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PMA Forecast and Market Trends
Presented by:Presented by:
Michael J. HowardPrincipal ICF Internationalmhoward@icfi.com
Michael J. HowardPrincipal ICF Internationalmhoward@icfi.com
Gorham PMA ConferenceSan Diego, CA21-23 March, 2016
Gorham PMA ConferenceSan Diego, CA21-23 March, 2016
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Today’s Agenda
MRO Forecast
Meet the Frackers!
The PMA Market…
22
MRO ForecastMRO Forecast
33
The current commercialair transport fleet consists of over 27K aircraft
Source: CAPA 2015
NarrowbodyJet
WidebodyJet
Turboprop
Regional Jet
27,114Aircraft
14%
53%14%
19%
By Aircraft Type By Global Region
North America
Asia Pacific
Europe
Latin America
Middle East
31%
27%
25%
8%
5% 5%
27,114Aircraft
2015 Global Commercial Air Transport Fleet
44
The combination of strong air travel demand and the need to replace ageing aircraft will drive fleet growth at 3.4% annually
Source: ICF International, CAPA 2015
Air traffic growth of ~4.1%
Fuel costs in $55/bbl range
~19,600 aircraft deliveries
~8,800 aircraft retirements
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2015 2025
AfricaMiddle EastLatin AmericaEuropeAsia PacificNorth America
27,100
31% 26%
37,900
27%
25%
8%
32%
23%
8%
# Aircraft
3.8%
2.5%
1.6%
5.2%
5.3%
5.1%
CAGR
3.4% Avg.
5%
6%
10 Year Global Air Transport Fleet Growth
55
Current air transport MRO demand is $64.3B; Asia Pacific is now equivalent to North America and Europe
Source: ICF International
Engines
Components
Line
Airframe
Modifications
14%
17%
22%
40%
7%North
America
Asia Pacific
Europe
Middle East
Latin America
Africa
29%
28%
26%
8%
6%4%
$64.3B$64.3B
By MRO Segment By Global Region
2015 Global MRO Demand
66
The global MRO market is expected to grow by 4.1% per annum to $96B by 2025
Source: ICF International; Forecast in 2015 $USD, exclusive of inflation
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2015 2025
Modifications
Airframe
Line
Component
Engine
40%
22%
14%
17%
$64.3B
$96.0B
2.8%
3.6%
4.3%
4.4%
CAGR
4.1% Avg.
5.3%
41%
22%
16%
13%
10 Year Global MRO Demand Growth
77
Over the next decade, China and Asia Pacific region will drive absolute MRO spend growth
Source: ICF International; Forecast in 2015 $USD, exclusive of inflation
Difference in MRO Spend, 2025 vs. 2015 – By Global Region$ USD Billions
$7.9
$6.4$5.2
$3.2$2.6 $2.2 $2.0
$1.2$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
Asia Pacific(excl China)
China Middle East NorthAmerica
LatinAmerica
EasternEurope (incl
CIS)
Africa WesternEurope
71% 93% 103% 17% 73% 72% 85% 10%Percent Change:
88
2014 Top 10 Airframe MROs by Man-Hours PerformedIn Millions
Among the top ten airframe MRO providers, ST Aerospace and HAECO account for 50% of man-hours performed in 2014
Source: Aviation Week
12.0
11.7
4.9
3.6
3.0
2.9
2.9
2.2
2.0
2.0
ST Aerospace
HAECO
AAR
AFI KLM E&M
Lufthansa Technik
GAMECO
Turkish Technic
Evergreen Aviation Tech.
Aviation Technical Services
Sabena Technics
99
Meet the Frackers!Meet the Frackers!
1010
Breakthrough technologies in horizontal drilling and hydraulic fracturing (aka fracking) resulted in a US-led energy revolution
Source: BP Statistical Review of World Energy June 2015, ICF International Analysis
North American crude oil and natural gas production have soared in recent years…
3,500
4,500
5,500
6,500
7,500
8,500
9,500
10 year growth = 105%(7.45% CAGR)
Thousands
1,250
1,450
1,650
1,850
2,050
2,250
2,45010 year growth = 66%
(5.22% CAGR)
Billion cu. ft.
U.S. Crude Oil Production(Barrels / day)
U.S. Natural Gas Production(Monthly marketed production)
1111
The US energy revolution has completely disrupted the global economic and geopolitical balance of power
Source: BP Statistical Review of World Energy June 2015, ICF International Analysis
…making the U.S. a global powerhouse in energy production
728
579
177 173 162135
109 10883 73
0
100
200
300
400
500
600
700
800
11.6 11.510.8
4.3 4.23.7 3.6
3.3 3.12.8
0
2
4
6
8
10
12
14
Global Oil Production(Million barrels / day as of June 2015)
Global Natural Gas Production(Billions of cubic meters as of June 2015)
1212
Continued low fuel costs will have significant repercussions throughout the aviation & MRO supply chain
Source: EIA; ICF International analysis
Aviation fuel costs have dropped by approx. 66% during the past 24 months…
U.S. Gulf Coast Jet Fuel Price per Gallon
$0.8
$1.3
$1.8
$2.3
$2.8
$ USD
~66% Decline
1313
While Asia Pacific & North American airlines have enjoyed record profitability, other regions continue to struggle
Source: IATA
Global Airline Profitability, 2004-2016
$19
$7
$10
-$30
-$20
-$10
$0
$10
$20
$30
$40
$USD Billions
$36B
Rest of World
North America
Asia Pacific
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China’s seemingly insatiable demand for global commodities was a key driver of global economic growth
Source: IMF, World Economic Outlook Database October 2015, ICF International Analysis
After years of remarkable GDP growth, China’s economy has been steadily slowing
5%
7%
9%
11%
13%
15%
2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F2015F 2016F
China GDP Year-on-Year Growth (%)
1515
The fall in commodity prices have had a dramatic impact of economies dependent on commodity exports
Source: Dow Jones Commodity Index
Over the past 5 years, commodity prices have plummeted more than 55%
Dow Jones Commodity Indices (DJCI)(January 2011 Indexed to 100)
40
50
60
70
80
90
100
110
- 56.0%
Indexed Values
1616
The dramatic increase in oil & gas market
supply and reduceddemand for commodities has led to a stronger US Dollar
Partially offsets the positive impact of low fuel costs for operators
Increases the cost of dollar based flight hour agreements (and parts/material in general)
Cost of labor for in-country MROs is cheaper driving up margins for US dollar based contracts
Buying/leasing aircraft becomes more expensive
FOREX Impact
Source: Oanda historical exchange rates, ICF International Analysis
Russian Ruble-55.1%
Brazilian Real-41.1%
S. African Rand-34.1%
Can Dollars-23.1%
Aus Dollars-20.8%
Euro-20.0%
British Pound-12.8%
Japanese Yen-11.9%
Indian Rupee-7.8%
Chinese Yuan-7.2%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
B
R
C
S
A
The “CRABS”: Countries with economies that are heavily dependent on commodity exports
Global Currency Exchange Rates vs USD% Value Change, Jan. 2014 – Jan. 2016
1717
The PMA Market…The PMA Market…
1818
Last year, operators spent over $28B on OEM new parts and an additional $13B on alternatives such as PMA, surplus, and parts repairs
2015 Parts Alternatives Compared To OEM New Parts
OEM new Alternatives
Repair (inclDER)
Surplus
PMA ($0.54B)
Source: ICF International
46%
$28B
$9B
$3.7B
1919
Parts pricing and availability continue to drive demand for PMA parts
Price and availability are the main reasons for PMA usage
Source: ICF International
• PMA parts are typically 20 to 40% off OEM list price
• Many OEMs may protect their aftermarket revenue streams by campaigning against PMA and by insisting that licensed MROs discard PMA parts found during overhaul
• In an AOG situation, any permitted serviceable part will be used irrespective of price, including PMA
• Use of PMA is usually driven by long lead time for OEM parts
Part Price Part Availability
0
20
40
60
80
100
120
New As Removed
OverhauledNew Surplus
PMA
Illustrative* Parts Price Bands
Exceptional circumstances
% OEM List
“TAT on repair order and warranty management are most important for my component repair business. Parts availability might drive the use of alternative parts in the future. “
- Major Chinese Airline
2020
PMA parts tend to be best suited for low price, high velocity parts
Alternative Parts Exposure vs. Part Type
Source: ICF International
2121
PMA growth is expected to be slower due to the retirement of mature aircraft, but still healthy at 5.1%
Air Transport PMA Market Forecast In $ Millions (2015-2020)
Source: ICF InternationalForecast in 2015 USD, exclusive of inflation
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
-
100
200
300
400
500
600
700
800
2015 2016 2017 2018 2019 2020
Component
Engine
Airframe
Total
Penetration (%)
2015 – 2020
7.3%
1.4%
6.5%
5.1%
CAGR:
$ millions% of total MRO material
‘15-’20 CAGR: 5.1%
2222
The air transport MRO market is expected to grow 4.1% per annum through 2025 driven by the Asia Pacific region
The two largest global airframe MRO suppliers are headquartered in the Asia Pacific region
The US energy revolution combined with the economic slowdown in China are having a significant impact commodity export dependent CRABS
The PMA market is expected to grow 5.1% per annum to $700M USD by 2020
In Summary…
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For questions regarding this presentation, please contact:
Michael J. HowardPrincipal Aerospace & MRO
mhoward@icfi.com +1 734.604.9651
THANK YOU!
2424
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