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Panama City, Panama

February 14, 2018

Latin American MRO Industry

Trends & Market Forecast

1

TODAY’S 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 world’s No.3

aerospace supplier

Improve Zodiac’s

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

Today’s 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…


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 country’s middle class


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)

Today’s 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%


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…


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…


19

A rising tide lifts all cargo aircraft (con’t)


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 carrier’s current fleet

consists of 32 Boeing 767s; in talks for

additional P2F conversions and new

freighters

▪ Amazon Air’s 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


“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


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


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!


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 Program“Optimize ground time; take advantage

of layovers and overnights”

Block A-Check Program“Provide 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 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 德世国际航空咨询（北京）有限公司, 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


Beijing

136 Des Voeux Road Central

Suite 903

Central

Hong Kong

+852 8191 [email protected]

Hong Kong

Konan

Minato-Ku

Tokyo, Japan


Tokyo

26