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0 MRO Industry Analysis and Forecast Presented by: David Stewart VP and Head of Aerospace & MRO ICF International [email protected] April 5-7, 2016 Dallas, Texas
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Page 1: MRO Industry Analysis and Forecastmromarketing.aviationweek.com/downloads/mro2016/D3-4_Apr5_0930… · MRO Industry Analysis and Forecast. ... The global MRO market is expected ...

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MRO Industry Analysis and Forecast

Presented by:

David Stewart VP and Head of Aerospace & MRO ICF International [email protected]

April 5-7, 2016 Dallas, Texas

Page 2: MRO Industry Analysis and Forecastmromarketing.aviationweek.com/downloads/mro2016/D3-4_Apr5_0930… · MRO Industry Analysis and Forecast. ... The global MRO market is expected ...

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Today’s Agenda

MRO Forecast

New Technology Aircraft Impact

Industry Context

Implications

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MRO Forecast

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The current commercial air transport fleet consists of over 27,000 aircraft

Source: CAPA 2015

NarrowbodyJet

Widebody Jet

Turboprop

Regional Jet

27,110 Aircraft

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%

27,110 Aircraft

2015 Global Commercial Air Transport Fleet

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19,600 aircraft deliveries are driven by a combination of robust air travel demand and high retirement volumes

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

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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

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The global MRO market is expected to grow at 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

ModificationsAirframeLineComponentEngine

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

Largest growth: Engine MRO +$13.7B in annual spend 2025 vs 2015

Strongest growth: 5.3% per annum in Modifications

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Modifications growth is driven by airlines seeking differentiation in the cabin (now they have profits to reinvest)

Source: ICF Analysis, constant 2015 US$ Modifications demand includes labor and material spend *Passenger-To-Freighter Conversions **Airworthiness Directives / Service Bulletins

MRO modification market growth drivers include: Latest lie-flat seats are now

the minimum standard

Premium economy

Wi-fi, on-board connectivity

Coming soon: ADS-B Mod program

Capacity (ASM/K) increase

Air Transport Modifications Forecast, 2015–2025 ($USD Billions)

$2.7

$4.9 $0.6

$1.1

$0.4

$0.5

$0.4

$0.4

$0.3

$0.5

$0

$1

$2

$3

$4

$5

$6

$7

$8

2015 2025

AD/SB**PTF Conversions*PaintingAvionics UpgradesInteriors

$4.4B

$7.4B

0.0%

3.7%

6.9%

5.9%

CAGR

5.3% Avg.

3.6%

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Cabin modifications - including new slim line seats and fixtures - have enabled capacity up-gauging & and cabin “densification”, driving lower unit cost and facilitating bottom line growth

Source: ICF Analysis, Delta

12 Seats 16 Seats

130 Seats 120 Seats

Total = 150 Seats

Total = 160 Seats

Delta A320 Interior Modification Program Overview

New seats, outlets, IFE, overhead bins

Space-saving galleys to add a row of seats

18 Seats 18 Seats

2015 - 2025 Capacity Bridge, by Contributing Factor

0 2 4 6 8 10

2025 ASMs

IncreasedSeat Density

Longer StageLengths

Fleet Growth

2015 ASMs

Available Seat-Miles (ASMs), Trillions

6.2T

8.8T

84%

8%

8%

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The North American MRO market is expected to grow to ~$21.6B by 2025, at 1.6% per annum

Source: ICF International; Forecast in 2015 $USD, exclusive of inflation

-

5

10

15

20

25

2015 2025

ModificationsAirframeLineComponentEngine

40%

16%

6% 16%

$18.3B

$21.6B

0.4%

2.2%

2.6%

1.2% 38%

23%

18%

14%

7%

$B USD CAGR

1.6% Avg.

North American MRO Demand by Major Segment ($USD Billions)

2.4%

21%

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$0

$5

$10

$15

$20

$25

2015 2025

TurbopropRegional JetWidebody JetNarrowbody Jet

Future growth is driven by the narrow body fleet in $ terms and by the wide body fleet by % growth rate

North American MRO Demand Forecast by Fleet Type ($USD Billions)

0.4%

-1.6%

1.8%

30%

50%

34%

51%

Source: ICF International, CAPA 2015

CAGR

1.6% Avg.

$B USD

2.9%

$18.3B

$21.6B

16%

12%

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Impact of New Technology Aircraft

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2,993

18,896

22,212

18,487

2015 2025

In the next decade, the fleet of new generation aircraft fleet will grow by approx. 530% to nearly 19,000 aircraft globally, and by ~400% in North America

10-Year Fleet Forecast by Aircraft Generation

967

4,876

6,010

4,314 1330

533

2015 2025

Global

New Gen

Mid Gen

Old Gen

Source: ICF International Old Gen: 727, 737 Classic, 747 Classic, DC10, L1011, A300 Mid Gen: 757, 767, 747-400, A320 Family, A330/A340, 737NG, 777, ERJ, CRJ New Gen:, 777X, 787, A350, A330neo, A380, E170/175/190/195, CRJ-7/9/1000, 737MAX

+531%

-70%

-17%

North America

+404%

-60%

-28%

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Over the next decade, MRO spend on new technology Airbus A350 & Boeing 787 aircraft will double every three years

Source: ICF International; Forecast in 2015 $USD, exclusive of inflation, includes Boeing 787 and Airbus A350

10-Year MRO Spend for New Technology A350 and 787 Aircraft $ USD Billions

$1.1 $1.6 $2.2 $2.6 $3.0 $3.4 $4.0

$0.5 $1.0

$1.6 $2.3

$3.3

$4.4

$5.8

$7.1

$8.4

$9.7

$11.1

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

RoW

North America

Europe

Middle East

Asia Pacific

+2000%

Airbus and Boeing focus and interest should be no surprise!

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New technology aircraft challenge traditional MRO sourcing strategies

= Heavy C-Check = Light C-Check

767 A/C Age 1 2 3 4 5 6 7 8 9 10 11 12

787

Volume (C-checks)

Intensity (man-hours)

Days (Hangar)

767 8 95,000 136

787 4 33,000 47

Impact

Cost Savings: ~65% fewer routine airframe heavy maintenance man-hours drives an estimated savings of ~$3.5M

Asset Utilization: ~90 additional available flying days enables increased revenue generation potential

12 Year Heavy Maintenance Schedule

*Based on 4,000 FH/yr utilization 767 C-check = 18mo, 4C = 72mo; 787 C-check = 36mo, 4C = 144mo Assumed industry standard labor man-hour rate Aircraft out of Service (AooS) calculated for C/4C/8C checks assuming industry standard MRO hangar productivity

Return on investment challenges: Facilities

Tooling & Equipment

Training

IT Systems

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Challenge: How best to realize value from the disparate terabytes of data generated by new technology aircraft

Source: ICF Analysis

Number of AHM Parameters

A320: 15,000

B787: 100,000

Stakeholder Battle: Who will control and gain most from the operating data IP?

Operators

Lessors

OEMs

MRO Suppliers

767: 10,000

Yr 1 Yr 10

~ 137TB

~11TB

777 787

~ 28MB

< 1MB

Transmittable Data (MB/Flt)

A/C Data Generated (TB/Year)

~1,100%

Aircraft Health Monitoring and Data Generation Outlook

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Industry Context…

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Continued low fuel costs are having, and will have, important repercussions for aviation and the MRO supply chain

Source: EIA; ICF International analysis

U.S. Gulf Coast Jet Fuel Price per Gallon

$0.8

$1.1

$1.4

$1.7

$2.0

$2.3

$2.6

$2.9

$3.2$ USD

~67% Decline

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…such as an already visible drop in aircraft retirements

Source: Flight Global ACAS June 2015, CAPA, Airline Monitor, ICF Analysis

Potential Impact:

Airline capacity increases

Reduced part-out feed stock for surplus market

Increase in airframe and engine MRO spend on older airframes

Less pressure OEM new parts sales

Higher used part values / pricing

Commercial Air Transport Annual Aircraft Retirements

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0

200

400

600

800

1,000

1,200

# Retirements

Retirement as % of installed fleet

% Installed Fleet

1990-99 Average: 191

2000-09 Average: 473

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Partially thanks to low fuel prices, North American airlines today are enjoying record profitability

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

Some other regions continue to struggle – why?

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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

5%

7%

9%

11%

13%

15%

2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F2015F 2016F

China GDP Year-on-Year Growth (%)

…But now, after years of remarkable GDP growth, China’s economy has been steadily slowing

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China’s situation exacerbated the 54% fall in commodity prices in the past five years…

Source: Dow Jones Commodity Index

Dow Jones Commodity Indices (DJCI) (January 2011 Indexed to 100)

40

50

60

70

80

90

100

110

- 54.0%

Indexed Values

…which has had a dramatic impact on economies dependent on commodity exports

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The increase in oil & gas market supply and reduced demand for commodities has led to a stronger US Dollar

Partially offsets the positive impact of low fuel costs

Increases the cost of dollar based parts and materials / flying hour agreements

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

Global Currency Exchange Rates vs USD % Value Change, Jan. 2014 – Jan. 2016

The “CRABS”: Countries with economies that are heavily

dependent on commodity exports

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Implications for Debate

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Whilst uncertainty - driven by four key industry factors - has yet to impact the backlog materially, cancellations and deferrals will be vital harbingers of airline and supply chain confidence and outlook

Exchange Rates Commodity Prices

China

Implications of Industry Outlook….

Fuel Price

Order deferrals and/or cancellations?

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For New Technology Aircraft MRO, there are three key battlegrounds

Source: IATA

Control of operational data

Control of the Workscope

Control of the Assets

Critical to success in market participation and in gaining operational feedback for design and reliability improvement

Critical to success in driving parts choice and aftermarket margins

Critical to success in growing integrated

service market

This new world is already

rapidly changing the competitive landscape

The outcomes and winners in these battles will define the future “winning business models”

Implications of New Technology….

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The MRO market outlook remains robust with expected growth of 3.4% per annum

The combined impact of low fuel prices, exchange rates and some regional economic weaknesses is creating some uncertainty

The very rapid ramp up of New Technology Aircraft is creating both new challenges and opportunities aviation and MRO stakeholders

…and is having a significant impact on the competitive landscape

In Conclusion…

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27

For questions regarding this presentation, please contact:

David Stewart VP and Head of Aerospace & MRO [email protected] +44 (0) 20 3096 4931

THANK YOU!

April 5-7, 2016 Dallas, Texas

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Market Research & Analysis

Airline Maintenance Benchmarking

M&A Commercial Due Diligence

OEM Aftermarket Strategy

Aviation Asset Valuations & Appraisals

MRO Information Technology (IT) Advisory

Strategic Sourcing & Supply Chain Mgt.

LEAN Continuous Process Improvement

Military Aircraft Sustainment

ICF provides a full range of MRO advisory services

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ICF is one of the world’s largest and most experienced aviation & aerospace consulting firms 53 years in business (founded 1963) 100+ professional staff

− Dedicated exclusively to aviation and aerospace − Blend of consulting professionals and experienced

aviation executives

Specialized, focused expertise and proprietary knowledge

Broad functional capabilities More than 10,000 private and public sector

assignments Backed by parent company ICF International

(2014 revenue - $1.05B) Global presence –– offices around the world

joined ICF in 2011

joined ICF in 2007

New York • Boston • Ann Arbor • London • Singapore • Beijing • Hong Kong

Aerospace & MRO

Aircraft Asset Advisory

Airline Advisory

Airports


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