2014 mro market overview & trends
TRANSCRIPT
ICF International | icfi.com © ICF SH&E 2013
MRO Market Overview & Trends
January 15, 2014
Jonathan M. BergerVice President ICF SH&[email protected]
Presented by:
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Today’s Agenda:
1. MRO Market Overview
2. MRO Industry Trends to Watch
joined ICF in 2011 joined ICF in 2012joined ICF in 2007
2014 Annual Transportation Review Board
Meeting
Washington, DC
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Maintenance costs typically range between 15%-18% of an
airline’s operating cost structure
MRO MARKET OVERVIEW
Typical Airline Cost Breakdown
Source: Form 41 & ICF SH&E Analysis
Typical Airline’s MRO Cost Breakdown
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
Engines
Components
Line
Airframe
Modifications
Airline’s MRO Cost
16%
17%
21%
40%
6%
Maintenance
Fuel
Labor & Benefits
DepreciationAircraft Rent
Other
16%
14%
35%
28%
5%
5%
3%
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NarrowbodyJet
WidebodyJet
Turboprop
Regional Jet
The current civil air transport fleet consists of over 26K aircraft
MRO MARKET FORECAST
Source: FlightGlobal ACAS September 2013
North America
Asia Pacific
Europe
South America
Africa
2013 Global Air Transport Fleet
26,772Aircraft
17%
50%15%
18%
32%
26%
25%
8%
5% 5%
By Aircraft Type By Global Region
26,772Aircraft
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The air transport fleet will grow at a 3.1% rate over the coming decade
MRO MARKET FORECAST
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2013 2023
Africa
Middle East
South America
Europe
Asia Pacific
North America
Commercial Fleet Growth 2013–2023
Source: ICF SH&E, ACAS September 2013
4.2%
2.4%
4.3%
1.6%
5.6%
4.6%
26,800
31% 27%
36,400
CAGR
3.1% Average
Key Assumptions
Air travel growth of 3.9%
Fuel costs in $80-100/bbl range
17,720 aircraft deliveries
8,128 aircraft retirements
26%
25%
8%
28%
24%
9%
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Engines
Components
Line
Airframe
Modifications
15%
17%
22%
40%
6%
The current civil air transport MRO market is valued at $60.7 billion USD
MRO MARKET FORECAST
North America
Asia Pacific
Europe
Middle East
South America
Africa
31%
27%
26%
7%5% 4%
2013 Global MRO Demand
$60.7B$60.7B
By MRO Segment By Global Region
Source: ICF SH&E analysisForecast in 2013 $USD, exclusive of inflation
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$60.7B
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2013 2023
Modifications
Heavy Airframe
Line
Components
Engine
The global MRO market is expected to grow to $89B by 2023, at 3.9% per annum
MRO MARKET FORECAST
Global MRO Spend 2013–2023
2.8%
3.4%
4.3%
3.7%
15%
17%
22%
40%
13%
16%
23%
40%
6.4%
6%
7%
CAGR
3.9% Average
Key Assumptions
Average growth is forecast to be 3.9% CAGR
The strongest driver of growth is expected to be the engine market
Reduced labor intensity of airframe heavy checks as the fleet renews and increased intervals...offset in emerging markets by increasing labor rates
Aircraft upgrades (e.g. interiors, winglets) drive high modifications growth
Source: ICF SH&E analysisForecast in 2013 $USD, exclusive of inflation
$89B
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Over the next decade, Asia Pacific and Middle East will drive $15.5B in absolute MRO spend growth
MRO MARKET OVERVIEW
Difference in $ MRO Spend, 2022 vs. 2013 – By Global RegionUS$ Billions
Source: ICF SH&E analysisForecast in 2013 $USD, exclusive of inflation
$7.1
$4.5$3.9
$2.9 $2.9 $2.8$2.0 $1.9
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
Asia/Pacific(excl China)
Middle East China NorthAmerica
EasternEurope (incl
CIS)
Latin America WesternEurope
Africa
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The MRO outsourcing trend is expected to continue into the future
MRO MARKET OVERVIEW
24%
60%
82%
88%
21%
53%
71%
78%
17%
48%
66%
74%
0% 20% 40% 60% 80% 100%
Line
Heavy Airframe
Components
Engine
Percent of Direct Maintenance Spend Outsourced
2008
2013
2020
Source: ICF SH&E Analysis
Global Outsourcing by MRO Segment
Airlines currently outsource nearly 65% of all MRO activity
Airline industry economics will continue to drive growth in outsourcing
Capital intensive segments (e.g. engines & components) will drive outsourcing growth
Labor intensive airframe work will continue to “Right-Shore”; migrate to lower labor cost countries near the home region
Start-up operators will continue to seek “total fleet support” solutions
ICF SH&E Insight
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Industry Trends
Role of OEMin MRO
FleetDynamics
AirframeMRO
3-DPrinting
SurplusParts
Five key MRO industry trends to watch…
Source: ICF SH&E
MRO INDUSTRY TRENDS
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FLEET DYNAMICS
Source: ICF SH&E Analysis; Flightglobal ACAS 2013, ATA, US Federal Reserve
Fleet Demographics––the 1990 Bulge Historically Low Interest Rates (%)
New Technology & OEM Production Rates Exacerbate Retirements
Historically High Jet A Fuel Prices ($/BBL)
0
500
1,000
1,500
2,000
1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Air transport deliveries
0
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
0
20
40
60
80
100
120
140
1991 1994 1997 2000 2003 2006 2009 2012
Four factors are reshaping aircraft economics and MRO…
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…and ICF projects more than 8,100 retirements through 2023, which will drive nearly 50% of deliveries
FLEET DYNAMICS
Source: ICF SH&E AnalysisNote: includes turboprops and regional jets
Air Transport Retirements 2014 – 2023
-
2,000
4,000
6,000
8,000
10,000
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
..and 9,600 for
new growth
Retirements historically drive 20% of deliveries
46%
54%
B737-NG
~ 8,100
A320
B737-345
B767
MD80
CRJ
OTHERS
B747-400
DHC6ERJ-135
B737-NG
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Aircraft retirements will average between 600 – 1,000 per year over the forecast period
FLEET DYNAMICS
Air Transport Annual Aircraft Retirements
Includes TurbopropsSource: Airline Monitor Jun 2013, ACAS Sept 2013, ICF SH&E
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
0
200
400
600
800
1,000
1,200
# Retirements
Retirement as % of installed fleet
% Installed Fleet
ICF SH&Eforecast
1990-99 Average 171
2000-09 Average 410
2010-23 Average 751
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After decades of a virtual OEM duopoly in the regional jet market, the RJ market is now very competitive
FLEET DYNAMICS
‘G2’ E-Jet Family
Order Book:• Net Orders: 150• Options: 50
• Capacity: 78-122 seat range with common wing
• EIS: 2018
C-Series
• Order Book:Net Orders: 177Options: 101
MRJ 70/90
Order Book:• Net Orders: 165• Options: 160
• US’ SkyWest with game- changing order for 100 aircraft and 100 options
Sales Figures: ACAS, September 2013
SuperJet 100
Order Book:• Net Orders: 180• Options: 52
• Mexico’s Interjet took delivery of first aircraft in Oct 2012 making it the first western customer to receive the aircraft
ARJ21
Order Book:• Net Orders: 122• Options: 70
Who will be the winners and losers in the 70-110 aircraft market battleground?
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Five key MRO industry trends to watch…
Source: ICF SH&E
MRO INDUSTRY TRENDS
Industry Trends
Role ofOEM in MRO
Surplus Parts
3-DPrinting
AirframeMRO
FleetDynamics
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ICF SH&E estimates that commercial MRO industry spending on surplus parts is approximately $3.0 billion
SURPLUS PARTS MARKET
Engine Parts
Component
Airframe
5%65%
30%
Air Transport Surplus Parts Market*
Source: ICF SH&E analysis*Sales to end customers; excludes intra-dealer sales
$3.0B
More innovative surplus parts supplier base
Vertical integration of Lessors, Parts Traders & Repair Vendors
Increased aircraft part-outs
Increased engine teardowns
ICF SH&E Insight
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Surplus dealers now obtain over 80% of their inventory from parting-out aircraft…
SURPLUS PARTS MARKET
54%
82%
26%
8%20%10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2012
Aircraft Part-Out
Direct Purchase From Airline
Purchase From Surplus Dealer
2007 & 2012 Supplier Channels for Obtaining Surplus Materials
Source: ICFI SH&E Analysis
Leaner airline inventories
Improved material planning (and MRO IT capabilities)
Increased component pooling agreements
OEM after-market material control strategies
ICF SH&E Insight
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The aircraft part-out and recycling business will continue to grow as a result of a confluence of several key factors
Source: ICF SH&E Analysis
1. Continued increase in aircraft retirements
2. Strong global demand for surplus material
3. Growth and expertise of global parts distribution firms
4. Low cost of capital (low interest rates)
5. Increased demand for raw material (recycled metal)
(former Memphis Group)
Major Part-Out Players
Major Part-Out MROs
Indianapolis
Arizona
France
U.K. Florida
Victorville
SURPLUS PARTS MARKET
Oklahoma
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Five key MRO industry trends to watch…
Source: ICF SH&E
Industry Trends
MRO INDUSTRY TRENDS
AirframeMRO
Role of OEMIn MRO
3-DPrinting
SurplusParts
Fleet Dynamics
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ROLE OF OEMS IN MRO
Independent MROsEvaluating strategic options Seek partnerships? Niche competitor? PMA/DER usage? Access to new aircraft IP?
Integrators Scale Engine/
Component JV opportunities?
Evaluation of core vs. non-core
Engine & Component OEMs Focus on
controlling IP Continue
successful capture of market share (especially for new gen equipment)
Increased support in growth regions via licensed service centers
Airframe OEMs Grow aftermarket services revenue FHS, GoldCare, MRO Network Part consignment programs
Relationships between the various MRO suppliers continue to evolve
Source: ICF SH&E
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Aircraft OEMs are fast becoming major MRO players…
Sources: ICF SH&E Analysis, EADS Vision 2020
The EADS Vision 2020 goal is 25% services revenue by 2020
Two major acquisitions in 2011: Satair and Vector Aerospace
Numerous FHS contracts
Launched EDGE in 2012 to create coordinated services brand
Major player in flight training, distribution, and consumables management
Two new GoldCare contracts
ROLE OF OEM IN MRO
~50%~40%
~10%
50%60%
90%
0%
20%
40%
60%
80%
100%
Engine OEMs ComponentOEMs
Aircraft OEMs
Typical OEM Revenue Mix
Manufacturing
Services
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Tier 1 supply chain model continues to evolve as OEMs consolidate their aircraft manufacturing programs…
Source: ICF SH&E Analysis, Airframer, Teal Group
B777 B787
AlliedSignal
Honeywell
Goodrich
Smiths
Sundstrand
Moog
Menasco
Vickers
Messier
Collins
SAFRAN
Goodrich
Hamilton Sundstrand
Panasonic
B/E Aero
Other
Component MRO Spending DistributionB777 versus B787
Supplier Consolidation
Tier I supply chain model; redefined system
architectures
ROLE OF OEM IN MRO
• B/E Aero• C&D• Hamilton• Hispana Suiza• Parker• Jamco• Liton• Woodward Gov• Contour• Recaro,• Driessen• Sell, 1%• Boeing Wichita • Avox• Carleton• NordMicro• BAE• Peco• Techspace• Cox• Crane• CMC• Meggitt• Pacific Scientific• Eaton• Hughes Trietler
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Five key MRO industry trends to watch…
Source: ICF SH&E
Industry Trends
MRO INDUSTRY TRENDS
SurplusParts
Airframe MRO
3-DPrinting
FleetDynamics
Role of OEMIn MRO
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In-House
Independent
Airline Third Party
OEM
Airframe MRO is very fragmented; no supplier has more than a 6% market share
Airframe Heavy Maintenance Market Share
AIRFRAME MRO
HAECO*
ST Aerospace
LHT
AFI KLM E&M
AARAmecoEGATTAECO
AA-MRO
SIAECOthers
By Supplier Type
2%
44%
18%
36%
6%6%
4%
4%3%2%2%$9.0B
Source: ICF SH&E analysisIncludes Turboprops
Supplier Market Share
$9.0B
* Includes TIMCO’s share
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Three of the top four airframe MRO are Asian owned; Haeco’s acquisition of Timco makes it a solid #2
AIRFRAME MRO
11.5
7.4
4.6
4.2
4.1
3.9
3.2
2.8
2.5
2.3
0 2 4 6 8 10 12 14
ST Aero
Haeco Group
AAR
SIAEC
Lufthansa Technik
AFI KLM E&M
Timco
Ameco Beijing
ADAT / SRT
Iberia
2012 Top Airframe MROs by Performed Man-Hours (millions)
Source: Aviation Week Overhaul and Maintenance June 2013Note: Subsidiaries are included if they are majority owned/operated
October 2013Haeco acquires Timco
10.6
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$10
$20
$30
$40
$50
$60
$70
1990 1995 2000 2005 2010 2015 2020
North America
Mature Asian MROs
Emerging Asian MROs
Average Widebody Airframe Heavy Maintenance 3rd Party Labor Rates In North America vs. Asia (USD per Man-Hour)
The cost advantage enjoyed by Asian MRO suppliers will continue to erode due to the shortage of skilled labor and wage inflation
The convergence of global labor rates will require airlines to reconsider their airframe sourcing strategies and create new opportunities for MRO suppliers
Labor Rate Convergence
Source: ICF SH&E analysis
AIRFRAME MRO
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Widebody airframe heavy check migration from North America to Asia will peak…
Source: ICFI SH&E
Shifting Heavy Airframe MRO Migration Patterns
AIRFRAME MRO
Average labor hours per heavy maintenance check is declining
High fuel prices increase maintenance ferry flight costs
Skilled labor shortages in Asia driving up labor rates
South-eastern US labor rates now comparable to leading emerging market MRO rates
Excess facility supply in North America increasing local competitiveness
ICF SH&E Insight
Less Trans-PacificHeavy Check
Migration
More Heavy Maintenance
Stays in Americas
“Right-shoring is the new Outsourcing”
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Five key MRO industry trends to watch…
Source: ICF SH&E
Industry Trends
MRO INDUSTRY TRENDS
3-DPrinting
Fleet Dynamics
Role of OEMIn MRO
SurplusParts
AirframeMRO
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Additive manufacturing, also known as 3-D printing, has the potential the be the next disruptive technology in aviation
3-D PRINTING
Source: ICF SH&E Research & analysis
The GE Aviation-Parker Aerospace joint venture will 3-D print more than 30,000 LEAP-X fuel nozzles per year by 2017
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Additive manufacturing, also known as 3-D printing, has the potential the be the next disruptive technology in aviation
3-D PRINTING
Source: ICF SH&E Research & analysis
HEICO is using 3-D printers to produce PMA part prototypes as well as tooling fixtures
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Additive manufacturing, also known as 3-D printing, has the potential the be the next disruptive technology in aviation
3-D PRINTING
Source: ICF SH&E Research & analysis
Boeing is using 3-D printing to fabricate plastic interior parts for prototypes and test evaluation units
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Additive manufacturing, also known as 3-D printing, has the potential the be the next disruptive technology in aviation
3-D PRINTING
Source: ICF SH&E Research & analysis
NASA has certified a 3-D printer to be used on the International Space Station in 2014
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Additive manufacturing, also known as 3-D printing, has the potential the be the next disruptive technology in aviation
3-D PRINTING
Source: ICF SH&E Research & analysis
China’s AVIC heavy machinery is using large 3-D printed titanium parts for landing gear and other structural related parts.
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Additive manufacturing, also known as 3-D printing, has the potential the be the next disruptive technology in aviation
3-D PRINTING
Source: ICF SH&E Research & analysis
Pratt & Whitney will feature 25 different 3-D printed parts in its next generation GTF engine family
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Additive manufacturing, also known as 3-D printing, has the potential the be the next disruptive technology in aviation
3-D PRINTING
Source: ICF SH&E Research & analysis
Industry “experts” predict that 3-D printing technology could lower the cost of structural parts by up to 90%
Not surprisingly, GE plans to invest $3.5B in 3-D printing technology… within the next 5 years!
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Thank you!
MRO Market Research & Analysis
M&A Commercial Due Diligence
Aerospace Manufacturing Strategy
Aviation Asset Valuations & Appraisals
MRO Cost & Performance Benchmarking
MRO Information Technology (IT) Assessment
MRO Strategic Sourcing Support
Supply Chain Management
LEAN Continuous Process Improvement
Military Aircraft Sustainment
ICF SH&E’s MRO advisory services include the following:
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ICF SH&E is one of the most experienced global aviation and aerospace consultancies
50 years in business (founded 1963)
100+ professional staff
− Dedicated exclusively to aviation and aerospace
− Recruited from the industry
Specialized, focused expertise and proprietary knowledge
Broad functional capabilities
More than 8,000 private sector and public sector assignments
Backed by parent company ICF International ($937M revenue)
Global presence –– seven major offices
New York • Boston • Ann Arbor • London • Singapore • Beijing • Hong Kong
Airports • Airlines • Aerospace & MRO • Asset Advisory • Safety & Security
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ICF International delivers professional services and technology solutions in three focus areas, which ICF SH&E draws upon, further expanding its service offerings and technology solutions
One of ICF's founders and its first president was a Tuskegee Airman. C.D. "Lucky" Lester flew more than 90 missions and earned the Distinguished Flying Cross. In 1969, "Lucky" and 3 DoD analysts founded the organization that is now ICF International.
$937M Revenues
4,500+ Employees
ICFI NASDAQ
Energy EnvironmentTransportation
Health, Social Programs, and Consumer/Financial
Public Safety and Defense
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Jonathan M. BergerVice President
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