Engine manufacturers’ all-inclusive support packages and their “tightening grip” on all areas of the aftermarket will, according to Stratos’ managing director, result in the collapse of second-tier investors and independent MROs, which do not adequately adapt their business models to meet these challenges.
Gary Fitzgerald of Stratos, an advisor to airlines, argues in a white paper released today that it is “potentially catastrophic" for aircraft investors to have a market where the re-sale of parts and spares are controlled by a single entity "as there is no discernable floor for engine resale value".
“If left unchecked, at some point investors will stop funding these assets. In this scenario OEMs will probably have no choice but to stabilise their own aftermarket, by say offering RVGs [residual value guarantees] or engine buyback commitments,” he says.
He says aircraft investors are “hoping” that engine OEMs are taking note of the current used aircraft market situation and that the temptation to control the aftermarket will be tempered with the knowledge that such actions, when combined with poor aircraft demand, can “kill residual values”.
He admits some OEMs are taking some positive steps to address investor concerns on payment and security mechanisms but investors need to continue to push for their interests to be defended, particularly as it relates to aftermarket trading.
“Hidden terms, heavy discounting and increasing sophistication of the all-inclusive packages make investors’ evaluation of risk all the more difficult,” he says. “The biggest losers in this situation are most likely to be the second-tier aircraft investors, they need to tool up to analyse this risk or face extinction."