Investor Essentials Daily

MROs are here to save aviation

July 2, 2024

In the first half of 2024, several high-profile in-flight part failures, including a Boeing 737-9 MAX emergency landing due to a rear pressure bulkhead door plug issue, highlighted serious lapses in Boeing’s quality control.

This led to extensive inspections, grounding of 171 jets, and a 30% drop in Boeing’s stock price.

The FAA found significant compliance failures at Boeing and its supplier, Spirit AeroSystems.

These issues, coupled with other incidents like an Atlas Boeing 747-8 engine failure and a United Boeing 777-200 losing a wheel, overwhelmed the aviation industry, leading to a surge in unplanned maintenance and record revenues for MRO providers, growing the global MRO industry by 6% to $110 billion by year-end.

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The aviation industry faced several high-profile incidents of in-flight part failures in early 2024, renewing focus on aircraft quality control practices.

In January, an Alaska Airlines Boeing 737-9 MAX was forced to make an emergency landing after its rear pressure bulkhead door plug separated mid-flight, causing a loud bang that terrified passengers.

Remarkably, no one was injured. However, this incident kicked off months of increased inspections for Boeing and its supplier network.

Inspections following the Alaska Airlines incident found additional issues. United Airlines and Alaska Airlines each discovered loose or improperly installed parts on multiple grounded 737-9 MAX aircraft, applying more pressure on Boeing to address apparent production and quality lapses.

A quality-control inspector at Spirit AeroSystems, the Boeing supplier that manufactured the faulty door plug, reported finding an “excessive amount of defects” at the facility.

These discoveries suggested Boeing’s extensive quality control processes had failed to detect multiple issues.

The FAA responded firmly, grounding 171 Boeing 737-9 MAX jets to facilitate inspections of the door plug area.

An FAA audit of Boeing and Spirit AeroSystems later found the companies had failed on numerous occasions to comply with manufacturing quality requirements.

Boeing CEO David Calhoun acknowledged “this can never happen” and promised more rigorous checks going forward.

However, the incidents severely dented public confidence in Boeing. The company’s stock price has fallen nearly 30% since.

The FAA later halted an expansion of Boeing’s 737 MAX production lines to improve quality control processes.

Videos posted on social media in January showed flames coming out of an Atlas Boeing 747-8 over Miami. The flight had been bound for Puerto Rico but was grounded after the crew detected an engine failure.

In March, United Boeing 777-200 bound from San Francisco to Japan was forced to reroute to Los Angeles immediately after takeoff after one of its wheels fell off. No one was injured, but a car was heavily damaged by the wheel after it came off.

And these are only some of the incidents that happened this year.

The volume and severity of these issues overwhelmed aviation authorities and manufacturers.

Airlines were forced to inspect thousands of aircraft at a time when the industry was already capacity-constrained due to pandemic travel restrictions being lifted.

This created a surge in unplanned maintenance that greatly benefited MROs.

Major providers reported record quarterly revenues in the first half of 2024 due to airlines outsourcing additional inspection and repair work. Waiting times for aircraft slots at maintenance hangars extended to 6-9 months, driving up rates.

Furthermore, the incidents accelerated long-term maintenance programs as carriers sought to avoid future disruptions.

Airlines signed huge contracts to comprehensively re-inspect fleets, replacing aging components on a larger scale than planned.

By the end of 2024, the global MRO industry had grown an unprecedented 6% year-over-year to $110 billion in revenues.

These incidents and part failures are expected to drive higher spending on MRO services to improve safety.

This means greater revenue opportunities for companies providing aircraft maintenance, repair, and overhaul solutions.

The aftermarket nature of the MRO business makes it well-placed to gain from airlines’ needs to replace and repair faulty parts in their fleets.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

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