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Latin American MRO Industry Trends & Market Forecast · Boeing forms aircraft seat ... Alton...

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  • Panama City, Panama

    February 14, 2018

    Latin American MRO Industry

    Trends & Market Forecast

  • 1

    TODAYS AGENDA

    2017 Reflections

    Alton Fleet & MRO Forecast

    Latin American Market Update

    Alton Watch List - 2018

  • 2

    Agile. Global. Independent.

    COMPANY INTRODUCTION

    Alton Aviation Consultancy is a boutique aviation consulting firm

    with deep domain expertise across the aviation value chain

    Aircraft Leasing &

    Financing AdvisoryAirlines

    Aviation &

    Aerospace Investors

    Business &

    General Aviation

    Aerospace Manufacturers

    & Supply ChainMRO & Aftermarket Airports Specialty Projects

  • 3

    2017 REFLECTIONS

    Source: Alton Aviation Consultancy

    Hurricanes Irma and Maria devastated Puerto Rico & many Caribbean

    islands; approx. 40% of Puerto Rico remain without power

  • 4

    The circle of life

    2017 REFLECTIONS

    Source: Alton Aviation Consultancy

    Farewell to the Queen The C Series Resurrection

    C Series Aircraft Limited Partnership (CSALP)

  • 5Source: Alton Analyses

    2017 REFLECTIONS

    Major Asian and African

    Carriers RestructureEuropean Airline Shakeout

    Middle East Carriers

    Throttle Back

    The year aviation blinked

    - J. Berger: http://www.mro-network.com/maintenance-repair-overhaul/aviation-industry-could-face-headwinds-2017

    http://www.mro-network.com/maintenance-repair-overhaul/aviation-industry-could-face-headwinds-2017

  • 6

    Policy matters: The United States is one of only two of the global

    destinations to see a decline in long-haul travel

    2017 REFLECTIONS

    Canada 21.2%

    Thailand 13.9%

    Italy 2.2% China 9.3%

    Saudi Arabia 20.3%

    United Arab Emirates 16.5%

    Germany 8%

    United Kingdom 17.5%

    France 4%Turkey (-6.7%)

    United States (-6%)

    Australia 22%

    Percent Change in Arrivals from 2015 to 2017

    Source: US Travel Association, Bloomberg

    Estimated economic impact:

    $4.6B in lost spending

    40,000 lost jobs

  • Policy matters: US in-bound market share fell in 9 out the top 10

    international source markets

    2017 REFLECTIONS

    China (2%)

    United Kingdom (14%)

    Japan (5%)

    South Korea 0%

    Brazil (25%)Australia (14%)

    India (14%)

    France (21%)

    Italy (11%)

    Source: US Travel Association

    Germany (15%)

    Percent Decrease in US International In-Bound Market Share from 2015 to 2017

    7

  • 8

    A new golden age of aircraft cabin interiors

    - J. Berger: https://www.linkedin.com/pulse/new-golden-age-aircraft-cabin-interiors-jonathan-berger/

    2017 REFLECTIONS

    Source: Alton Analyses

    Airbus Interiors

    Services (AIS)

    Three business lines:

    1. Tailored equipment

    (SFE and BFE)

    2. Upgrade solutions

    (cabin & connectivity)

    3. Innovative solutions

    Airbus launches new

    subsidiary

    Joint venture with car

    seat manufacturer

    Adient

    Focus on reducing

    production delivery

    delays and aftermarket

    growth

    Boeing forms aircraft seat

    joint venture

    $6.4bn transaction (and

    subsequent $30B UTC

    acquisition)

    Integration of seats, IFE,

    and onboard

    connectivity

    Expand cabin IoT

    capabilities

    Rockwell Collins acquires

    B/E Aerospace

    $9bn transaction

    Create the worlds No.3

    aerospace supplier

    Improve Zodiacs

    production efficiency

    and customer

    satisfaction

    Safran acquires Zodiac

    https://www.linkedin.com/pulse/new-golden-age-aircraft-cabin-interiors-jonathan-berger/

  • 9

    ALTON FLEET & MRO FORECAST

  • 10Source: CAPA, Alton analysis

    Todays commercial air transport fleet consists of approximately 28,000

    aircraft, with Asia Pacific now equal in size to North America

    COMMERCIAL AIR TRANSPORT FLEET FORECAST

    Narrowbody Jet

    Regional Jet

    Turboprop

    Widebody Jet

    51%

    24%

    9%

    16%

    8,400

    61%

    11%

    10%

    18%

    6,600

    63%

    5%

    10%

    22%

    8,400

    59%

    17%

    14%

    10%

    2,10041%

    17%

    28%

    14%

    1,300

    39%

    7%

    3%

    51% 2,100

    Growing to 44,000 aircraft by 2028

    3.8% CAGR

    2028

    2018

  • Historically, fleet growth has been directly correlated to GDP

    COMMERCIAL AIR TRANSPORT FLEET FORECAST

    11Source: CAPA, USDA ERS, Alton analysis

    Fleet and GDP Growth by Region (1997 2017)

    10%

    7% 7%

    6%

    5%

    3%

    3.8%

    4.4%4.2%

    2.5%

    1.8%

    2.2%

    0.0%

    0.5%

    1.0%

    1.5%

    2.0%

    2.5%

    3.0%

    3.5%

    4.0%

    4.5%

    0%

    2%

    4%

    6%

    8%

    10%

    12%

    14%

    Middle East Asia-Pacific Africa Latin America Europe North America

    % Fleet growthGDP

    Avg. GDP

    Growth/yr

    Avg. Fleet

    Growth/yr

  • perhaps a better determinant of future fleet growth is the so-called

    Disneyland factor; the growth rate of a countrys middle class

    COMMERCIAL AIR TRANSPORT FLEET FORECAST

    12Source: Airbus Global Market Forecast 2017-2036, Alton analysis

    103%

    6%

    51%

    2%

    149%

    41%

    75%

    0%

    20%

    40%

    60%

    80%

    100%

    120%

    140%

    160%

    -

    500

    1,000

    1,500

    2,000

    2,500

    3,000

    20

    Ye

    ar

    Gro

    wth

    Rate

    Ho

    us

    eh

    old

    s (

    mil

    lio

    ns

    )

    2016203620 yr % growth

    Middle Class Growth by Region (2016 2036)

  • 13Source: Alton Analysis, all figures constant dollars ($2018 USD)

    Todays commercial air transport MRO market demand is approx. $69B,

    growing to $103B by 2028 an annualized growth rate of 4.1%

    COMMERCIAL AIR TRANSPORT MRO FORECAST

    $0 $20 $40 $60 $80 $100 $120

    World Total

    Asia Pacific

    North America

    Europe

    Middle East

    Latin America

    Africa

    $103B

    10yr CAGR

    5.0%

    5.0%

    6.5%

    2.2%

    1.6%

    5.7%

    $0 $20 $40 $60 $80 $100 $120

    World Total

    Engine

    Components

    Line

    Airframe Heavy

    Modifications

    10yr CAGR

    $103B

    6.1%

    2.9%

    3.9%

    3.1%

    4.4%

    $0 $20 $40 $60 $80 $100 $120

    World Total

    Asia Pacific

    North America

    Europe

    Middle East

    Latin America

    Africa

    $69B

    $3.8B

    $7.4B

    $16.4B

    $16.9B

    $22.6B

    $2.4B

    $0 $20 $40 $60 $80 $100 $120

    World Total

    Engine

    Components

    Line

    Airframe Heavy

    Modifications

    $69B

    $6B

    $8B

    $13B

    $14B

    $29B

  • 14

    LATIN AMERICAN MARKET UPDATE

  • 15

    0%

    2%

    In 2017, Latin American GDP growth was ~1.0%; 2018 is showing strong

    signs of growth, more the doubling to ~2.25%

    LATIN AMERICAN MARKET UPDATE

    BRAZIL

    UNITED

    STATES

    ARGENTINA

    MEXICO

    0%

    2%

    4%

    -4%

    -2%

    0%

    2%

    -3%

    0%

    3%

    0%

    2%

    4%

    0%

    1%

    2%

    3%

    0%

    2%

    4%

    6%

    0%

    2%

    4%

    6%

    Source: USDA Economic Research Service

    PERU

    COLOMBIA

    0%

    4%

    8%

    BOLIVIA

  • 16

    If you build it, they will come

    LATIN AMERICAN MARKET UPDATE

    BRAZIL

    BOLIVIA COLOMBIA

    COSTA RICA

    PUERTO RICO

    MEXICO

    UNITED

    STATES

    EL SALVADOR

    2018

    6th hangar being

    added, 32 NB

    capacity

    2015

    20,000 sqm

    5 NB capacity

    2016

    44,000 sqm

    5 NB or 2 WB

    capacity

    2017

    Construction of

    first hangar

    2016

    100,000 sqm

    12 NB capacity

    2018

    Construction of

    new hangar -

    4NB and 2WB

    PERU

    Source: Alton analysis

    2017

    2 WB Line Mtc.

    hangar

    2016

    7WB or 19NB

    capacity

    ARGENTINA

  • 17

    ALTON WATCH LIST - 2018

  • 18Source: CAPA, IATA, Alton Analysis

    A rising tide lifts all cargo aircraft

    ALTON WATCH LIST - 2018

  • 19

    A rising tide lifts all cargo aircraft (cont)

    ALTON WATCH LIST - 2018

    Source: Source: Boeing, US Dept. of Commerce, FTI Consulting, Internet Retailer, China Daily, GB Times, China Xinhua, Alton Analyses

    Amazon Air, recently renamed from

    Amazon Prime Air to better distinguish

    the airline from its new drone-based

    delivery service

    The virtual cargo carriers current fleet

    consists of 32 Boeing 767s; in talks for

    additional P2F conversions and new

    freighters

    Amazon Airs new $1.5B hub in Cincinnati

    International Airport (CVG) is projected to

    have capacity to handle approx. 100

    freighters

    In Europe, Amazon utilizes a single Boeing

    737-400(F) operated by ASL Airlines France

    in the UK, France, Spain, and Italy

    Alton Insight

  • 20Source: Nasdaq, Bloomberg BusinessWeek, Alton Analysis

    0

    20

    40

    60

    80

    100

    120

    140

    160

    180

    200

    Ind

    ex

    ed

    Sto

    ck

    Va

    lue

    Boeing Stock Value

    S&P 500

    AAR Stock Value

    GE Stock Value

    +89%

    +20%+19%

    - 43%

    Stock Value ComparisonJanuary 2017 thru January 2018

    Notable aviation industry stocks to watch in 2018

    ALTON WATCH LIST - 2018

    Famous for great

    management, General

    Electric is staring down a

    plunging share price, a

    federal investigation, and

    possible breakup

    Bloomberg BusinessWeek

    February 1, 2018

  • 21

    Competition for the aftermarket is reshaping the Tier 1 OEM landscape

    ALTON WATCH LIST - 2018

    Source: Canaccord Genuity, Alton Analysis

    Stated Goal: $50B in aftermarket revenue within 10 years

    Vertical integration strategy:

    Created new in-house avionics unit

    Established seat JV with Adient

    Awards 777X landing gear contract to Heroux-Devtek that

    includes parts distribution rights (Aviall)

    Acquired Jeppesen and AerData

  • 22Alton analysis

    More than other MRO segments, the role of the Line Maintenance

    technician has undergone significant changes in recent years

    ALTON WATCH LIST - 2018

    Hat #1

    Priority: On-Time

    Performance & Dispatch

    Reliability

    Troubleshooting live aircraft

    at the gate

    Deferred defect rectification &

    MEL approval coordination

    Airworthiness release

    Hat #2

    Priority: Scheduled

    Maintenance

    Overnight maintenance checks

    A-checks

    Scheduled component

    removals, engine washes and

    changes, etc.

    Hat #3

    Priority: Cabin Condition &

    Appearance

    In-flight entertainment (IFE) &

    connectivity

    Premium seat defect

    rectification

    Galleys & lavatories

    Line technicians wear several hats and must manage numerous, often competing, priorities

  • 23Alton analysis, typical new generation narrowbody aircraft

    To phase or not to phase, that is the question!

    ALTON WATCH LIST - 2018

    A1-A8 Checks, tasks scheduled ~

    every 10 days

    Planned aircraft out-of-service time =

    6-8 hours (one shift)

    Cabin items and scheduled

    component removals (time permitting)

    Deferred C-Check items (if tooling &

    material availability)

    Single A-Check, scheduled ~ 90 days

    Planned aircraft out-of-service time = 14-

    18 hours (1.5 - 2 shifts)

    Planned deferred C-Check items, cabin

    items, & scheduled component removals

    Dispatch a clean aircraft: Pre-planned

    availability of parts, paperwork, tooling,

    manpower, skill, etc.

    vs.

    Higher Operational Risk Lower Operational Risk

    Phased A-Check ProgramOptimize ground time; take advantage

    of layovers and overnights

    Block A-Check ProgramProvide operational buffer; plan it,

    find it, fix it

  • 18Source: The Economist, September 2017

    An army of tiny robots are on the march; with plans to disrupt

    engine MRO inspection and repair processes

    ALTON WATCH LIST - 2018

    Alton Insight

    OEMs are developing very small

    robots which venture inside an

    engine to perform inspections and

    carry out any necessary repairs

    The robots are small enough to

    navigate their way around various

    fan and turbine blades, taking

    videos of everything they see, and

    will wirelessly send to technicians

    Once the video has been analyzed,

    the robots will be able to carry out

    certain repairs

    All at the gate - between flights!

  • ALTONAVIATION.COM

    NEW YORK | HONG KONG | BEIJING | TOKYO

    Jonathan M. Berger

    +1 212 301 0573

    [email protected]

  • In China, Alton Aviation Consultancy is known as , or De Shi.

    Alton supports a global client base from offices in the U.S., China,

    Hong Kong, and Tokyo, with additional associates worldwide

    COMPANY INTRODUCTION

    380 Lexington Avenue

    17TH Floor

    New York, New York 10168

    USA

    +1 212 256 [email protected]

    New York

    8 Guanghua Dongli

    China Overseas Plaza

    South Tower, Floor 11,

    Suite A053

    Chaoyang, Beijing 100020

    China

    +86 10 8598 [email protected]

    Beijing

    136 Des Voeux Road Central

    Suite 903

    Central

    Hong Kong

    +852 8191 [email protected]

    Hong Kong

    Konan

    Minato-Ku

    Tokyo, Japan

    +81 90 8057 [email protected]

    Tokyo

    26

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