The outlook for aviation emerging from Oliver Wyman’s Global Fleet and MRO Forecast 2021‑2031
Overview: leading companies in aviation MRO market
Despite the reduced expectations for MRO, the compound annual growth of the sector between 2019 and 2031 is projected at three percent. The combination of near-term lower demand and long-term growth prospects has created an attractive environment for private equity investors, and interest in MRO is high.
The popularity of narrowbody aircraft is also on the rise. For years, the narrowbody share of the total fleet has increased as the improving range capability and attractive seat mile efficiency of the class have made the aircraft the choice of low-cost carriers. This trend is expected to continue as more airlines align fleets to the demand realities of COVID-19.
While forecasts for narrowbody production are 40 percent below 2018 levels for 2021, we expect the aircraft class to recover to within 10 percent of our original pre-COVID projections for the final years of the forecast period. One bright spot has been sales of A321LR, which remain strong even in the face of the pandemic. The aircraft offers sufficient range to serve routes that were previously flown with Boeing 757s or widebody aircraft, as well as providing airlines increased flexibility in their scheduling.
Deliveries of narrowbodies in 2021 will also be bolstered by decisions by the Federal Aviation Administration and European Union Aviation Safety Agency to recertify the Boeing 737 MAX for commercial service. More than 20 737s have already made it back into carrier fleets since the recertification, but there are 400 to 450 more MAX aircraft, built in 2020, that are sitting in Boeing’s inventory undelivered or not sold. In addition, the number of narrowbodies in the fleet will be expanded by the almost 400 737s that airlines have had in storage since the plane’s grounding in March 2019.
The Impact of Less Business and International Travel
In contrast, widebody aircraft production has seen a significant decline because of COVID-19’s impact on long-haul travel demand. Over the forecast period, we expect widebody production to be as much as 40 percent below pre-COVID expectations unless there’s a faster-than-expected recovery in long-haul routes.
COVID has created a long list of challenges never seen before in modern commercial aviation. It will take the next few years to adjust the fleet to the new realities and return to stable growth. Even after 10 years, the industry will not have fully regained all that it has lost with the pandemic.
International travel — which accounts for the bulk of long-haul — evaporated in the early days of COVID-19 and continues to be hard-hit, which has had implications for widebodies. Over the last year, nations around the world have been tightly regulating cross-border travel in an effort to keep out or at least contain the pandemic. Border closings and sudden requirements to quarantine for 14 days have discouraged travel between countries, with passengers fearful of being stranded or unable to get home. Under a new executive order from President Joe Biden, travelers entering the United States must provide proof of a recent negative COVID-19 test prior to entry — a requirement that already exists in some other countries.
Contributing to the decline in international long-haul travel has been the fall in business travel, the most profitable category for airlines. This is especially true on long-haul flights, on which executives often opt for premium seating.
Videoconferencing and teleconferencing have become attractive substitutes that allow companies to cut travel budgets, particularly for intracompany trips. COVID-19 has also forced many business conferences and trade shows to go virtual or be canceled entirely, eliminating another reason for executive travel. While most of this travel will eventually return as more people get COVID-19 vaccinations, it is unlikely to recover fully over the midterm.
Meanwhile, the regional jet class is facing multiyear delays for some of its latest models as new platforms encounter development problems and as clauses in US pilot contracts limit their use. Given that many regional jets will reach typical retirement age or cumulative utilization during the forecast period, we expect many to end up flying beyond historical thresholds to cover some of the demand for smaller commercial aircraft.
It’s no exaggeration to say that modern commercial aviation has never faced such a long list of challenges as COVID-19 has created. It will likely take several years to adjust the fleet to new realities, and even then, the industry will not regain over the next 10 years all that it has lost with the pandemic.