Aftermarket providers looking for a solid program for potential future sales could do a lot worse than the Boeing 737. With nearly 5,700 in service, it is the world fleet's most common model. A backlog of 3,400 orders and the monthly production rate increasing to 42 from 38 per month next year and to 47 in 2017 means the fleet will not be shrinking soon.
Yet while the 737 aftermarket will surely benefit from increased flow of new tin, it remains to be seen whether the rise in repairs and spares will be in lock-step with fleet growth.
Two factors could suppress 737 MRO spending during the next decade or so. One is the evolution of surplus parts availability, which—predictably—is greater for the 737 than for smaller fleets as suppliers move to meet demand. When Intertrade grew its surplus business into airframe parts in 1994, it did so on the back of a 737-300 part-out. Earlier this year, the company expanded again, adding engine parts starting with spares for CFM56-7s that power the 737NG family.
Canaccord Genuity pegs surplus parts—or used serviceable material (USM)—as a $3 billion per year market. More significantly for new-parts suppliers, USM trade shaves about 1% off overall aftermarket parts growth, Canaccord calculates.
“We believe this is a structural shift in the commercial aftermarket, and the rate at which aircraft are parted out will continue to accelerate,” says Ken Herbert, a Canaccord analyst.
Factor in the impending beginning of 737 MAX production and Boeing's overall ramp-up, and the USM trend takes on added significance.
“We believe that airlines are already slowing 737 maintenance spending as rates have increased, and the useful life of the aircraft model continues to get shorter,” Herbert wrote in an October research note released just after Boeing announced the 2017 production rate jump. “This announcement will accelerate this process, especially if Boeing is able to maintain the higher 737 rate for more than just a few years.”