AV Analysis Week 30
This week, our Head Appraiser Kane Ray analyses old technology versus new technology Narrowbody engines. Both have distinct advantages and disadvantages in terms of reliability versus efficiency. Aircraft powered by mature engine programmes remain desirable, despite being superseded by new generation assets, as each operator weighs up its own needs to sustain and grow operations. While new tech Narrowbody values have performed well over the last year, the old tech Narrowbodies they have superseded have also exhibited significant increases, in part due to new tech engine reliability issues.
The interplay between old and new tech is complex, dynamic, and likely to continue for some time. Good investment decisions require up to date, quality data, and this is where our daily updated, objective values and datasets can help. Get in contact with us today to discuss the content of this article and to arrange a demonstration.
To find out more about Kane Ray’s engine market expertise, register for the ISTAT Learning Lab next week.
Whether we consider commercial aircraft growth predictions from Airbus and Boeing or observe the enormity of present orders that substantiate these growth predictions, competition for engine orders has intensified on new production aircraft programs with a choice of engine supplier.
The most hotly contested today is that between the CFM LEAP and Pratt & Whitney GTF (Geared Turbo Fan) families, which power the Airbus A320neo family. Other Original Equipment Manufacturers (OEMs) in the single aisle sector have transitioned to single source engine suppliers. The table below identifies both.
The CFM LEAP and Pratt & Whitney GTF have superseded older generation CFM56-5B, CFM56-7B and V2500-A5 engines. Presently, there are advantages to both old and new: the older generation primarily has a mature, well established service network, whereas the advances in technology provide potential cost savings for operators of the new. The pace of transition from old to new appears to be driven by the extent to which operators can rely on the new engine technology.
Engine Performance in Service
Over seven years since the A320neos service entry with Lufthansa, are engines performing better than their predecessor CFM56-5B and V2500-A5? On fuel burn, yes. For time on wing, no. Are monetary fuel burn savings offsetting increased costs linked to reduced time on wing and aircraft on ground (AOG) instances? Not according to some industry feedback, although the expectation is that it is now a short term issue, and improvements over previous generation engines will eventually be fully realised. This applies to both CFM LEAP-1A and PW1100G. The PW1100Gs performance continues to gain more attention, due to a series of retrofit upgrades since inception, aimed at improving its reliability, but also due to unfavourable airline media coverage related to in service issues and AOG instances.
Pratt & Whitney owner, Raytheon, referenced time on wing earlier this year, and those retrofit upgrades bringing about a typical time on wing of 10,000 flight hours. In many instances, this is less than half of what a V2500-A5 would achieve between restoration shop visits, and then some more when comparing to a CFM56-5B. For CFM and the LEAP-1A, there have also been technical challenges, emphasised most recently by an announcement prior to the 2023 Paris Air Show, stating that the engine would be redesigning High Pressure Turbine (HPT) Blades and HPT Nozzles due to durability issues in regions such as Middle East and India. On 25 July 2023 the manufacturer stated that approximately 200 "accelerated removals" of PW1100G engines will be needed by mid-September this year, with an additional 1,000 engines requiring inspections in the subsequent 12 months. An Airworthiness Directive is expected to be published by the FAA.
To support engine fixes, both CFM and Pratt & Whitney have increased the Maintenance, Repair and Overhaul (MRO) network by licensing new MROs to perform maintenance on their engine products. CFM recently detailed that it was aiming for 20 MROs to support the CFM LEAP engine, many of which would be independent. Pratt & Whitney has 12 active MRO locations globally, with seven more due by 2025.
The provision of additional MROs will help ease the wait time for engines re entering service. Other trends attributable to new technology engine reliability include:
Supply chain shortages are causing delays in getting components to MROs
This, too, results in longer MRO turn times
OEMs have introduced quick turnaround maintenance measures where possible
More spare engines are being produced to avoid AOG situations
Due to current time on wing expectations, OEM service agreements to maintain engines are more costly than earlier delivery engines
Annual Life Limited Part (LLP) escalation has increased significantly
Lack of engine repair development although such developments could be expected as the engine mature
The following charts detail the top 10 operators of both the CFM LEAP-1A and PW1100G engines. With production assigned for much of the remainder of this decade, these operator fleet totals are evolving. Note: IndiGo Airlines (India) switched its engine order book from PW1000G engines to CFM LEAP-1A engines, hence, both engine types are present in its fleet.
*Turkish Airlines joint 10th operator with S7 Airlines operating 40 Aircraft.
The following table details the top operators and total of parked/stored CFM LEAP-1A and PW1100G engines. This data supports why Pratt & Whitney has received more media attention due to ongoing engine issues and consequent component retrofits.
Spirit Airlines 2022 vs 2023 YTD A320neo & A320ceo Activity
Spirit Airlines, headquartered in Miramar, Florida, has been operating the A320neo since 8th October 2016, when MSN 6833 was delivered. As of 30th June 2023, it has 79 active aircraft in its fleet, all powered by PW1100G engines. It has been well documented that Spirit Airlines’ operations have been hindered by PW1100G engine availability and it has been unable to increase utilisation as it had intended. Spirit Airlines also operates 64 A320ceo aircraft, all powered by V2500-A5 engines.
The column chart below compares year to date (YTD) flight hour activity in 2022 and 2023 between Spirit Airlines’ A320ceo fleet and A320neo fleet. Note that since the start of 2023, Spirit has introduced 11 A320neo to its fleet. At the end of June 2022 and 2023, the Spirit Airlines A320ceo fleet count was identical at 64, whereas its A320neo fleet count was 55 and 79, respectively.
2023 YTD does suggest an improvement in A320neo utilisation, albeit there have been between 68 and 79 aircraft in its fleet this year, compared to 64 throughout its A320ceo. Due to the increasing A320neo fleet size throughout 2023, a direct comparison of average Flight Hours per aircraft is imperfect. Observing Spirit Airlines’ total A320ceo and A320neo fleet counts at year end 2022, at the end of June 2023, we note that each A320ceo aircraft is accumulating 6% more Flight Hours than the equivalent Spirit Airlines A320neo YTD. Further, whereas today no A320ceo aircraft are parked or stored, 4 A320neo aircraft are stored.
A320ceo and A320neo values
As indicated in the chart below, A320neo Market Values have generally outperformed the A320ceo. When indexed to their respective Market Values on 1 January 2020, there was a clear market preference for the A320neo from January 2021 to early 2023, as evidenced by the significant divergence in the indexed values. Having recovered the fastest, Market Values for new delivery A320neos have remained broadly stable since 2022.
However, since April 2023 AviationValues’ algorithm has detected a significant rise in values for older aircraft of both generations which has narrowed the index gap. It would appear that the supply chain constraints on new deliveries, of which engine availability features heavily, have increased demand for existing in service aircraft.
Note: Market Value performance, averaged monthly and indexed to 1 January 2020 for selected age A320ceo and A320neo aircraft to a fixed age basis (I.e., without the effect of age depreciation)
This has led to a significant recovery in Market Values, prior to the Northern Hemisphere Spring and Summer seasons in 2023. This is most recognisable for 10 and 15 year old A320ceo aircraft, which show 8.0% and 10.5% increases in Market Value respectively over the past 12 months. As older technology aircraft we would generally expect A320ceo values to be more volatile.
New Tech A320neo family engines: where to from here?
Those aware of present and historical aircraft engine offerings will agree that entry into service issues are common, and there are varying levels of in service fixes and proven to enhance durability. Take for example the original engines on the A320 family the CFM56-5A and V2500-A1, both superseded (with a few exceptions, one being Northwest Airlines) by the CFM56-5B (in 1994) and V2500-A5 (in 1993).
An important difference though, is that the CFM LEAP-1A and Pratt & Whitney PW1100G were new engine options, to an existing aircraft programme, with an established production rate, and consequent expectations of ramping up this rate. Ultimately, there are more engines impacted by entry into service issues than ever before, with OEMs relying on their infant MRO networks, whilst at the same time, supplying engines for Airbus production lines at record rates.
Operators and owners of CFM LEAP-1A and Pratt & Whitney PW1100G engines still require something equivalent or more durable to the previous engine options. Seven years on since service entry, it’s not yet clear when this will be achieved, although, for Pratt & Whitney, advancement options are likely with its Pratt & Whitney GTF Advantage™ engine.
In the meantime, some operators have been limiting exposure to engine reliability issues by turning to mature technology aircraft: using lease extensions and seeking fleet additions from the secondary market.
Given the economic pressures and technical complexities around increasing new technology engine reliability to compare with the old and the market interplay between both, we expect this to remain a dynamic market for the foreseeable future. There are significant opportunities (and significant risks) in both mature and new technology aircraft investments, which is where our daily updated, objective values and datasets can help. By ensuring our users have the most current information at their fingertips whenever it’s required, we enable them to make better, more informed decisions. Get in touch with us today.
To find out more about Kane Ray’s engine market expertise, register for the ISTAT Learning Lab next week.
Data as of July 2023
Disclaimer: The purpose of this blog is to provide general information and not to provide advice or guidance in relation to particular circumstances. Readers should not make decisions in reliance on any statement or opinion contained in this blog.
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