overall, green-time engine leasing will continue to grow because heavy repairs on these engine types were postponed during the last few years.
CFM Green-Time Developments
After the first shock of the pandemic passed, operators and asset owners started to look for less costly and more creative solutions for green-time engines. From the MRO perspective, we noticed two main maintenance strategies deployed by airlines and lessors:
In the short- or midterm, the strategy has been to build CFM56 engines for a shorter period of operation, ranging from three to six years, so operators can then decide what to do next. This could entail either repairing an engine for the next longer lease cycle (with significant investment), selling it as is or tearing it down for spare parts.
In the long-term, it is more cost-efficient to rebuild the engine for 8,000-12,000 cycles and utilize it until the end of its life.
However, the market faces a few challenges in the maintenance process.
To build engines, we need great support from the used serviceable material (USM) market. Limited volume of teardowns has driven the demand for USM and inflated pricing. Some material has become hard to find, and pricing and lead times have reached relatively high levels.
Using serviceable modules from teardown engines or building a module from a few engines can offer considerable savings for the repair sector. For example, using donor fan or low-pressure turbine modules for an engine with expired life-limited parts (LLP) could be 20-30% cheaper than overhauling original engine modules with LLP replacement. However, it might be tricky to find suitable modules at the exact time they are needed, so the best strategy is to secure them in advance.
Turnaround times (TAT) at engine spare-parts repair shops have increased drastically compared to 2019. Some parts that could have been repaired within 30-40 days pre-pandemic are now in repair for 100 days or more. This drives the TAT for an engine repair to 130-150 days, which is 2-3 times longer than what shops were previously able to deliver. Spare-parts repair shops reduced their capacity due to lack of orders during lockdown, and now they are struggling to recover capacity, efficiency and smooth supply chain operations for raw materials.
We are also seeing a new trend in which lessors have been forced to become involved in maintenance. This is most likely due to the need for creative solutions for green-time engines to avoid massive losses on balance sheets. Operators often tell us that instead of repairing the original engine, lessors offer them a replacement engine from a teardown aircraft.
Due to economic and supply chain issues, the green-time engines market must play with whichever assets are available—even older vintage models such as Boeing 737 Classics and CFM56-3 engines, which are staying on the market longer than expected. Their numbers are likely to decrease gradually, but their low asset cost will keep them in the air for some time to come.
Nevertheless, we see positive signs that more Boeing 737 MAX and Airbus A320neo aircraft are coming into the market to replace the existing fleet. We expect teardowns for CFM56-5Bs and -7Bs to start happening more frequently, which will help engine shops reduce risk on TATs and guarantee smoother supply chains.
Airlines, lessors and MROs are now more tightly connected and need stability more than ever. The industry is moving in a positive direction toward reaching, or even surpassing, pre-COVID-19 numbers. However, this new chapter will require industry cooperation to overcome what may be many unforeseen challenges.
Laura Roke, Sales Executive at Magnetic Engines, Magnetic Group’s engine repair, sale and leasing subsidiary.