2015 Global MRO Market Forecast and Key Trends

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  1. 1. ICF International | icfi.com ICF International 2015 0 MRO Market Forecast and Key Trends January 13-14, 2015 Buenos Aires, Argentina Presented by: Jonathan M. Berger Vice President ICF International jberger@icfi.com
  2. 2. ICF International | icfi.com ICF International 2015 1 Todays Agenda: founded 2001, joined ICF in 2011 founded 1963, joined ICF in 2007May 2010May 2014 These are the Good Old Days MRO Market Forecast Latin American MRO Industry Dynamics Aviation Week MRO Latin America Buenos Aires, Argentina
  3. 3. ICF International | icfi.com ICF International 2015 2 These Are the Good Old Days
  4. 4. ICF International | icfi.com ICF International 2015 3 AVIATION INDUSTRY HEALTH & GROWTH INDICATORS Aviation fuel costs have dropped over 50% during the past 6 months $1.5 $1.8 $2.0 $2.3 $2.5 $2.8 $3.0 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 U.S. Gulf Coast Jet Fuel Price per Gallon In US Dollars Source: EIA data of 1/7/2015; ycharts 1/7/2015 info for Dec 2014 data (USD) Should these low fuel costs continue, there will be a dramatic repercussions throughout the aviation & MRO supply chain (and geopolitics) ~52%
  5. 5. ICF International | icfi.com ICF International 2015 4 AVIATION INDUSTRY HEALTH & GROWTH INDICATORS Most airlines growth plans assume oil pricing of around $110/bbl, having proved stable over the past decade 14% 17% 22% 26% 27% 33% 26% 26% 29% 31% 30% 29% 26% 0% 10% 20% 30% 40% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 2015F Source: IATA Airline Industry Economic Report, December 2014 Evolution of Fuel Cost as a Share of Operating Expenses Fuel Cost as a Share of Operating Expenses resulting in plans for accelerated fleet replacement, and therefore record OEM backlogs Forecast
  6. 6. ICF International | icfi.com ICF International 2015 5 Commercial aircraft OEM production backlog remains at historical record levels AVIATION INDUSTRY HEALTH & GROWTH INDICATORS 0% 10% 20% 30% 40% 50% 60% 70% 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 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 roles Source: Flightglobal ACAS, September 2014 Order Backlog Backlog/ Active Fleet
  7. 7. ICF International | icfi.com ICF International 2015 6 Source: IATA Air Transport Market Analysis Dec reports from 2010-2012; IATA Air Passenger Monthly Analysis 2013, 2014 AVIATION INDUSTRY HEALTH & GROWTH INDICATORS 0.4% -0.9% 0.6% 4.3% 4.5% 6.0% 3.0% 3.6% 4.9% 6.8% -2% 0% 2% 4% 6% 8% 2011 2012 2013 2014 2015F 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 Growth Year-Over-Year Percent Change
  8. 8. ICF International | icfi.com ICF International 2015 7 Airlines appear to have embraced the art of capacity discipline in recent years to the delight of the investment community Source: IATA Air Transport Market Analysis Dec reports from 2010-2012; IATA Air Passenger Monthly Analysis 2013, 2014 AVIATION INDUSTRY HEALTH & GROWTH INDICATORS 8.0% 6.3% 5.3% 5.4% 5.8% 7.0% 4.5% 6.6% 4.0% 5.0% 5.6% 7.3% 0% 2% 4% 6% 8% 2010 2011 2012 2013 2014 2015F Traffic (RPK) Capacity (ASK) Forecast Passenger Traffic / Capacity Growth Year-Over-Year Percent Change
  9. 9. 8 ICF International 2015 $0 $10 $20 $30 2011 2012 2013 2014F 2015F Accordingly, driven by a combination of capacity discipline, airline consolidation, and lower fuel costs, the industry has successfully returned to profitability AVIATION INDUSTRY HEALTH & GROWTH INDICATORS Global Airline Profitability Source: IATA Central Forecast Dec 2014 $ Billions $25B $20B
  10. 10. 9 ICF International 2015 Driven by a combination of capacity discipline, airline consolidation and lower fuel costs, the industry has successfully returned to profitability AVIATION INDUSTRY HEALTH & GROWTH INDICATORS Latin America Global$ Billions Source: IATA Central Forecast Dec 2014 $0 $10 $20 $30 2011 2012 2013 2014F 2015F $ Billions -$0.5 $0.0 $0.5 $1.0 $1.5 2011 2012 2013 2014F 2015F $1B $.7B
  11. 11. 10 ICF International 2015 Driven by a combination of capacity discipline, airline consolidation and lower fuel costs, the industry has successfully returned to profitability AVIATION INDUSTRY HEALTH & GROWTH INDICATORS North America Global$ Billions Source: IATA Central Forecast Dec 2014 $0 $10 $20 $30 2011 2012 2013 2014F 2015F $ Billions $0.0 $3.0 $6.0 $9.0 $12.0 $15.0 2011 2012 2013 2014F 2015F Latin America$ Billions -$0.5 $0.0 $0.5 $1.0 $1.5 2011 2012 2013 2014F 2015F $13B $12B
  12. 12. 11 ICF International 2015 Driven by a combination of capacity discipline, airline consolidation and lower fuel costs, the industry has successfully returned to profitability AVIATION INDUSTRY HEALTH & GROWTH INDICATORS Rest of World Global$ Billions Source: IATA Central Forecast Dec 2014 $0 $10 $20 $30 2011 2012 2013 2014F 2015F $ Billions $0.0 $3.0 $6.0 $9.0 $12.0 $15.0 2011 2012 2013 2014F 2015F Latin America$ Billions -$0.5 $0.0 $0.5 $1.0 $1.5 2011 2012 2013 2014F 2015F North America$ Billions $0.0 $3.0 $6.0 $9.0 $12.0 $15.0 2011 2012 2013 2014F 2015F $11B $7B
  13. 13. ICF International | icfi.com ICF International 2015 12 AVIATION INDUSTRY HEALTH & GROWTH INDICATORS Current industry forecasts are based on $85/bbl given todays price, tremendous short-term upside exists $(40) $(20) $- $20 $40 $60 $80 $100 $120 $50 $55 $60 $65 $70 $75 $80 $85 $90 $95 $100 $105 $110 Profit($Billions) Crude Oil Cost per Barrel 2015 IATA Forecast: $25B industry profit based on $85/bbl 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
  14. 14. 13 ICF International 2015 MRO Market Forecast
  15. 15. ICF International | icfi.com ICF International 2015 14 Narrowbody Jet Widebody Jet Turboprop Regional Jet The current civil air transport fleet consists of over 27K aircraft MRO MARKET FORECAST Source: FlightGlobal ACAS September 2014 North America Asia Pacific Europe Latin America Middle East 2014 Global Air Transport Fleet 27,531 Aircraft 17% 50% 15% 18% 31% 26% 25% 8% 5% 5% By Aircraft Type By Global Region 27,531 Aircraft
  16. 16. ICF International | icfi.com ICF International 2015 15 The air transport fleet will grow at a 3.2% rate over the coming decade MRO MARKET FORECAST 0 5000 10000 15000 20000 25000 30000 35000 40000 2014 2024 Africa Middle East Latin America Europe Asia Pacific North America Commercial Fleet Growth 20142024 Source: ICF analysis, ACAS September 2014 27,500 31% 26% 37,900 ICF Insight Air travel growth of 4.0% Fuel costs in $80-100/bbl range 20,500 aircraft deliveries 8,624 aircraft retirements 26% 25% 8% 30% 24% 9% CAGR 3.2% Average 3.8% 2.7% 4.7% 1.4% 5.3% 4.8%
  17. 17. ICF International | icfi.com ICF International 2015 16 Engines Components Line Airframe Modifications 15% 17% 22% 40% 6% The current civil air transport MRO market is valued at $62.1 billion USD MRO MARKET FORECAST North America Asia Pacific Europe Middle East Latin America Africa 29% 27% 27% 7% 6% 4% 2014 Global MRO Demand $62.1B$62.1B By MRO Segment By Global Region Source: ICF analysis Forecast in 2014 $USD, exclusive of inflation
  18. 18. ICF International | icfi.com ICF International 2015 17 $60.7B $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 2014 2024 Modifications Heavy Airframe Line Components Engine The global MRO market is expected to grow to $90B by 2024, at 3.8% per annum MRO MARKET FORECAST Global MRO Spend 20142024 15% 17% 22% 40% 13% 17% 24% 38% 6% 8% Source: ICF analysis Forecast in 2014 $USD, exclusive of inflation ICF Insight Average growth is forecast to be 3.8% CAGR The strongest driver of growth isexpected to be the engine market Reduced labor intensity of airframe heavy checks as the fleetrenews and increased intervals...offsetin emerging marketsby increasing labor rates Aircraft upgrades (e.g. interiors, winglets) drive high modificationsgrowth 2.6% 3.7% 4.5% 3.5% 5.9% CAGR 3.8% Average $90B $62.1B
  19. 19. ICF International | icfi.com ICF International 2015 18 $0 $1 $2 $3 $4 $5 $6 $7 2014 2024 Turboprop Regional Jet Widebody Jet Narrowbody Jet The Latin American MRO market is expected to grow to approx. $5.9B by 2024, at 5.2% per annum MRO MARKET FORECAST Latin American MRO Spend 20142024 ($B) 2.8% 3.1% 7.0% 5.3% Source: ICF analysis Forecast in 2014 USD, exclusive of inflation. 10% 13% 17% 60% 8% 10% 21% 61% CAGR 5.2% Average $3.6B $5.9B ICF Insight Latin American MRO growth is driven by continued narrowbody aircraft deliveries Turboprop & Regional Jet aircraft will see a decrease in total share Widebody deliveries will remain stable
  20. 20. ICF International | icfi.com ICF International 2015 19 Over the next decade, Latin America will drive $2.3B in absolute MRO spend growth MRO MARKET FORECAST Difference in $ MRO Spend, 2024 vs. 2014 By Global RegionUS$ Billions Source: ICF analysis Forecast in 2014 $USD, exclusive of inflation $6.9 $5.4 $4.2 $2.6 $2.5 $2.3 $2.3 $1.8 $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 Asia/Pacific (excl China) China Middle East Eastern Europe (incl CIS) Western Europe Latin America North America AfricaAsia/Pacific (ecl. China) China Middle East
  21. 21. ICF International | icfi.com ICF International 2015 20 The top 7 Latin American airlines account for over 50% of the total MRO spend in the region LATAM 23% GOL 8% Aeromexico 5% Avianca 5% Aerolineas Argentinas 4% Azul 3% COPA 3% Other 49% $3.6B 2014 Latin American Operator MRO Spend By Major