December 18, 2011

Aftermarket business for aviation companies rising

The aftermarket segment of the business aviation industry generates billions of dollars a year for the suppliers and manufacturers that provide those services.

The aftermarket segment of the business aviation industry generates billions of dollars a year for the suppliers and manufacturers that provide those services.

And with business aviation slowly climbing out of a prolonged sales slump, support of aircraft currently flying is crucialfor aviation companies.

“The aftermarket is a cash generator,” said Kevin Michaels, vice president of ICF SH&E, an aviation and aerospace management consultant with a specialty in the maintenance, repair and overhaul market.

That market was worth more than $6 billion in 2009, the latest figures available, Michaels said.

More than 30,000 turbine-powered airplanes are in the active fleet and must be maintained, repaired, overhauled or upgraded, he said. That doesn’t include piston-powered aircraft.

“Wichita has obviously been devastated by what’s going on,” Michaels said of the economic downturn in which sales of new aircraft plummeted.

The recession also hit many suppliers of aftermarket support, with most experiencing a 15 percent to 20 percent downturn in business, Michaels said.

Now, modest growth is returning to that market.

For example, Hawker Beechcraft’s support of aircraft in its active fleet is a “crown jewel in that company,” Michaels said. Its global support business generates 20 percent to 25 percent of the company’s annual revenue, company officials said.

“With their team, they’re trying to figure out new ways to take advantage of that,” Michaels said.

The same is true for Wichita-based Aero Mach Labs, where about 70 percent of its business is repairing and overhauling aircraft instruments installed in airplanes now flying. The remainder is from the manufacture of instruments for new planes. “It’s a huge part of what we do,” Chuck Perkins, the company’s president, said of the support business.

Sales in the segment are steady, he said, and Aero Mach Labs is focusing on that area.

“The growth that we get out it is from getting out there and trying to talk to more people,” Perkins said. “You’ve got to sell the aftermarket business.”

With new aircraft sales down at planemakers like Cessna Aircraft and Hawker Beechcraft, “the aftermarket business is still pretty strong,” Perkins said. “We didn’t see the decline there that we saw on the production side.”

The aftermarket business in corporate aviation is like the canary in the coal mine when it comes to where the industry is heading, an analyst said.

“They’re the first to see a change, particularly because business jet operations – takeoffs and landings – start to decrease as the economy slows down,” said Brian Foley with Brian Foley Associates. “The aftermarket is very dependent on business jet operations.”

The business deteriorated from 2007 to March 2009, the bottom of the down economic cycle, Foley said. Since then, he said, business jet operations have grown slowly but are still 20 percent below peak levels.

Smaller shops that perform repair and overhaul of smaller, piston and twin-engine aircraft also are part of the aftermarket industry, but typically aren’t included in the figures for business aircraft.

Midwest Aircraft Services

At Midwest Aircraft Services in Newton, business is much better than last year, although it was slow during the first six months of 2011, said Dennis Collins, a partner in the business. The last six months have been better, he said.

“We’re backed up, and we have as much to do as we can do,” he said.

One reason for the increase may be because aircraft owners put off work on their airplanes during the downturn, Collins said.

“Now, it’s catching up with them, and life goes on,” he said. “A lot of airplanes were parked and not being flown. Fuel prices were high…. People can only put off using them for so long.”

In addition, Midwest Aircraft has grown its engine overhaul business. That’s because it started marketing its services to other aircraft repair shops that do only a few of them a year.

“We do more volume,” Collins said.

Hawker Beechcraft

In the past 24 months, Hawker Beechcraft has added service centers, employees and new products to support its fleet of 30,000 turbine and piston-powered airplanes in service.

Sales by the company’s global customer support segment grew from $483.3 million in 2009 to $508 million last year. At the same time, operating income rose from $44.1 million to $93.6 million last year.

In the past five years, its support network has shown compounded annual growth in profits of nearly 17 percent, officials said.

“Where we’re recognizing growth is on product development,” said Christi Tannahill, the company’s vice president of global customer support. “We have not historically offered these new products.”

For example, the company is offering upgrades for its Hawker 800XP, 400XPR and King Air 200 planes with retrofits to upgrade technology, performance, fuel performance and operating costs. About 1,000 Hawker 800s and 700 Hawker 400XPs are in operation, said Brian Howell, Hawker Beechcraft’s vice president of strategic aftermarket integration.

Last month, the company said it is increasing production of 400XPR upgrades after its planned production sold out. It said it will help customers who don’t have the airplanes but want an upgraded version with new winglets, engines and avionics locate and buy Hawker 800 and 400 airframes.

The upgrades allow the planes to “compete head to head with airplanes coming new from across town or from Brazil,” Howell said.

The company also is working on upgrade programs for its Premier and King Air 350.

The industry debate has always been whether offering upgrades would cannibalize new products, Tannahill said. But it’s a big industry, she said.

“Somebody is going to do it,” she said. “It absolutely makes sense.”

In a survey of customers, there’s a difference between those who continue to buy new airplanes, and those who want to keep flying the planes they have, she said.

“We are going to go after the 30,000 (Hawker and Beechcraft) airplanes that are out there and provide (owners) an opportunity to update their airplanes and give them the opportunity to hold onto them for as long as they desire,” Howell said.

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