Michael Howard, ICF International, Presentation

Gorham PMA Conference

23 – 25 March, 2015

ICF International | icfi.com © ICF International 2015 0

PMA Market Forecast and Key TrendsMarch 23-25, 2015 – San Diego, CA

Presented by:Michael J. HowardPrincipal � ICF [email protected]

Today’s Agenda:

These are the “Good Old Days”

MRO Market Forecast


founded 2001, joined ICF in 2011

founded 1963, joined ICF in 2007May 2010–May 2014

PMA Market Outlook

These Are the “Good Old Days”


AVIATION INDUSTRY HEALTH & GROWTH INDICATORS

Aviation fuel costs have dropped over 50% during the past 6 months

$2.3

$2.5

$2.8

$3.0

U.S. Gulf Coast Jet Fuel Price per GallonIn US Dollars(USD)


$1.5

$1.8

$2.0

Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14

Source: EIA data of 1/7/2015; ycharts 1/7/2015 info for Dec 2014 data

Should these low fuel costs continue, there will be a dramatic repercussions throughout the aviation & MRO supply chain (and geopolitics…)

~52%


Most airlines’ growth plans assume oil pricing of around $110/bbl, having proved stable over the past decade…

17%

22%

26% 27%

33%

26% 26%29% 31% 30%

29%26%

20%

30%

40%

Evolution of Fuel Cost as a Share of Operating ExpensesFuel Cost as a Share of Operating Expenses Forecast


14%

17%

0%

10%

20%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 2015F

Source: IATA Airline Industry Economic Report, December 2014

…resulting in plans for accelerated fleet replacement, and therefore record OEM backlogs…

Commercial aircraft OEM production backlog remains at historical record levels


40%

50%

60%

70%

8,000

10,000

12,000

14,000

Order Backlog

Backlog/Active Fleet


0%

10%

20%

30%

40%

0

2,000

4,000

6,000

8,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Note: includes narrowbody, widebody, and regional jets in commercial service. Excludes Russian-manufactured aircraft. Only includes passenger, freighter, quick change and combi operational rolesSource: Flightglobal ACAS, September 2014


4.3% 4.5%

6.0%

4.9%

6.8%

6%

8% Traffic (FTK) Capacity (AFTK)

Forecast

Air cargo, a key leading indicator of industry growth, has (at long last) shown positive signs of recovery

Freight Traffic / Capacity GrowthYear-Over-Year Percent Change


Source: IATA Air Transport Market Analysis – Dec reports from 2010-2012; IATA Air Passenger Monthly Analysis 2013, 2014

0.4%

-0.9%

0.6%

4.3% 4.5%

3.0%3.6%

-2%

0%

2%

4%

2011 2012 2013 2014 2015F

Airlines appear to have embraced the art of “capacity discipline” in recent years to the delight of the investment community…


8.0%

6.3%

5.3% 5.4%5.8%

7.0%6.6%

5.0%5.6%

7.3%

6%

8% Traffic (RPK) Capacity (ASK)

Forecast

Passenger Traffic / Capacity GrowthYear-Over-Year Percent Change


Source: IATA Air Transport Market Analysis – Dec reports from 2010-2012; IATA Air Passenger Monthly Analysis 2013, 2014

5.3%

4.5%4.0%

5.0%

0%

2%

4%

2010 2011 2012 2013 2014 2015F

$20

$30

Accordingly, driven by a combination of capacity discipline, airline consolidation, and lower fuel costs, the industry has successfully returned to profitability


Global Airline Profitability$ Billions

$25B

8© ICF International 2015

$0

$10

2011 2012 2013 2014F 2015F

Source: IATA Central Forecast Dec 2014

$20B

Driven by a combination of capacity discipline, airline consolidation and lower fuel costs, the industry has successfully returned to profitability


North AmericaGlobal$ Billions

$0

$10

$20

$30

2011 2012 2013 2014F 2015F

$ Billions

$9.0

$12.0

$15.0

$13B$12B



$0.0

$3.0

$6.0

$9.0

2011 2012 2013 2014F 2015F



Latin AmericaGlobal$ Billions

$0

$10

$20

$30

2011 2012 2013 2014F 2015F

$ Billions

$1.0

$1.5

$1BNorth America$ Billions

$15.0



-$0.5

$0.0

$0.5

2011 2012 2013 2014F 2015F

$1B

$.7B$0.0$3.0$6.0$9.0

$12.0

2011 2012 2013 2014F 2015F



Rest of WorldGlobal$ Billions

$0

$10

$20

$30

2011 2012 2013 2014F 2015F

$ Billions

$9.0

$12.0

$15.0

North America$ Billions

$15.0$11B



$0.0

$3.0

$6.0

$9.0

2011 2012 2013 2014F 2015F

Latin America$ Billions

-$0.5

$0.0

$0.5

$1.0

$1.5

2011 2012 2013 2014F 2015F

$0.0$3.0$6.0$9.0

$12.0

2011 2012 2013 2014F 2015F

$11B

$7B


Current industry forecasts are based on $85/bbl – given today’s price, tremendous short-term upside exists…

$20

$40

$60

$80

$100

$120

Pro

fit (

$Bill

ion

s)

2015 IATA Forecast:$25B industry profit

based on $85/bbl


$(40)

$(20)

$-

$50 $55 $60 $65 $70 $75 $80 $85 $90 $95 $100 $105 $110

Pro

fit (

$Bill

ion

s)

Crude Oil Cost per Barrel

However, in the long-term, low fuel costs will lead to increased capacity and new market entrants ….ultimately eroding hard fought margins gains…

Source: IATA Airline Industry Economic Report, December 2014; ICF Analysis

MRO Market Forecast


NarrowbodyJet

Turboprop

Regional Jet

The current civil air transport fleet consists of over 27K aircraft

MRO MARKET FORECAST

North AmericaLatin

America

Middle East

2014 Global Air Transport Fleet

27,531

17%

50%15%

31%8%5% 5%

27,531


WidebodyJet

Source: FlightGlobal ACAS September 2014Source: FlightGlobal ACAS September 2014

Asia Pacific

Europe

27,531Aircraft

15%

18%26%

25%

By Aircraft Type By Global Region

27,531Aircraft

The air transport fleet will grow at a 3.2% rate over the coming decade

MRO MARKET FORECAST

25000

30000

35000

40000

AfricaMiddle EastLatin AmericaEuropeAsia PacificNorth America

Commercial Fleet Growth 2014–2024

27,500

37,900ICF Insight

§ Air travel growth of 4.0%

§ Fuel costs in

9%

CAGR

3.8%

5.3%

4.8%


0

5000

10000

15000

20000

25000

2014 2024

Source: ICF analysis, ACAS September 2014Source: ICF analysis, ACAS September 2014

31% 26%

§ Fuel costs in $80-100/bbl range

§ 20,500 aircraft deliveries

§ 8,624 aircraft retirements

26%

25%

8%

30%

24%

3.2% Average

2.7%

4.7%

1.4%

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Michael Howard, ICF International, Presentation

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