THE ABSENCE of vapor trails in a clear sky is an obvious sign that commercial aviation has been hit hard by the covid-19. The result for jet engine makers who create those ephemeral tracks – fewer planes sold, less flight hours and older aircraft retiring earlier as fleets are pruned – is a triple blow to an industry that profits mainly from keeping them in the air for years after being sold.
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The immediate impact on the business, which is dominated by a handful of manufacturers, was on full display on March 11. Rolls-Royce, a British company that competes with the aviation division of General Electric of America (GE) to supply power to long-haul jets, published gloomy results for 2020. The blow to the commercial aerospace sector, the source of half of its revenues in 2019, led to an operating loss of £ 2 billion ($ 2.8 billion). It sold only 264 large engines, against 510 the previous year.
Rolls-Royce is likely to recover more slowly, because it manufactures engines only for the hardest-hit long-distance market. But Pratt & Whitney, a division of Raytheon, an aerospace and defense group, which rivals a joint venture between GE and Safran, from France, to manufacture engines for short-haul aircraft, also showed a 20% drop in turnover in 2020. GE Aviation sales have fallen by a third to $ 22 billion, and it is eliminating 13,000 jobs, a quarter of the total.
The drop will have an impact for years to come. Engine manufacturers operate more as service companies than as traditional manufacturers. They sell engines at cost (or even loss) to build an “installed base”. For GE, the most powerful of the three, this amounts to 37,700 units. In the life of an engine of 20 years or more, the supply of spare parts and maintenance results in three to five times the sale price, calculates Bernstein, a broker. Production cuts by Airbus and Boeing, which manufacture the planes themselves, mean less demand for engines. Airline capacity cuts are making things worse. With early retirements and about a third of the fleet in storage, carriers can redeem planes for expensive spare parts or even switch entire engines due to an expensive overhaul for those with fewer miles on the clock.
A merger between GECAS, the huge aircraft leasing unit of, and Ireland’s AerCap, announced on March 10, could also hinder engine manufacturers. In recent years, Airbus and Boeing have chosen to offer only one engine type for new planes instead of a choice, which reduces their development costs. But that leaves airlines with less space to extract discounts from engine manufacturers, threatening to go with a rival. GECAS, with a fleet of more than 1,000 planes, gave GE more power to insist that the two major aircraft manufacturers opted for exclusive supply. Under new direction, your strategy may change.
Uncertainty about the next generation of aircraft is another headache. Last year, Airbus said it was aiming for a zero-emission plane by 2035, perhaps using hydrogen as a fuel. Boeing is researching biofuels. None of the companies have firm plans yet. But these ads are of concern to Rolls-Royce, which has spent £ 500 million on UltraFan, a more efficient engine, but which uses existing technology. If plan makers take ecology seriously, they may have trouble finding customers. ■
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This article appeared in the Business section of the print edition under the heading “Losing momentum”