www.reyyandemir.com April 2, 2014 www.reyyandemir.com

AVIATION INDUSTRY MRO TRENDS SUMMARY Q1-2014

-4

-2

0

2

4

6

8

10

Real GDP growth (Annual percent change)

Advanced Economies

Emerging market and developingeconomies

Global economic indicators show improvement… «Developing-country growth is firming, thanks to the recovery in high-income

economies as well as moderating, but still strong, growth in China.»

Source: IMF and World Bank DATABASE reyyandemir.com 2

0

5000

10000

15000

20000

25000

30000

35000

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

Nominal GDP (Billions of U.S. dollars)

The Euro area is out of recession…

«The economies of the Middle East and North Africa region remain depressed.»

Africa

N.America

Middle East

Asia Pasific

Europe

S.America

Source: IMF and World bank DATABASE reyyandemir.com 3

The size of aviation GDP footprint depends on country’s economic development (GPD per capita)… Aviation and Tourism GDP

Source : http://www.benefitsofaviation.aero/Pages/default.aspx reyyandemir.com 4

0

0,5

1

1,5

2

2,5

3

Bill

ion

s

Global Air Transport Passenger Carried

1980-2012

Passenger travel demand increased 396 % from 1981 to 2012…

«It is expected to increase %5 over next 20 years, contributing the increases in aircraft production.»

Source: http://databank.worldbank.org/data/views/reports/tableview.aspx and http://www.boeing.com/assets/pdf/commercial/cmo/pdf/Boeing_Current_Market_Outlook_2013.pdf reyyandemir.com 5

Source:http://www.iata.org/publications/economics/fuel-monitor/Pages/price-development.aspx

Fuel costs, as an percentage of total operating costs of airlines have risen from an average of 13.6 % in 2001 to 31 % in 2013.

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«Crude oil is expected to remain stable around $100/bbl in 2014 and 2015. Jet fuel is expected to average almost $125/bbl in 2014 (IATA)»

The investments in next-gen fuel efficient aircraft become very attractive for airlines operators.

reyyandemir.com

1

71

14 12 20

118

-10

44

14 12 20

80

-20

0

20

40

60

80

100

120

140

A319 A320 A321 A350-900 A380 TOTAL

Airbus Orders

2014 Gross Orders

2014 Net Orders 183

1 4 1

189 171

1 4 1

177

0

20

40

60

80

100

120

140

160

180

200

B737 B747 B777 B787 Total

Boeing Orders

2014 Gross Orders

2014 Net Orders

7 Source:Boeing and Airbus

«New technology fleet including A380, 747-8, 787, A350, A230NEO, 737MAX and 777X will grow significantly over the next decade.»

The “new technology” fleet grows hugely with significant implications for MRO suppliers.

«The current civil air transport fleet is more than of 26,000 aircraft.»

Regional Jet 17%

Turboprop 15%

Widebody jet

18%

Narrow body jet

50%

Source: FlightGlobal ACAS September 2013 Source:TeamSAU

Regional Jet 17%

Turboprop 15%

Widebody jet

18%

Narrow body jet

50%

Total :32,900 by 2024

«In 2024, the fleet will grow to 32,900 , 3.6% CAGR growth rate expected.»

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New aircraft will increase airline revenue by

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«Promising ~%15 better fuel burn rate, lower potential carbon emissions costs and maintenance.»

Source:Penton

Global Air Transport Fleet Growth 2013–2023 by - Region

Source: FlightGlobal ACAS September 2013

0

2000

4000

6000

8000

North America

0

2000

4000

6000

8000

Europe

0

2000

4000

6000

8000

Middle East &Africa

0

2000

4000

6000

8000

Latin America

0

2000

4000

6000

8000

Asia Pacific

0

2000

4000

6000

8000

China & India

2013 2018 2023 «Middle East fleet growth is the fastest of all world regions – at 5.6% CAGR through to 2023»

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Air Transport Retirements 2014 – 2023

A320 Family 24%

737 Classic 14%

767 9%

CRJ-200 9%

737NG 8%

MD-800 8%

ERJ-135 8%

Others 20%

«45-50% of new aircraft deliveries in the next 20 years will be for aircraft replacements.»

Source: FlightGlobal ACAS September 2013 reyyandemir.com 11

Airline Operating Cost Structure

Typical Airline Cost Breakdown

Fuel 35%

Labor& Benefits

28%

Depreciation 5%

Aircraft Rent 3%

Others 14%

Line 3%

Components 3%

Engines; 6%

Modifications 1%

Airframe 2%

Source: ICF SH&E Analysis

Typical Airline’s MRO Cost Breakdown

Maintenance 16%

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Line 20%

Components 26%

Engines 47%

Modifications 7%

2013 Global MRO Demand by– MRO Segment

Source: ICF SH&E Analysis

«The current air transport MRO market is

$60.7 billion.»

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«Engine & Component MRO are the largest

segments of the market.»

2013 Global MRO Spend by– MRO Segment

Source: ICF SH&E Analysis

The Global MRO market is expected to grow to $89B by 2023,

at 3.9% per annum.

10 15

13 20

24

36 4

6

9

12

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2013 2023

Line Components Engines Modifications Heavy Airframe

MRO Market $60,9B by 2013

MRO Market $80,9B by 2023

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Engine Overhaul shows the strongest growth followed by Component MRO.

Difference in $ MRO Spend, 2023 vs. 2013 – By Global Region

MRO spend growth will driven by Asia Pacific and Middle East more than $13B.

Source: ICF SH&E

2,9

$0

$2

$4

$6

$8

North America

4,9

$0

$2

$4

$6

$8

Europe

6,4

$0

$2

$4

$6

$8

Middle East &Africa

2,8

$0

$2

$4

$6

$8

Latin America

7,1

$0

$2

$4

$6

$8

Asia Pacific

3,9

$0

$2

$4

$6

$8

China

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Aviation Industry Summary

More than 1,400 new aircraft will be delivered through 2023

As lon as fuel and component prices continue on their present trajectories, younger aircraft are going straight to part-out.

Safety, fuel and technology will accelerate the need for MROs to build

new capabilities

Airbus and Boeing will preserve “The Duopoly” in the market

Aircraft Retirement New MRO Capabilities

OEM Duopoly New Aircraft Deliveries

reyyandemir.com 16 Source: Aviation week

MRO Trends Summary

Air Transport Surplus Parts Market is ~$3 billion. centers in growth regions Parting-out will

accelerate . Further component OEM licensed service .

Aircraft OEMs are fast becoming major MRO players threating to independent MROs.

Next-Gen aircraft introduction resulting barriers to MRO entry.

Operators having larger, with better bargaining power over MRO costs.

MRO market consolidation expectations in the next years.

New partnerships with OEMs

More focus around flexibility and speed

Surplus Effect New Strategies OEM & Airline

reyyandemir.com 17 Source: Aviation week, TeamSAI, ICF SH&E

Thanks for your time. Feel free to contact me if you have any question.

reyyandemir.com 18

www.reyyandemir.com

reyyandemir@gmail.com +90 - 535 - 2346818

@reyyan_demir