Today’s Agenda:
1. Air Transport MRO Market
2. PMA Market
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joined ICF in 2011 joined ICF in 2012joined ICF in 2007
Air Transport MRO Market
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Maintenance costs typically range between 15%-18% of an airline’s operating cost structure
AIR TRANSPORT MRO MARKET
Typical Airline Cost Breakdown Typical Airline’s MRO Cost Breakdown
EnginesAirframe
Modifications
Airline’s MRO Cost
15%
40%
6%
Maintenance
Labor & Benefits
Depreciation Aircraft Rent
Other
16%
14%
28%
5% 3%
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Source: Form 41 & ICF SH&E Analysis
Annual airline maintenance spend as a % of total cost will fluctuate year-to-year based on timing of major visits (e.g. airframe heavy checks & engine overhauls), fleet age, size, mix
and perhaps most importantly the price of fuel
Components
Line
MRO Cost17%
22%
40%Maintenance
Fuel
16%
35%
EnginesAirframe
Modifications
15%40%
6%
The current air transport MRO market is $60.7 billionAIR TRANSPORT MRO MARKET
North America
Middle East
South America
Africa
31%7%
5% 4%
2013 Global MRO Demand(Total = $60.7B)
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Components
Line 17%
22%
40%
Asia Pacific
Europe
27%
26%
Source: ICF SH&EForecast in 2013 $USD, exclusive of inflation
MRO Segment Region
$70
$80
$90
$100ModificationsHeavy AirframeLineComponentsEngine
The global MRO market is expected to grow to $89B by 2023, at 3.9% per annum
AIR TRANSPORT MRO MARKET
Global MRO Spend 2013–2023
2.8%
3.4%13%
16%
6.4%
7%
CAGR
Key Assumptions
§ Average growth is forecast to be 3.9% CAGR to $89B in 2023§ The strongest driver of growth
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$0
$10
$20
$30
$40
$50
$60
2013 2023
4.3%
3.7%
15%
17%
22%
40%
16%
23%
40%
6%
3.9% Average
§ The strongest driver of growth is expected to be the engine market§ Reducing labor intensity of
airframe heavy checks as the fleet renews...offset in emerging markets by increasing labor rates§ Upgrade and modification
demand drives high modifications growth
Source: ICF SH&EForecast in 2013 $USD, exclusive of inflation
FleetDynamics
Additive Surplus
Four key MRO industry trends to watch…MRO INDUSTRY TRENDS
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Industry Trends
Role of OEMin MRO
AdditiveManufacturing
SurplusParts
Source: ICF SH&E
NarrowbodyJet
Turboprop
Regional Jet
The current civil air transport fleet is in excess of 26K aircraftAIRCRAFT RETIREMENTS OUTLOOK
North America
South America
Africa
2013 Global Air Transport Fleet
17%
50%
32%8%
5% 5%
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WidebodyJet
Turboprop
Source: FlightGlobal ACAS September 2013Source: FlightGlobal ACAS September 2013
Asia Pacific
Europe
26,772Aircraft
50%15%
18% 26%
25%
By Aircraft Type By Global Region
26,772Aircraft
AIRCRAFT RETIREMENTS OUTLOOK
Fleet Demographics––the 1990 Bulge Historically Low Interest Rates (%)
0
500
1,000
1,500
2,000
1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Air transport deliveries0
2
4
6
8
10
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
10-Year US Treasury Bond Yield – though cost of capital is now trending up
Four market factors are reshaping aircraft economics and MRO
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Source: ICF SH&E Analysis; Flightglobal ACAS 2013, ATA, US Federal ReserveSource: ICF SH&E Analysis; Flightglobal ACAS 2013, ATA, US Federal Reserve
New Technology & OEM Production Rates Exacerbate Retirements
Historically High Jet A Fuel Prices ($/BBL)
1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
0
20
40
60
80
100
120
140
1991 1994 1997 2000 2003 2006 2009 2012
Average retirement ages appear to be trending down slightly for certain aircraft…
AIRCRAFT RETIREMENTS OUTLOOK
20
25
30
35
Ave
rage
Age
of
Ret
irem
ent
Narrowbody
Trends in Average Age of Aircraft Retirements
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0
5
10
15
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Ave
rage
Age
of
Ret
irem
ent
Year Retired
Narrowbody
Widebody
Source: Flightglobal ACAS 2013Source: Flightglobal ACAS 2013
…and the impending arrival of aircraft with new technology engines will impact retirements for current models…
AIRCRAFT RETIREMENTS OUTLOOK
A320-200 (CFM56-5B/V2500-A5) Survivor Curve§ Oldest aircraft
approaching 20 years
§ Median retirement age appears on track for less than 25 years200
250
300
60%
70%
80%
90%
100%
In S
ervi
ce P
roba
bilit
y
Deliveries (RHS)Survivor Curve (LHS)Average Narrowbody (LHS)
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Notes: (1) Survivor curves represent delivery-weighted curve fits. (2) Late A320-200 aircraft powered by CFM56-5B and V2500-A5 engines.Source: ICF SH&E Analysis; ACAS 2013
less than 25 years
§ How will the A320neo affect retirements?
0
50
100
150
0%
10%
20%
30%
40%
50%
60%
0 5 10 15 20 25 30 35 40De
liver
ies
In S
ervi
ce P
roba
bilit
y
45-50% of new aircraft deliveries in the next decade will be for aircraft replacements, versus the historical norm of ~20 %.
AIRCRAFT RETIREMENTS OUTLOOK
Air Transport Retirements 2014 – 2023
12,000 14,000 16,000 18,000 20,000
Composition of Demand 2014 – 2023
17,700 Deliveries…
…of which 8,100 to offset retirements
46%A320 Family
737 Classic
17%17%
OTHERS
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Source: ICF SH&E AnalysisNote: includes turboprops and regional jets
-2,000 4,000 6,000 8,000
10,000 12,000
..and 9,600 fornew growth
Retirements historically drive 20% of deliveries
54%
737 Classic
767
CRJ-200
737NGMD-80
ERJ-135747-400
757-2/300
777-2/300
~ 8,10010%10%
6%6%
5%5%
6%6%
4% 6%6%3%
3%3%
ICF SH&E projects that the number of aircraft retirements as a percentage of fleet will be between 2-3% in the next decade
AIRCRAFT RETIREMENTS OUTLOOK
Air Transport Annual Aircraft Retirements
2.0%
2.5%
3.0%
800
1,000
1,200# Retirements
Retirement as % of active fleet
% Active Fleet
ICF SH&Eforecast
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Includes TurbopropsSource: Airline Monitor Jun 2013, ACAS Sept 2013, ICF SH&E
0.0%
0.5%
1.0%
1.5%
0
200
400
600
of active fleet
1990-99 Average 170
2000-09 Average 400
2010-23 Average 750