Beyond the OEMs: Supply Chain Constraints Driving Demand for Aftermarket Solutions
The engine aftermarket is experiencing substantial growth due to persistent supply chain disruptions. With new engine production struggling to keep up, the demand for spare engines and parts has skyrocketed.
Planes should not rest. When an engine falters, the cost is measured in millions. A grounded jet means lost revenue, disturbed passengers, and frustrated boardrooms. The engine aftermarket, which also includes the vast, intricate web of maintenance, repair, and leasing, keeps aviation in the air. We could even say, that, without it, nothing flies.
In 2024 alone, the market for used serviceable material (USM) surged by 30%, while shop visit backlogs extended beyond 12 months at many MRO facilities. Airlines are increasingly relying on leased engines, with ELFC and MTU Maintenance Lease Services expanding their portfolios by 25% to meet demand.
Engine Leasing Becomes a Necessity
Airlines are turning to leasing solutions to maintain operations amid prolonged maintenance delays. The global engine leasing market grew by 18% in 2024, with lessors placing heavy investments in various CFM56 variants, as well as V2500, and LEAP-1A engine models. New entrants like Hanwha Aviation have committed over $500 million to expanding leasing options, while Phoenix Aviation Capital secured a $1.2 billion funding package to support short- and long-term leasing deals.
Leasing has become more than just a stopgap measure; it is now a fundamental strategy for airlines struggling to keep their fleets operational. The demand for spare engines is particularly high for narrowbody fleets, as A320neo and 737 MAX deliveries continue to be delayed due to OEM production constraints. With shop visit turnaround times stretching to over a year in some cases, airlines are increasingly signing long-term lease agreements rather than waiting for new deliveries or repairs.
In addition to traditional operating leases, power-by-the-hour (PBH) contracts are seeing a surge in popularity, offering airlines a flexible cost structure based on actual flight hours. This allows airlines to mitigate the financial burden of engine failures without committing to outright ownership. Major lessors are expanding their portfolios to include short-term lease options, catering to operators that need immediate solutions for AOG situations.
Lessors are also exploring partnerships with MRO providers to create integrated solutions, where leased engines are supplied with guaranteed maintenance support, reducing downtime further. The secondary market for used serviceable material (USM) has also grown as part of leasing strategies, helping extend the life of older engine models while providing a cost-effective alternative to new replacements.
The Future of Engine Leasing and MRO in Europe
In the European context, Ireland stands as a cornerstone in the global aircraft leasing industry, managing approximately 65% of the world's leased aircraft fleet. This dominance is attributed to a combination of historical innovation, a favorable business environment, and a highly skilled workforce. The industry's significance is underscored by its substantial economic impact, contributing nearly $1 billion annually to the Irish economy and supporting over 8,500 jobs.
Engine leasing is an equally critical component of Ireland’s aviation sector. Dublin-based AerCap, the world’s largest aircraft lessor, is a dominant player in both aircraft and engine leasing, signing over 160 leasing agreements in the second quarter of 2024 alone. The deals span across wide-body and narrow-body aircraft, helicopters, and critically, engines. Other leasing giants like Avolon and SMBC Aviation Capital continue to expand their engine leasing portfolios, investing heavily in high-demand models such as the CFM56 and LEAP series.
In 2024, Ireland’s leasing sector saw an uptick in investments, with Avolon acquiring 118 aircraft from Castlelake Aviation Limited, bringing its total fleet to 1,129 aircraft. However, the industry is not without its challenges. The ongoing legal battle in Dublin over €2.5 billion worth of aircraft stranded in Russia following the invasion of Ukraine has highlighted the geopolitical risks associated with leasing. Meanwhile, supply chain disruptions continue to impact new aircraft and engine deliveries, leading lessors to extend lease terms and maximize the life cycles of existing assets.
To sustain its leadership, Ireland is focusing on long-term strategic initiatives. Element Fleet Management’s establishment of a centralized leasing hub in Dublin, demonstrates the country’s appeal to global investors. In the engine sector, increased investment in MRO capabilities will be key to maintaining Ireland’s competitive edge. With the demand for spare engines skyrocketing and maintenance backlogs growing, Ireland’s lessors and MRO providers must innovate to ensure operational efficiency and fleet reliability.
Durability Issues Impact Next-Generation Engines
Newer engine models, such as the Pratt & Whitney GTF and CFM LEAP series, have shown lower-than-expected durability. Average time-on-wing for GTF engines has fallen to 7,000 cycles, compared to the anticipated 10,000 cycles.
In response, Pratt & Whitney has committed over $1 billion to resolving contamination issues that have led to early removals. The defect, related to contaminated powdered metal used in manufacturing, leading to microscopic cracks in high-pressure turbine disks, has necessitated accelerated inspections and maintenance, causing substantial disruptions for airlines. For instance, Wizz Air had to ground approximately 40 aircraft in 2024 due to these engine concerns, prompting Pratt & Whitney to agree to compensation arrangements.
Likewise, CFM International's LEAP engines have encountered durability issues, particularly in hot and harsh environments. In December 2024, the U.S. Federal Aviation Administration and the European Union Aviation Safety Agency certified a high-pressure turbine hardware durability kit for the LEAP-1A engines, designed to enhance time-on-wing performance. This initiative aims to ensure that LEAP-1A engines achieve maturity and durability levels comparable to the earlier
facilities are expanding aggressively to handle the influx of shop visits. Safran Aircraft Engines has committed €1 billion to scale its maintenance network, with new facilities in India, Belgium, and Mexico set to increase annual shop visit capacity by 40%. Rolls-Royce has invested £55 million in its Dahlewitz, Germany site to support Trent 1000 and XWB maintenance. Meanwhile, the availability of replacement parts remains a critical bottleneck, with key turbine components facing lead times of up to 18 months.
While the aftermarket is thriving, future challenges remain. As aircraft manufacturers ramp up production to meet the rising demand for new aircraft, there is a risk of an oversupply of mid-life assets entering the market. This influx could lead to a decrease in leasing values for these aircraft, as operators may have more options to choose from, potentially reducing the premium associated with leasing mid-life aircraft. Notably, mid-life aircraft values have held steady in recent months, with some models experiencing significant increases, indicating a strong market for these assets.
The aviation sector is actively pursuing sustainability through various projects, including the development of open-fan architectures and hybrid-electric propulsion systems. These technologies aim to enhance fuel efficiency and reduce emissions. For instance, CFM International's RISE program is exploring open-fan engine designs that could achieve a 20% reduction in fuel burn and CO₂ emissions compared to current models. While these advancements are promising, they may lead to a shift in long-term demand away from traditional gas turbine engines, potentially affecting the aftermarket for existing engine models. However, with global air traffic expected to grow at 4% annually through 2035, the demand for aftermarket support is set to remain strong, particularly in regions like Asia-Pacific, where fleet expansion continues at a fast clip.