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AECC Aviation Power’s Profit Plunge Signals Sector Strains Amid Industry Headwinds

Marcus LeeThursday, May 1, 2025 2:21 am ET

15min read

AECC Aviation Power Co., Ltd., a major player in aircraft engine manufacturing and maintenance, reported a staggering 95% decline in net income for the first quarter of 2025, alongside a 2% drop in revenue. The results highlight the company’s struggles to navigate systemic industry challenges, from supply chain bottlenecks to labor shortages, even as global aviation demand rebounds.

A Dire Quarter for Profit Margins

In Q1 2025, AECC’s net income plummeted to CNY 7.51 million from CNY 154.85 million a year earlier, while revenue fell to CNY 6.16 billion from CNY 6.27 billion in 2024. Basic and diluted earnings per share (EPS) collapsed to CNY 0.0028, down from CNY 0.0581 in the same period last year. These figures underscore the company’s inability to offset rising costs with top-line growth, even as the broader aviation sector shows signs of recovery.

Smartkarma’s Warning: A Fragile Outlook

Third-party analysis firm Smartkarma assigns AECC an overall score of 2.4 out of 5, with stark weaknesses in resilience (2/5), momentum (2/5), and dividend potential (2/5). While the company scores moderately on value (3/5) and growth (3/5), these metrics suggest it is poorly positioned to withstand shocks or capitalize on long-term opportunities. The low resilience score reflects supply chain fragility and labor constraints, while the dividend score hints at cash flow pressures.

The Industry Context: Supply Chains, Labor, and Aging Fleets

AECC’s struggles are deeply tied to systemic issues plaguing the aviation sector:

Component Shortages and Delivery Delays:
Aircraft manufacturers face a 17,000-unit delivery backlog, with engine parts among the hardest-hit components. Lead times for specialized materials have surged to 12–24 months, up from pre-pandemic levels of 3–6 months. For AECC, this means delayed production schedules and rising inventory costs.
Labor Shortages:
A 716,000-technician shortfall by 2042 (per Boeing) strains maintenance, repair, and overhaul (MRO) operations. Skilled engine technicians are particularly scarce, forcing AECC to compete in a tight labor market.
Aging Fleets and Maintenance Pressures:
The global fleet’s average age has hit 14.8 years, a record high, increasing demand for engine overhauls. However, parts shortages and labor gaps are delaying repairs, leading to grounded aircraft and lost revenue for airlines.
Cost Inflation:
Airlines face 4% higher operational costs in 2025, with fuel prices projected to average $87/barrel (down from $99 in 2024 but still elevated). These pressures squeeze margins, reducing discretionary spending on engine upgrades or premium services.

Competitors Thrive, AECC Lags

While AECC grapples with these challenges, peers like AerCap Holdings (AER) are thriving. AerCap reported Q1 revenue growth of 11% to $2.5 billion, driven by strong aircraft leasing demand and strategic acquisitions. This contrast highlights AECC’s operational inefficiencies and underscores the importance of agility in the aviation sector.

Outlook: Caution Amid Long-Term Potential

The aviation industry’s long-term trajectory remains positive. Global aviation revenue is projected to exceed $1 trillion in 2025, fueled by rising air travel demand and MRO opportunities. However, AECC’s path to recovery hinges on:
- Supply Chain Resilience: Reducing reliance on bottlenecked components and diversifying suppliers.
- Labor Investments: Upskilling existing staff and partnering with training programs to address shortages.
- Cost Discipline: Cutting non-essential spending to preserve cash flow amid low margins.

Conclusion

AECC Aviation Power’s Q1 results are a stark reminder of the structural challenges in the aviation sector. While the company’s revenue decline was modest, its profit collapse reflects unsustainable cost pressures and operational inefficiencies. Investors should proceed with caution unless AECC demonstrates meaningful progress in addressing supply chain and labor issues. Meanwhile, the broader sector’s recovery offers opportunities for peers with stronger balance sheets—like AerCap—to capitalize on rising demand for maintenance and modernization. For now, AECC remains a cautionary tale of a company struggling to keep pace with a complex and evolving industry.

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