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EUROPEAN MRO MARKET OUTLOOK MRO Transatlantic 2020 David Stewart
EUROPEAN MRO MARKET OUTLOOKMRO Transatlantic 2020
David Stewart
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01
02
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CONTENTS
Covid-19 in context
Fleet and MRO spend impact
European MRO outlook
COVID-19 IN CONTEXT
01
THE IMPLICATIONS OF COVID-19 WILL BE PROFOUND AND PERSISTENT FOR OUR SOCIETY, OUR ECONOMY AND OUR INDUSTRY
We are in unchartered territory. Health concerns are resonating through the real economy. Public health and government actions matter more than ever
A widespread vaccine will not be available before mid-2021; timing and implications of other treatments are not yet clear
Containment efforts willbe successful…but… this means that the numbers of persons infected are well below those required for ‘herd immunity’
Areas which have contained the virus will need to impose ongoing measuresto mitigate this risk of future outbreaks
We are expecting at least 12–18 months of iterative and partially controlled cycles of outbreak and containment
The implications of this ‘new normal’ will be profound and persistent for certain sectors and notably aviation, aerospace and MRO
Recovery scenarios (illustrative)
Forecast
2000 2004 20082002 2010 20142006 20242012 2016 2018 2020 2022-6%
0%
-4%
-2%
2%
4%
6%
THE DEPTH AND SCALE OF COVID-19’S IMPACT ON THE GLOBAL ECONOMY WILL BE THE WORST SINCE THE GREAT DEPRESSION
0-1 1
100%
1132 64 5 7 8 109 12
25%
50%
75%
125%
150%
Months after event
9/11/01 (US only) SARS (US-HKG only) Covid-19 (Global)12008 Financial Crisis (US only)
Forecast in 2019 Latest forecast
• COVID-19 impact is the most profound global shock in modern civil aviation
• At a global level, the impact on ASMs will be worse than the hardest-hit regions for 9/11, SARS, and GFC, respectively
– 9/11 in the US
– SARS in HK
– GFC in the US
1. Month 0 for Covid-19 assumed to be Jan ’20, Wuhan shutdown; 2. Per IMF. Source: Economist intelligence Unit, Goldman Sachs, IATA Economics, Oxford Economics, Oliver Wyman PlaneStats, OW analysis
Global GDP growth ratesReal GDP growth per annum
Global Economy
• World GDP currently projected to shrink by 4.9 percent in 20202 – the worst downturn since the Great Depression
• Global rebound in 2021 to 5.4 percent growth assumes pandemic fades in second half of 2020
Aviation SectorImpact on aviation, year-over-year capacity change¹ASM, indexed to capacity in same month of prior year
9/11 2008 Financial Crisis
2020 AIRCRAFT DELIVERIES MAY DROP ALMOST 50 PERCENT, BY FAR THE LARGEST SINGLE-YEAR DECLINE IN RECENT HISTORY
Impact of recent crises on near-term commercial aircraft deliveries¹
262322 303 314
252 266295
326270
324
Q1 08Q3 07 Q1 09Q3 08 Q3 09
-5%
279 292 267313
267 261204
266211
Q1 02Q1 01 Q3 01 Q3 02 Q1 03
-4%
2001 (9/11) Terrorist Attacks 2002 SARS Epidemic • Throughout past crises, aircraft manufacturers have been able to adjust to declines in demand through gradual declines in deliveries while maintaining aircraft production
• Due to larger global scale, declines were greatest after 9/11 and GFC, with a 4–5% YoY decline in deliveries industry-wide
2008 Global Financial Crisis 2020 Covid-19 Pandemic• In response to the COVID-19 crisis, Boeing
and Airbus both suspended production in its facilities (e.g. Airbus reducing production by ~30%)
• Combined with a likely record drop in near-term aircraft demand and increasing delivery deferrals, we forecast a 46% YoY decline in deliveries in 2020
Airline industry recovery period2
224185
248219
256214 227 230
254
Q2 05Q2 03 Q4 04Q4 03 Q2 04
+3%
1,374
746
2020F2019
-46%
1. Boeing, Airbus only. 2. Based on YoY capacity change. Source: Chicago Tribune, Aviation Market Intelligence, Oliver Wyman analysis
FLEET AND MROSPEND IMPACT
2
World total
ASM -61%
Departures -48%
Seats -51%
North America
-62%-65%
Europe
-52%
Asia
-65%
Africa/Middle East
-85%Oceania
-69%Latin America
CURRENT GLOBAL CAPACITY IS DOWN 61% FROM 2019
Current snapshot: Airline capacity and by regionYOY change in September ASMs
Source: OAG schedules as of September 2020
FOUR PRIMARY FACTORS DRIVE DEMAND RECOVERY PROFILES
Epidemiological timeline Traveler sentiment Government restrictions Macro-economic impact
OW Epidemiological modeling (SIR models) predicting the number of cases by country and when the peak is expected to happen and downward curve
First trips are likely domestic/ regional for vacation or VFR
Dependence on government guidelines and vaccine
Policy variations and uncertainties
International travel likely to return in phases – “corridors”
The level of recessionary impact/ damage affects return to travel
Recovery profilesAcceleratedSingle-wave outbreak with steady recovery & GDP bounce-back
NominalMulti-wave outbreaks, continual, gradual recovery
ProlongedLarge multi-wave outbreaks depress recovery and GDP
60
0
20
40
100
80
120
2019
0VERALL OUTLOOK: RECOVERY MID-2022 TO 2H-2023, WITH DOWNSIDE TO 2024Global airline recovery ranges from Q2 2022 to Q3 2023 depending on success of virus containment; individual country or regional outcomes will vary
Global range of revenue outcomes: applying scenarios by country-pair based on current COVID-19 case trending
0%
20%
40%
60%
80%
100%
120%
20Q1 20Q2 20Q3 20Q4 21Q1 21Q2 21Q3 21Q4 22Q1 22Q2 22Q3 22Q4 23Q1 23Q2 23Q3 23Q4 24Q1 24Q2 24Q3 24Q4
Prolonged scenario Global average slow Global average quick
2022 Q2 2023 Q3
Current global average outcome
Global average quickVirus containment broadly successful; applies accelerated and moderate scenarios
Global average slowVirus containment delayed or less successful, applies accelerated and prolonged scenarios
Global outcomes
Downside2024Q1
Source: OW assessment as of August 2020
DUE TO THE DEMAND CRUNCH, THE GLOBAL COMMERCIAL FLEET WILL STAGNATE THROUGH 2022
Forecast in-service fleet size¹Number of in-service aircraft (K), 2018–2022F
• In-service fleet reduced by 20% in 2020–2021 from extensive fleet groundings
• Overall commercial fleet sees zero growth through 2022 as airlines recover
1.7%
-4.4%
-4.7%
-0.7%
CAGR2019–2022
2020
15.1 15.9 16.1
6.6
11.513.9
16.7
5.3 5.5 5.7
3.0
3.9
4.2
4.8
5.96.1 6.0
3.1
4.1
4.8
5.4
2018
19.5
2019 January 2022FApril July
26.3
2021F
27.5 27.8
12.7
22.9
26.9
Regional Jet/Turboprop Narrow-bodyWide-body
1. As of beginning of yearSource: Oliver Wyman Global Fleet and MRO Market Forecast, 2020–2030, Revised; Oliver Wyman analysis
Decline of 12% of 2030 fleet size (i.e. -4.7 K A/C) compared to initial forecast pre-Covid
2018–2030F Global in-service fleet size – incl. cargo and passenger fleet# thousands of aircraft, as of Jan 31 each year
15.1
5.9
30.4
6.1
2018
31.5
3.7
5.5
2019
16.1
4.95.7
6.0
2027January
4.2
10.6
4.0
36.8
2025June 2021
16.7
5.46.1
4.8
34.6
5.4
2022
17.421.9
5.2
31.2
2024
18.2
2023
5.9
20.9
4.9
32.3
6.0
4.7
37.9
33.4
4.6
19.9
6.2
4.4
2028
35.7
6.3
4.2
22.8
6.4
4.1
23.7
2029
6.6
4.1
2030
15.919.0
5.3
13.9
2026
26.3 27.5
39.0
18.4
22.9
26.9 27.9 29.0 29.7 30.632.4 33.4 34.3
27.8
+1.2%
-18%
+3.0%
NB TotalRJ/TPWB Total - Pre-Covid Forecast1
CAGR’20–’23
-4.7%
-1.8%
CAGR’23–’30
-3.3%
+2.9%
+2.6% +4.5%
IN-SERVICE FLEET FORECASTFacing an 18% drop in 2021, the Global in-service Fleet will not recover before 2023 and by 2030, there will be ~4.7 K fewer aircraft than expected prior to COVID
1. Forecast as of July 2020 Source: Oliver Wyman analysis
Covid-19 pandemic crisis
2020
-20%
UNPRECEDENTED MISMATCH OF PRODUCTION AND DELIVERIES WILL CHALLENGE AEROSPACE SUPPLY CHAINS
Commercial aircraft productionNumber of aircraft, 2018–2022F
Commercial aircraft deliveriesNumber of aircraft, 2018–2022F
+11%
-13%
-9%
2%
CAGR2019–2022
-4%
-13%
-9%
-6%
CAGR2019–2022
1,207
785 750 766
1,060
359
190252
256
223
389
165
152
200
1,789
2018
1,468
406
2022F2019 2020F 2021F
1,034
1,780
1,183
94
Narrow-body Wide-bodyMax, 2019 Vintage Regional Jet
1,207
785
344
766
1,060
359
389
256
223
200
190
252
152
94
165
2018
118
2019 2022F2020F
288
1,789
2021F
1,374
746
1,471 1,468
• Dramatic decrease in 2020 aircraft production (-42%) and deliveries (-46%)
• 3-year production levels (2020–2022) will not return to the scale of 2019, particularly in widebody
• ~18% of future deliveries will be 737MAX A/C produced in prior years
Source: Oliver Wyman Global Fleet and MRO Market Forecast, 2020–2030, Revised; Oliver Wyman analysis
EARLY RETIREMENTS IN AGED FLEETS WILL EXACERBATE THE DROP IN FORECASTED AFTERMARKET SPENDING
Early vs. Scheduled Retirements, 2020By class
Early Retirements, 2020By platform
533287
1,459
609
420291
139
RJTotal TPNB
74
WB
896
1,992
494370
232
79 93
X2.7
184
136
123115
109 108 103
90
Additional Early Retirements Scheduled Retirements
Aircraft platform
A320 737 NG 777 CRJ 767 ERJ 757 737 CL
Average age
21.8 18.1 19.7 16.7 22.7 17.1 22.8 24.3
NB WB Other
Source: Oliver Wyman analysis
2018–2030F MRO SpendUS$ BN, by year
$0 BN
$150 BN
$100 BN
$50 BN
$25 BN
$75 BN
$125 BN
14.0
20.1
13.6
53.1
12.8
19.8
35.1
17.9
14.1
18.1
73.212.1
2018
37.3
14.6
15.3
56.3
19.2
2019
23.2
45.67.9
10.1
18.9
9.1
2020
31.6
16.6
2024
13.8
11.3
2021
45.1
18.6
2026
14.4
16.9
49.8
12.8 19.4
2022
19.119.4
18.2
47.3
19.6
18.7
2025
18.919.2
14.8
2027
54.5
2028
20.920.1
15.799.6
17.6
55.4
20.2
107.216.2
2030
46.6
2023
13.379.3
2029
50.3
93.5 96.6 96.4102.3
111.9 112.7108.6
82.9
-39%
+3.9%
+2.2%
Pre-COVID Forecast Total ComponentEngine Airframe Line
MRO FORECASTFacing a ~40% drop in 2020, MRO spend will not recover until 2022 and over the next ten years $184 BN in MRO spend will be erased by COVID-19
1. Forecast as of July 2020Source: Oliver Wyman analysis
CAGR’19–’23
+5.7%
+1.4%
CAGR’23–’30
+2.5%
+1.3%
+0.8% +2.9%
+4.8% +2.0%
EUROPEAN MRO OUTLOOK
3
IN-SERVICE FLEET FORECAST: BY REGIONThe active European fleet will only grow by 400 aircraft from the start of 2020 through 2030
2018–2030F Global in-service fleet size by region# thousands of aircraft, as of Jan 31 each year
• The active European fleet at the end of 2019 was 6,800 - in Q1 2021 it will be 20% smaller
• It will not reach 2019 levels until after 2025
• From 2021-2030, the European fleet will see the slowest relative growth – 3.1% annually compared to 4.6% globally
• From 2020 to 2030, the Europe fleet will only grow by 400 aircraft
• The China fleet will see the fastest growth
3.43.0
4.7
7.23.9
8.0
4.9
4.4
8.1
June2019
8.1
4.9
6.8
3.5
8.6
4.5
39.0
5.3
4.5
3.2
4.8
3.0
6.4
2018
2.3
6.5
4.3
6.3
5.5
3.6
2021 2030
33.4
7.6
4.3
4.9 5.6
3.9
30.4
2022
6.5
3.5 4.8
2025
6.7
22.9
7.8
6.7
January
6.2
26.3 27.5 27.9
18.4
26.929.7
34.3
5.5+5%
+4.6%
North America ChinaRest of World
Europe Asia Pacific Total - Pre-Covid Forecast1
1. Forecast as of July 2020 Source: Oliver Wyman analysis
2020
CAGR’21–’30
+3.2%
+3.1%
+6.6%
+5.1%
+6.2%
MRO FORECAST: BY REGIONEuropean MRO spend will recover to 2019 levels in 2022 and will grow at 3.2% per annum (2021-2030)
2018–2030F MRO SpendUS$ BN, by year
• European MRO spend in 2020 is estimated at $12.7B, 42% below 2019
• From 2021-2030, European MRO spend will see the slowest relative growth – 3.2% annually compared to 4.9% globally – reaching $24.7B in 2030
$75 BN
$150 BN
$100 BN
$25 BN
$125 BN
$50 BN
$0 BN
12.7
20.120.6
2020
18.6
22.4
22.120.4
2021
12.9
13.9
93.5
2018
17.8
7.8
18.0
15.0
99.6
2019
18.612.7
7.0
10.08.2
10.7
17.3 6.450.3
15.5
8.7
21.4
22.5
21.4
17.5
2022
21.3
23.3
18.879.3
13.7
2025
24.3
2030
82.9
25.2
19.973.2
112.7
24.7
+4.9%
EuropePre-COVID Forecast Total
North America
Asia Pacific
Rest of World China
1. Forecast as of July 2020Source: Oliver Wyman analysis
CAGR’21–’30
+3.5%
+3.2%
+8.9%
+5.2%
+5.5%
EUROPE MRO FORECAST BY ACTIVITYOver the next ten years, COVID impact will reduce European MRO spend by ~$23B compared to the prior forecast
2018–2030F Europe MRO SpendUS$ BN, by year
• Airframe MRO spend will be the same in 2030 as in 2019
• Engine MRO spend will double between 2020 and 2022
• Component MRO spend will reach 2019 levels in 2022
$20 BN
$15 BN
$5 BN
$30 BN
$10 BN
$25 BN
$0 BN
22.1
12.74.6
10.37.9
2.45.3
24.7
3.6
3.7
2018
4.2
9.2
5.0
4.4
3.9
4.0
10.0
2019
4.2
5.4
2.4
2.5
23.3
2020
7.6
3.4
20.4
3.4
3.8
2021
4.2
2022
4.3
4.8
3.9
22.5
2025
11.0
5.0
2030
18.6
AirframePre-COVID Forecast Total LineEngine Component
1. Forecast as of July 2020Source: Oliver Wyman analysis
CAGR’21–’30
+4.2%
+1.9%
+2.6%
+2.9%
AVAILABILITY AND USE OF GREEN TIME ENGINES TO REPLACE OR DEFER WORK WILL REDUCE THE NUMBER OF SHOP VISITS BY A FURTHER 5% THROUGH 2024
Shop Visits Displaced by Greentime EnginesNumber of Shop Visits, 2020–2024
MRO Spend Displaced by Greentime EnginesMRO Engine Spend, 2020–2024
Greentime engines usage will decrease engine spend by a total of $1.5 BN over the next two years
0
20,000
10,000
30,000
40,000
50,000
60,000
Original SV Forecast
(2020–2024)
Reduction due to COVID-19
Post-COVID SV Forecast
(2020–2024)
Available engines to
displace SVs
Post-COVID SV Forecast
(2020–2024)
82%
17%
1%
COVID LossMRO Greentime EffectSVs displaced by retired motors Full SHVs
THE OLD AND NEW 737 AND A320 PLATFORMS WILL DRIVE ~53% OF ALL EUROPEAN MRO SPEND OVER THE NEXT DECADE
2020–2030 Total European MRO SpendBy Aircraft Platform
2020–2030 Europe Shop Visit ForecastBy Engine Platform
By 2030, the LEAP will overtake the CFM56 engine for greatest market share growing to more than 25% of all European shop visits
2501500 30020050 100 350 700400 450 500 550 600 650
PW1000G
LEAP
Trent
GE90
V2500
PW100
Other
CFM56
2020 2025 2030
26%
16%
8%
4%
8%
5%
7%
30%
A330 ceo
A320 ceo
737 NG
777 A320 neo
787
737 MAX
Other
POST-COVIDPRE-COVID
EUROPEAN MRO MARKET TRENDS
• Shortage of base maintenance hangar capacity
• Low availability of aircraft for teardown and USM feedstock
• Ramp up challenges for OEMs
• Looming aircraft technician shortage
• Very full engine shops
• Increasing OEM focus on aftermarket Q&A?
???
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