OEM and fleet challenges

Paul Meijers, executive vice president - commercial transactions at Airbus, says that after a “very challenging period” in 2022 with suppliers saw some stabilising in 2023 that reflected in Airbus meeting its delivery objectives last year with 735 aircraft.

“Airbus is monitoring its supplier base more deeply to anticipate problems but a number of concerns persists, including with BFE suppliers, shortages of spare engines and logistical issues,” he says.

A proliferation of entry-into-service (EIS) issues with new equipment, predominately engines but also airframe manufacturing issues, especially with the 737 MAX, has plagued the industry in recent years.

Airframe manufacturer Spirit AeroSystems – which constructs fuselages for Boeing MAX aircraft and the Airbus A220 – has dealt with a number of so-called “quality escapes” over the past year that have resulted in a number of manufacturing problems.

In April 2023, Boeing identified a manufacturing issue with the MAX’s vertical stabiliser fittings caused by a subcontractor to Spirit AeroSystems. The repairs were quickly addressed but caused delays to deliveries during the summer season. Then in August 2023, Boeing disclosed a manufacturing defect in its 737 MAX aft pressure bulkhead caused by incorrectly drilled holes by supplier Spirit AeroSystems. 

Spirit AeroSystems confirmed that its 737 fuselages, shipped from its Wichita facility, had been affected by a problem involving elongated fastener holes on the aft pressure bulkhead but noted that only certain units were affected. Spirit AeroSystems inspected its inventory of 60 aircraft relatively quickly, despite having to extend inspections to a greater section of aircraft.

Boeing had 250 completed aircraft to inspect that was targeted for completion by the end of November. The company implemented changes to its manufacturing process and resumed delivery of MAX 8 fuselage units to Boeing by the end of October.

Boeing’s 787 was also hit by production delays when a flaw was discovered in June 2023 to its fitting for the aircraft’s horizontal stabiliser.

At the end of 2023, the Federal Aviation Administration (FAA) disclosed it was closely monitoring possible loose bolts in the 737 MAX rudder control system. Boeing had issued a multi- operator message urging operators of “newer single-aisle aircraft” to “inspect specific tie rods that control rudder movement for possible loose hardware”.

Boeing recommended the action after an international operator discovered a bolt with a missing nut while performing routine maintenance on a mechanism in the rudder-control linkage. The company discovered an additional undelivered aircraft with a nut that was not properly tightened.

On an earnings call on November 1, 2023, Patrick Shanahan, president and chief executive of Spirit AeroSystems, said that his mindset was that the company can “eliminate all defects” and that it has a “very robust quality management system” but it requires time and attention and that there was “no silver bullet or different procedure” that it could implement since it required the focus of the entire organisation on manufacturing excellence.

Boeing and Spirit AeroSystems woes continued into the new year. On January 5, 2024, a suspected manufacturing issue may also have led to the mid-air depressurisation of an Alaska Airlines 737 MAX 9 aircraft shortly after take- off when a door plug blew out in mid- air. Flight 1282, carrying 171 passengers and six crew, was forced to make an emergency landing and returned safety to Portland International Airport with no injuries.

The FAA took the decision to ground the aircraft type following the incident and issued an emergency airworthiness directive (EAD) requiring all MAX

9 operators to inspect aircraft before further flight. Data from Cirium shows there are 215 737MAX 9s in service. As well as 65 aircraft in service with Alaska, other major operators are United with 79 of the aircraft in service, and Copa with 29 in service.

Boeing said in a statement: “Safety is our top priority and we deeply regret the impact this event has had on our customers and their passengers. We agree with and fully support the FAA’s decision to require immediate inspections of 737-9 airplanes with the same configuration as the affected airplane. In addition, a Boeing technical team is supporting the NTSB’s investigation into last night’s event. We will remain in close contact with our regulator and customers.”

Alaska Air immediately grounded its MAX 9 fleet to begin inspections and later reported its engineers had discovered “loose hardware”, while United Airlines also referred to “installation issues relating to the door plug” upon inspection of its aircraft.

Initial National Transportation Safety Board (NTSB) investigations indicated that “all 12 stops [on the door plug] became disengaged, allowing it to blow out of the fuselage”. It is also unclear whether the “four bolts that restrain it from its vertical movement” were fitted there, something a closer inspection of the door plug in the NTSB’s Washington laboratory will seek to ascertain.

Boeing president and CEO David Calhoun defined the issues as concerning a “discrete set of airplanes with a very discrete plug,” highlighting that despite having a “proven design,” a “quality escape occurred”.

The FAA has announced what it terms ‘new and significant actions to immediately increase its oversight of Boeing production and manufacturing’. This comes a day after the FAA formally notified the aircraft manufacturer of an investigation into its ‘alleged noncompliance’ regarding 737-9 MAX component issues.

As part of these actions, the FAA will conduct an independent third-party audit of the 737-9 MAX production line and its suppliers ‘to evaluate Boeing’s compliance with its approved quality procedures’. The results of this audit analysis will determine whether additional audits are necessary.

“It is time to re-examine the delegation of authority and assess any associated safety risks,” said FAA administrator Mike Whitaker, adding that “the grounding of the 737-9 and the multiple production-related issues identified in recent years require [the FAA] to look at every option to reduce risk”.

As well as assessing safety risks around delegated authority and quality oversight, with examination of options to move these functions under independent third-party entities, the FAA will also implement increased monitoring of 737-9 MAX in-service events.

The investigation is ongoing at the time of publication but the MAX 9 incident seems like a culmination of manufacturing issues for the Boeing MAX product. Boeing has been working hard over the past few years with its suppliers to smooth out supply chain issues and shore up its production process.

There were signs that the manufacturer was on a better trajectory into 2024 before the Alaska Airlines incident, which will only serve to delay production further. Boeing had intended to move closer to its goal of producing 50 aircraft each month by 2025 to 2026 but that target may have moved once more as the team focus on manufacturing quality and safety.

Airbus has not had such severe manufacturing issues but it too has been impacted by supply chain delays and certain of its A320neo aircraft have been grounded due to the reliability issues with the Pratt & Whitney GTF engine. Problems with the engine have been rumbling along for several years, with a steady uptick in AOGs in 2022, but the scale of the problem was revealed

 in September 2023 during an investor call from P&W parent company RTX, which confirmed that 600 to 700 incremental geared turbofan engines would have to be removed from aircraft for quality checks between 2023 through to 2026.

The engines are being inspected due to a manufacturing issue with the powder metal coating on high pressure turbine (HPT) discs and high-pressure compressor (HPC) discs. A contaminant was discovered in the powdered metal used on certain components in 2020 that could result in cracks being formed during manufacturing.

A subsequent investigation into a compressor disc failure in 2022 and further ongoing testing led to larger cracks being discovered. RTX announced its intention in July 2023 to accelerate approximately 1,200 PW1100 shop visits to inspect the parts. In the September announcement, RTX announced incremental checks for 600 to 700 engines and confirmed that any affected discs would be replaced with new discs with full certified life thus eliminating the need for repetitive inspections and a longer time on wing.

Pratt & Whitney’s fleet management plan for the affected PW1100 GTF engines requires a combination of a repetitive inspection protocol, at an interval of between approximately 2,800 and 3,800 cycles, and part life limits of between approximately 5,000 and 7,000 cycles, for HPT discs and HPC discs.

The gross financial impact of the fleet inspection and management plan, which includes customer support as well as the accelerated workscope, is forecast to be $6bn to $7bn, with a net operating profit impact of $3bn to $3.5bn. The cost to Pratt & Whitney for its 51% net share of the PW1100 programme is a pre-tax operating profit charge of approximately $3bn.

These figures are based on estimates of potential compensation and other consideration for customer fleet disruption and the one-time Estimate- at-Completion (EAC) impact of estimated incremental costs to long- term maintenance contracts as a result. The incremental costs to the company’s long-term maintenance contracts include the cost of additional inspections, replacement of parts and other related impacts.

Pratt & Whitney has confirmed that the majority of the estimated costs of the fleet inspection and management plan (some 80%) would be on the customer support requirements, with the remainder on the workscope mainly on materials and labour costs. The impact of the fleet inspection and management plan will be significant for GTF operators, especially those with larger fleets.

The majority of the GTF PW1100 engines have been removed for shop visits in the fourth quarter of 2023 and into early 2024. The workscope for these shop visits is heavy in nature since they incorporate the inspection and replacement of the compressor and turbine discs on the engines.

President and chief operating officer at RTX, Christopher Calio, confirmed on an earnings call at the end of October 2023 that the plan outlined in September was proceeding. He also noted that the first engine removals had occurred with several proceeding to project visit workscopes that had an average turnaround time of 35 days, which Calio described as “encouraging” although this is only a shorter step in the overall shop visit required for each engine.

RTX estimated that each workscope will take between 250 and 300 days from when the engines are removed from the wing until they are returned to the operator (wing-to-wing). As a result, RTX forecasts an average of 350 aircraft on ground rate for the GTF-powered A320 fleet from 2024 to 2026 – with a peak of 600-650 aircraft on ground during the first half of 2024. 

The accelerated removals and incremental shop visits will result in higher aircraft on ground as well as add to an already strained MRO capacity.

Pratt & Whitney has also completed the analysis of the impact of powder metal on other engine models within its fleet.

Calio further confirmed that P&W would institute a fleet management plan for the PW1500 and PW1900 engines that power the A220 and Embraer E2 aircraft that would “largely fit inside the shop visit plans that are already in place for these fleets”. Part of this please includes shortening the expected life of certain parts for the PW1500 and PW1900 engines, which will cause “some incremental AOGs” of Airbus A220s and Embraer E2 aircraft “in the first half of 2024”.

RTX has had a fleet management plan in place for the V2500 since 2021 which Calio said would be augmented by accelerating certain inspections but says it would have “little impact operationally or financially”.

A key sticking point in RTX’s fleet management plans for the GTF engines is maintenance capacity. Post- pandemic the MRO sector has already been stretched to capacity as demand picks up, while the MRO shops are experiencing the same challenges as the rest of the industry with staff shortages, increased costs and a shortage of parts. 

The GTF inspection process will include a heavy workscope replacing life limited parts, which extends the shop time. P&W is predicting between 250 and 300 day turnaround time per engine but there are some that put a question mark around that estimate.

Aircraft and engine lessors are witnessing the impact first had. The engine leasing sector is divided into long-term spare engine leases – around 10-12 year leases – or shorter term lease used to cover short-term requirements such as MRO shop visits. Currently, we’re seeing a significant shift in demand patterns due to the labour shortage in the MRO sector and a scarcity of parts, which has led to extended shop visit durations.

“Previously, a full refurbishment might take between 90 to 120 days, but now we’re looking at more than 180 days,” says Bobby Janagan, managing director of Rolls- Royce Partners Finance (RRPF). “This change has naturally increased the demand for short-term engine leases, with customers now seeking spare engines for longer durations to accommodate these extended MRO turnaround times. The MRO shops are filled with engines awaiting parts, effectively blocking capacity. The MRO and supply chain are diligently working to optimise capacity and source parts as quickly as possible, and increasingly target used parts, yet the demand for parts continues to outpace supply.”

Greg Conlon, chief executive of High Ridge Aviation, said that finding engine MRO slot availability was difficult and taking much longer to complete. “Typically pre-Covid, it took 45 days to get any engine through a shop visit prior to the GTF issues. Now we are getting quotes from 210 to 270 days to shop an engine.”

RTX said in October that it has made progress with increasing MRO capacity by accelerating investments in its GTF network, with capacity added to Singapore facility and Iberia Maintenance joining the aftermarket network at the end of 2023. The network at full force will have 16 sites around the world, with plans for a further three shops to come online by 2025. P&W says it will be able to conduct more than 2,000 annual shop visits in 2025 – a fivefold increase over 2019.

MRO capacity is at a premium but industry experts are agreed that the lack of parts and constraints in parts production is a significant variable in P&W’s published fleet management plan.

“Parts are a big problem for Pratt,” says one expert. “Those parts cannot be repaired so need to be produced. Pratt will need to double the production of its discs and they are already behind in ramping up after the pandemic.”

Not every part in the affected engines will be rejected – maybe one part for every ten inspections, says one lessor, who adds that to put in place the extra production and MRO capacity, the industry will need to “work harder and faster, smarter to get this done quickly because the MRO capacity is pretty tight”.

RTX has promised to replace as many HPT and HPC discs as possible with full life discs during shop visits to maximise time on wing. There have been doubts around whether the company can produce the increase quantities of discs in a shortened timeframe but Calio said in October that the company was accelerating its baseline forecast for run rate capacity disc production.

RTX chief executive Gregory Hayes said in October that he believes the company has its “arms around the operational and financial impacts of the powdered metal issue” and is now focused on executing those fleet management plans.

Regarding the recent challenges with new equipment, RRPF’s Janagan notes: “Issues at Entry into Service (EIS) with new equipment are somewhat anticipated in our industry,” he says.

“However, the magnitude of the GTF issue is really unfortunate for our airline customers. That said, Pratt & Whitney has identified a solution and is working in close collaboration with customers to rectify the situation. To Pratt’s credit, they have been very cooperative, providing essential information to all key stakeholders. However, the plan to rectify the situation, while necessary, will inevitably lead to further supply constraints. As a result, we’re seeing strong demand for previous generation engines and an extension in the useful lives of older engines as the market adapts.”

RRPF’s Janagan expects the OEMs and MRO shops to work through the parts shortage by late 2024 and into 2025 as the manufacturing sector resolves shortages of resources and supply.

Spirit Airlines is the largest operator of GTF-powered A320neo-family aircraft, with the highest number of engines produced during that affected period between 2015 and 2021.

Chief executive Ted Christie updated investors on how the issue was impacting the airline on an third quarter earnings call at the end of October 2023. He confirmed that all the GTF neo engines in Spirit’s fleet, including the engines slotted for future aircraft deliveries, are in the potential pool of engines subject to the inspection and possible replacement, of the powdered metal high-pressure turbine and compressor discs.

Spirit said it anticipated an average of 13 Neos in January 2024 rising to 41 in December, “averaging 26 grounded for the full year 2024”, which has impacted the airline’s near-term growth projections. For the full year 2024, Spirit estimated capacity will range between about flat to up mid-single digits compared to the full year 2023.

Spirit said it had begun discussions with Pratt & Whitney regarding “fair compensation for financial damages related to the GTF neo engine availability issues”, adding that the amount, timing and structure of the compensation that will be agreed upon was “not yet known”.

Wizz Air is also badly impacted. Chief executive Jozsef Varadi announced in November 2023 that the airline had “just entered into an operational support and financial settlement agreement with Pratt & Whitney”, which had created “predictability for operations” and “predictability for the offsetting of the financial impact”.

The financial settlement was not disclosed but Varadi noted that the real impact was operational since the airline is facing the grounding of 25% of its fleet in 2024.

Varadi said that the airline had taken a number of actions to protect capacity going forward, including extending existing aircraft leases, continuing with accepting new aircraft deliveries – with

30 aircraft due for delivery in 2024. “We are expecting to ground around 45 aircraft as of January,” Varadi said. “We will certainly learn how exactly the programme is going to unfold in terms of induction times of engines and recovery times in the shop, but this is a pretty good estimate”. Modelling the workscope times for each engine, Wizz Air expects the disruption to last 18 months, subject to MRO shop and materials availability as well as turnaround times (TATs).

Air New Zealand, which has 17 A320/321neo aircraft in its fleet of 108 aircraft, said that the RTX fleet management plan would “further reduce engine availability” and has caused it to revise its flight schedule. Air New Zealand has cancelled two international routes to Hobart and Seoul from April 2024.

Air New Zealand chief executive officer Greg Foran called the impacts of the Pratt & Whitney servicing schedule change “significant” that could impact services for “up to two years”. Due to engine availability as a result of the P&W maintenance issues, he confirmed that the airline would have up to four aircraft grounded at any one time.

“Leasing additional aircraft is an option we are looking at closely,” Foran said in November. “Our latest leased Boeing 777-367ER aircraft is about to enter service and we are considering other lease options.

Lufthansa has a total of 73 A320neo and A321neo aircraft are currently flying in the Lufthansa Group. Of these, 64 are flying with this engine at Lufthansa Airlines, CityLine, Austrian Airlines and Swiss. This means that around 146 engines are affected within the Group.

“We currently expect around 20 A320neo family aircraft to be unavailable every day in 2024,” a spokesperson told Airline Economics. “This represents less than one-third of the Lufthansa Group’s A320neo fleet and less than five percent of the Group’s total A320 fleet of more than 420 aircraft.”

Lufthansa has been extending the service of existing A320 Family aircraft, procuring additional spare engines and looking to wet lease arrangements. The company also has been aided by the fact that it also operates LEAP-powered A320 Family aircraft as well as the added benefit of its captive MRO shop, Lufthansa Technik.

Lufthansa chief executive Carsten Spohr has confirmed that thanks to the group’s countermeasures and its “direct access to the scarce and extremely in- demand MRO capacities” there was no impact to the group’s capacity outlook for 2024. The group still intends to take delivery of 30 aircraft this year and Spohr says that the company is “better positioned than others to grow profitably in this environment”.

IAG has identified 32 affected aircraft (less than 10% of IAG’s short haul fleet) and said it was “taking steps to mitigate prospective time out of service of those aircraft over the next three years”.

Delta Air Lines CFO Dan Janki commented that although the impact of the required inspections to the airline would be minimal since its A321neos were later in the delivery cycle, he voiced concerns about the knock-on impact of the disruption to the production cycle for new engines and new aircraft deliveries considering the still fragile supply chain.

All impacted airlines have been negotiating with their existing lessors to extend current lease agreements to cope with the AOGs and capacity constraints while their engines are inspected and parts replaced. For the most part, airlines are reporting that their leasing partners are being accommodating but there are also reports that while lease rates may be holding steady, lessors are strengthening maintenance reserves and lease return conditions for lease extensions leading to potential increased costs further down the line.

Availability of leased aircraft was already reduced but this issue has added further pressure on the leased fleet. Airlines are reporting premium prices for new leases of in-demand narrowbody aircraft.

This is good news for lessors since lease rates have been lagging behind two years of interest rate rises and additional demand will help to correct that market dynamic. However, the fallout from older aircraft flying for longer means both fewer used serviceable material onto the market, and once they come off lease, more engines requiring shop visits, exacerbating the already strained MRO capacity.

GTF customers are commenting that P&W is working with them to both fix the issue with their engines and providing compensation but such a large maintenance issues is already causing knock-on issues.

Delta Air Lines chief Ed Bastian commented that P&W’s providers and suppliers had put all of their resources against the GTF issue noting that situation also “strips away resources from maintenance work on their existing business with us”. He added that Delta was “working through as efficient a manner with Pratt” also commenting on the state of the parts and repair side of the business that are still struggling with a skills gap since the pandemic that is impacting turn times.

“All of the suppliers in our industry lost a tremendous amount of experience due to the pandemic; it is taking time to get that back, to get the turn times down to where they need to be” said Bastian, adding that higher turn times translate into delays and higher costs.

The more positive industry observers hope that in the best case scenario airlines would emerge from this crisis with a healthy bank balance boosted by compensation payments along with engines fresh from the shop with full greentime, enhancing residual values. The more pessimistic observers are predicting this enforced AOG could push some airlines into bankruptcy.

“For once the OEMs are facing the issue but the scale is so big it could push some airlines into bankruptcy,” said one lessor.

The larger airlines are working to secure additional capacity and work through maintenance challenges but smaller airlines may find the disruption too great to withstand. With less purchasing power and influence with lessors than the larger airlines, there is some concern that smaller airlines will disproportionately suffer from elevated levels of aircraft groundings for maintenance issues.

SKY’s Wiley commented that the company was spending more time discussing contingency plans with its airline customers such as whether they have sufficient spare and/or the right mix of aircraft that will enable them to continue to operate. “Smaller airlines have less access to spare engine solutions to manage the operational costs that come from [these] significant groundings,” he says.

P&W is working with all operators but the scheduling of the work from the largest to the smaller operators, as well as the work needed on new engines, is unknown. Austin Willis says that although P&W is “doing what it can to support the customer base”, he adds that “Willis Lease is going what we can to get the engines into the hands of the airlines that need them to try and support the whole process and lessen the impact.”

Willis also posed the question of what the long-term implications will be from the GTF engine maintenance issue once the issue is resolved. “What the GTF market looks like after this subsides is still to be determined but although there is the potential for oversupply of engines in the midterm, the expectation is the fleet will grow its way out of it.”

Firoz Tarapore, who heads DAE, which owns a share in MRO business Joramco, said that the fact the P&W GT maintenance issue now has a fix and a “finite time horizon” is a positive development and hopes it will result in more reliable and more efficient engines. “The OEM has owned the problem, they have a plan and they are fixing it,” he says. “We are getting there slowly but airlines have been given a planning horizon now so they can source alternative capacity to deal with the shortage, which is much better than uncertainty.”

Rob Morris, Cirium’s global head of consultancy, says that the GTF issue will have a fundamental impact on the industry for some time, affecting both capacity and lease rates, noting that the demand and supply imbalance is already having an impact on lease rates. “This issue will have a fundamental impact on supply and demand,” says Morris.

“With 3,000 engines needing inspection – an average of 300 aircraft on the ground at any time between now and 2026 – that’s 2% of the global capacity of single-aisle aircraft with a peak of around 680 in the first half of this year. That is driving positive value pressure especially for spare engines – if you could find one because airlines need the asset flying to generate revenue.”

The latest engines issues are driving many airlines to rely on older kit for maintaining or growing their capacity. The trend is benefitting the MRO market, with slots filled for years ahead. “During Covid, airlines were delaying shop visits and burning their greentime, grounding airplanes,” says Meijers.

“When the market picked up, a lot of engines had to go through the MRO shops and the turnaround times had increased. With the problems we are seeing now with the durability of some of the new tech engines, there is even more stress on the supply side. For the next few years, this is going to drive up used asset values. We are seeing that already quite extensively on the older technology aircraft but on new technology as well.”

Cirium’s Morris said that he had heard of “a 24-year old A320 family aircraft that was scheduled for part out that will now probably go through a heavy check, another engine shop visit, to return it to service for a while longer”, adding that the trend to delay retirement will enable continued growth of the fleet even in the face of such production and maintenance delays. 

Demand for older equipment is a common observance made by aircraft lessors. “Demand is very strong,” says Aircastle’s Inglese. “Because of the supply chain and engine issues in the market, we are seeing neo operators looking for ceo aircraft to help them with lift as they grapple with how they’re going to deal with the groundings and their engine repair work.”

This sustained impact on demand will impact capacity and potentially constrain growth. Rob Morris notes that growth will be slower than in recent years, but adds that this is a positive for airlines since constrained supply enables them to continue to “manage price upwards”.

Sustainability goals are driving the move to refleet. Production delays have made is arguably even more essential for airlines to secure their delivery slots with large orders sooner rather than later to delivery on sustainability targets.

Lufthansa’s Spohr noted that “every new model aircraft uses up to 30% less kerosene” saving carbon emissions. By 2030, Lufthansa group airlines will take delivery of more than 200 new fuel-efficient aircraft and the company is also retrofitting older kit with new technology such as AeroShark – the bionic film covering the aircraft that optimises airflow and saves fuel. Lufthansa says it makes the aircraft 1% more efficient but has the potential to save up to 3% with future development.

New equipment is only one part of the sustainability journey for airlines, many securing contracts for the supply of sustainable aviation fuel (SAF) and some are also finding other creative ways to meet their sustainability targets, such as carbon capture and carbon offsets.

The lack of supply of SAF has been widely discussed but airlines, manufacturers and oil refiners are working together on myriad ways to scale production. One such concept it the development of power-to-liquid aviation fuels. Lufthansa is collaborating with Airbus, Munich Airport and MTU Engines to research P2L fuels.

The commercial aviation industry seems to be beset on many sides by a series of major challenges: manufacturing defects, supply chain and maintenance delays caused by a shortage of resources and labour, as well as higher interest rates, higher inflation, a volatile geopolitical situation, the constant pressure of decarbonisation in a worsening international picture in a year of elections.

Despite all of that, the delays, the shortage of capacity, consumers with less disposable income, air travel will continue to grow in 2024 and for the near-term future - another global exogenous shock notwithstanding.

Optimism levels are high - albeit with cautious of the many headwinds building on the horizon but after the deep downturn of the pandemic, there seems to be just relief that the challenges and issues ahead are of more “normalised” nature and one that the aviation industry is confident it can meet head on and triumph.