By Scott Hamilton
June 9, 2026, © Leeham News: The business model and economic realities I was reading about sounded awfully familiar.
The Wall Street Journal on June 5 described how car owners are keeping their cars longer because prices have skyrocketed. Fuel savings of the latest technology cars don’t offset the capital cost of buying a new car.
“Where’s the financial sense in a new car?” The Journal wrote, quoting a 41-year-old owner of two aging cars. “Better fuel mileage, maybe, but is it going to save me $800 plus per month?”
Maintenance costs climb as the cars age. The average age is now 13 years, up 10% from 10 years ago, according to the newspaper.
“Automakers, long laser-focused on the new-car market, are now pouring resources into propping up used-car sales, aftermarket parts and maintenance work. Dealers are investing in their repair shops,” the Journal wrote. “‘If we’re not going to make money on the selling side, we have to make it on the service side,’ said Ed Roberts, operating chief of Bozard Ford Lincoln in St. Augustine (FL),” the Journal wrote.
These are the facts and conclusions commercial aviation reached years ago.
Jet engine business model
The aerospace industry, especially the engine sector, has long followed a business model in which losses may accompany the sale, but profits come with the service: parts, maintenance, overhaul, and repair.
GE Aerospace, Pratt & Whitney, and Rolls-Royce don’t sell engines with profits attached. Discounts can be as much as 80% off the sale price. In rare cases, the OEM was known to give the engine (as in free) to an airline in return for a services contract.
At a Bernstein Research conference last month, GE’s CEO, Larry Culp, bragged that 70% of GE’s profit comes from services.
“‘There’s an old saying in the car business: ‘You sell them once in the sales department, you sell them 10 times over in the aftersales part of our business,’” John Roth, president of General Motors’ Cadillac brand,’” the Journal wrote. It’s a concept aerospace has known for decades.
Engine makers reluctant to share
GE, PW and RR each regard services contracts as critical to their business models. They are loath to grant licenses to MRO shops, or even to airlines, to split the aftermarket. It’s well known within aviation circles that Air France held off on ordering the Airbus A350 XWB for more than a year because Rolls-Royce wouldn’t grant it a license to perform overhauls on the Trent XWB 84 and XWB 97, which exclusively power the A350.
Boeing’s sales force has complained for years, going back to the CFM56 days, that GE was reluctant to grant licenses while the competing IAE (driven by Pratt & Whitney) was more willing to do so. This cost Boeing some 737 sales in competition with the A320ceo.
This complaint continues in today’s campaigns between the A320neo and the 737 MAX. Delta Air Lines often makes airplane fleet decisions based on obtaining a license for its Delta TechOps unit. Not only does Delta overhaul its own fleet engines, but it also contracts with other airlines to do the same. Boeing lost one order to Airbus because GE wouldn’t grant the license for the LEAP, and PW was willing to offer the GTF. (This has since changed. Delta now has a license for the LEAP.)
Boeing’s attempt to grow services
In February 2011, Boeing won a hotly contested campaign to sell 179 aerial refueling tankers to the US Air Force. Boeing’s winning bid for the tanker, based on the commercial 767-200ER, was 10% lower than that submitted by Airbus. Nobody understood how Boeing could be this much lower than Airbus, which had won a previous competition that was overturned because of irregularities in how the Air Force handed the contract competition.
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In fact, Boeing won a money-losing contract, although the realities wouldn’t become known for years. However, McNerney hinted as much when he said on an earnings call that Boeing expected to make money in the long run through international sales (which largely have not materialized) and services.
Boeing has since taken forward losses on the tanker of nearly $8bn. Services have yet to truly kick in.
Even Boeing recognized the profit potential in growing services. Toward the end of CEO Jim McNerney’s tenure, Boeing began consolidating its services across its Defense and Commercial units into “one Boeing”. Thus, Boeing Global Services (BGS) was born.
Dennis Muilenburg succeeded McNerney in 2015. One of his signature goals was to capture a $50bn share of the aerospace aftermarket. It was an ambitious, and some say, unrealistic goal. BGS couldn’t achieve this organically; acquisitions were required. Then the 737 MAX was grounded, Muilenburg was fired, the COVID-19 pandemic followed, and BGS had new priorities for The Boeing Co: fixing the MAXes, managing its way through the pandemic, and becoming Boeing’s only profitable segment. In fact, after Kelly Ortberg became CEO in August 2024, tapping BGS to sell part of its business portfolio to raise $10bn in cash was critical to the corporation’s survival.
GE wants to change the model
Culp, the GE CEO, is well known to be unhappy with the cost of warranty work on the CFM LEAP engines. (GE is a 50-50 partner with France’s Safran in CFM International.) Because the LEAP’s durability is only about half, or less, than that of the CFM56 it replaces, shop visits under GE’s service contracts are much more frequent. These are also much more costly to GE because of the warranties included in the sale of the engines. Culp ordered his sales force to resist or refuse new service contracts that contain such guarantees, or at least re-price them at sharply higher levels.
Culp became CEO in October 2019. At the following international air show, Culp expressed a desire to change the engine business model so that sales would be compensatory instead of a loss leader. But in an industry where business model changes are virtually impossible and, when they do come, they’re typically glacial, it’s the same old, same old today.
Engine durability a problem today
GE likes to point out that the LEAP at this stage is more reliable than the CFM56 was at the same point in its life. Airlines and lessors don’t much care about that. They want the engines to live up to the promises GE made when offering the LEAP for sale.
PW and RR face similar complaints. PW and RR were joint venture partners (with two other companies) in International Aero Engines (IAE). The V2500, used on the A320ceo family and later competing with the CFM56, also evolved into a reliable engine after a rough start. The V2500 today is far more durable than the PW PurePower GTF engine used on the A320neo, the A220, and the Embraer E2 E-Jet. (RR is not a participant in the GTF program.)
Problems with the GTF center on the engine core, not on the gearbox that airlines and lessors were worried about. The gearbox proved to be reliable and durable, with few teething problems. Not so with the core, which has had one problem after another so serious that more than 600 A320neo family members were grounded awaiting repairs. The jargon for these is “aircraft on ground”, or AOG.
Industry sources tell LNA that it may be another three years before these problems have fully worked their way through.
MRO costs explode
Airlines and lessors are screaming about the unexpectedly high MRO costs for the LEAP. A former airline official told LNA this month that excluding the expensive Life Limited Parts (LLPs), the overhaul cost of the LEAP is about $10m compared with the $3m for its predecessor engine, the CFM56.
Comparing the 10-year-old LEAP with the CFM56, which first entered airline service in 1982 when the McDonnell Douglas DC-8 Super 60 series was reengined, is a bit unfair. The CFM56 was adopted from the DC-8 and became the exclusive engine for the Boeing 737 Classic and 737 NG. It was also initially the exclusive engine on the Airbus A320 (a second engine choice came much later) and on the Airbus A340-200/300. It’s had nearly 50 years of service, making it one of the most reliable, cost-effective engines ever built.
Forget any new airplanes—for now
As Airbus, Boeing, and Embraer ponder when (not whether) to proceed with new airplane programs, one recurring theme executives hear from customers is that they have no appetite for a new airplane given today’s shortfall in engine economics. Engines lived up to the improved fuel economy promises.
But the exploding maintenance costs negated these savings. The shorter durability upset schedules. In the case of the PW GTF, all the groundings meant airlines were paying for the engines yet weren’t earning money from them. This imbalance contributed to the failure of Spirit Airlines. In an unprecedented move, Spirit began returning the more fuel-efficient A320neos to lessors and bankers, preferring to fly the reliable V2500-powered ceos.
The GTF engine situation is so dire that some owners of the Spirit Airlines airplanes are scrapping four-year-old Neos, removing the engines to lease them to customers who need them to return AOG Neos to the air while waiting for PW to provide new or repaired engines.
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