Aircraft Maintenance Technology - 19

projections at the start of the year. Cumulative fleet and utilization changes for 2020 are shown in Exhibit 1. With aircraft accruing
less wear and tear, we estimate that MRO demand this year will
drop by half, with a reduction in spend of more than $40 billion.

Deferrals and Vanished Demand
While the entire air transport aftermarket will be impacted, certain segments will be worse off than others. Airframe and engine
MRO-the two largest and most expensive segments-will see
spend reductions this year of more than 55 percent, as operators
selectively choose which aircraft to fly to reduce costs. Wherever
possible, operators are preserving cash by deferring maintenance
events, particularly heavy airframe work and expensive engine
overhauls or LLP replacements.
By the start of the summer, these impacts were already rippling
through the aftermarket, with many firms reacting accordingly. For
example, the AAR Duluth location, a 190,000 square-foot facility
employing more than 300 people, has announced publicly they will
close permanently on July 24, citing a lack of demand from a key
customer. Along with facility closings, many MROs are planning

to significantly reduce headcount. Other announcements include
Air New Zealand's plan to cut 300 jobs from its MRO unit and
Boeing's plan to cut 15 percent of the workforce at its Global Services
division. Investments in new MRO facilities have been adversely
affected as well: Airbus and Thai Airways recently confirmed they
have jointly canceled plans to open a new airframe maintenance
facility in Thailand.
In addition to maintenance deferrals, a portion of expected MRO
demand will disappear altogether, as airlines accelerate retirement schedules of non-core or sunset fleets. Several airlines have
announced plans to accelerate the retirement of larger widebodies,
including Air France, which plans to retire all of its A380s, and
Qantas, which will retire all of its 747s by the end of 2020. American
Airlines has announced plans to retire nearly 200 aircraft, including 76 of its 737 NGs and 52 of its 757s and 767s.
In total, we expect 2,000 aircraft to retire early as a result of
COVID-19, pushing total retirements past 2,500 this year - more
than triple 2019's retirements. Many of these early retirements would
have required later-life maintenance events in the pre-COVID market, which by nature are more expensive. These early retirements
alone will wipe out more than $30 billion in expected MRO spend
over the next decade.

Changing Market Dynamics
These dramatic changes will accelerate certain recent trends in the
underlying market. For example, the trend towards narrowbody
aircraft will accelerate as narrowbody aircraft are expected to
grow to 65 percent of the global fleet by 2025, up from 58 percent
in 2020. Moving forward, the outlook for widebody production lines
is unclear, as both Boeing and Airbus have announced significant
production cuts for the rest of 2020.

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Aircraft Maintenance Technology

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