The CFM56 Aftermarket's Unexpected Second Life

Sean, so the CFM56, it was supposed to be gradually moving towards increased retirements as elite powered aircraft entered service.

But as mentioned before, that transition now looks less straightforward.

What's giving the CFM56 this extended

life? So a couple of things, you nailed them in your tee up for this.

It's the delivery delays that have put fewer of the newer generation aircraft and by extension engines into service and demand really.

Instead of simply retiring more aircraft because the demand wasn't there, operators have needed to fly these older aircraft.

One great example, granted a unique example, Southwest Airlines expected to have the MAX 7s coming into its fleet starting in 2022, probably earlier if you go back to the original timeline.

And, you know, as of today, the airplane is very close certification, but still not certified.

Southwest probably won't be flying them for another five or six months because of the time it takes to get the airplane onto their certificate to get pilots and cabin attendants trained, all those things.

So they're still flying a lot of 737-700s.

They didn't just simply extend all the 700s one for one for the Dash 7s, but they've extended a bunch of them.

And so that's kept more of the CFM 56-7 engines that power those airplanes flying.

So you're just seeing a lot of that across the board.

Durability is probably actually more than demand, probably the second big one.

So delivery delays, durability, and demand.

The dreadful these is what's keeping the CFM56 program going.

And again, important to note, when we talk about a gradual reduction, CFM56 still has a lot of life left in it.

There are a lot of engines out there.

only one overhaul or with no overhauls, what you're seeing is a lot more of the engines as they hit their third and possibly fourth overhaul being overhauled.

And also the work scopes on those engines, which we'll dive into a little bit later, are different.

So those two things are really what are driving both the revenue and the volumes.

Volumes are sitting around the consensus number for this year, next year and the year after seems to be around 2350, 2400 shop visits.

We've seen RBC Capital Markets and Bank of America reiterate that following recent talks with management from the CFM group.

Pre-pandemic, it topped out around 2,100, 2,200, and Safran and GE thought it would get back to that number sometime around mid-decade and then slowly begin to taper under 2,000.

Now, what we're seeing is those overhauls are going to be well above 2,000, again, in that 2,400 range, closer towards the end of the decade.

Sean, so the CFM56, it was supposed to be gradually moving towards increased retirements as elite powered aircraft entered service.

But as mentioned before, that transition now looks less straightforward.

What's giving the CFM56 this extended

life? So a couple of things, you nailed them in your tee up for this.

It's the delivery delays that have put fewer of the newer generation aircraft and by extension engines into service and demand really.

Instead of simply retiring more aircraft because the demand wasn't there, operators have needed to fly these older aircraft.

One great example, granted a unique example, Southwest Airlines expected to have the MAX 7s coming into its fleet starting in 2022, probably earlier if you go back to the original timeline.

And, you know, as of today, the airplane is very close certification, but still not certified.

Southwest probably won't be flying them for another five or six months because of the time it takes to get the airplane onto their certificate to get pilots and cabin attendants trained, all those things.

So they're still flying a lot of 737-700s.

They didn't just simply extend all the 700s one for one for the Dash 7s, but they've extended a bunch of them.

And so that's kept more of the CFM 56-7 engines that power those airplanes flying.

So you're just seeing a lot of that across the board.

Durability is probably actually more than demand, probably the second big one.

So delivery delays, durability, and demand.

The dreadful these is what's keeping the CFM56 program going.

And again, important to note, when we talk about a gradual reduction, CFM56 still has a lot of life left in it.

There are a lot of engines out there.

only one overhaul or with no overhauls, what you're seeing is a lot more of the engines as they hit their third and possibly fourth overhaul being overhauled.

And also the work scopes on those engines, which we'll dive into a little bit later, are different.

So those two things are really what are driving both the revenue and the volumes.

Volumes are sitting around the consensus number for this year, next year and the year after seems to be around 2350, 2400 shop visits.

We've seen RBC Capital Markets and Bank of America reiterate that following recent talks with management from the CFM group.

Pre-pandemic, it topped out around 2,100, 2,200, and Safran and GE thought it would get back to that number sometime around mid-decade and then slowly begin to taper under 2,000.

Now, what we're seeing is those overhauls are going to be well above 2,000, again, in that 2,400 range, closer towards the end of the decade.