© Oliver WymanAVIATION

David A. MarcontellGeneral Manager

CAVOK, a division of Oliver Wyman1003 Virginia Ave, Suite 300 | Atlanta, GA 30354Direct: +1 404 334 8040 | Mobile: +1 404 427 3079dmarcontell@cavokgroup.com | www.cavokgroup.com

MARCH 16, 2017

AVIATION MAINTENANCE INDUSTRYOUTLOOK & ECONOMIC IMPACT

1© Oliver Wyman

Peak

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F

Global Commercial Air Transport Industry Net Profitby Year

In the face of softening revenue and rising costs, North American operators are continuing to deliver the global commercial air transport industry’s strongest financial performance

Billions ofUS Dollars

Continued growth in revenue from ancillaries, widespread capacity discipline, and a lack of new entrants are helping the North American operators mitigate the impact of shifting economics

North America

Rest of World

2© Oliver Wyman

Crude Oil and Jet Fuel Spot Prices per Gallonby Year

Three years of record profits have allowed operators to invest heavily in the passenger experience and adopt new, more expensive labor contracts, which may be a possible source of turbulence in the near future amid a changing economic landscape as the oil market begins to recover from the glut

While some operators altered fleet plans over the past year due to the low cost of oil, OEM order books remain strong and new deliveries are occurring at record rates

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New gen narrowbody aircraft are more profitable than current gen

New gen widebody aircraft are more profitable than current gen

Brent Crude

WTI Crude

Jet Fuel

Cone of Uncertainty

US Dollars

3© Oliver Wyman

2017 Global MRO Market Forecastby MRO Segment

YOY Changes to the In-Service Fleetby Transaction Type

Over the past year, status changes to 3,792 aircraft have lead the global in-service fleet to experience a net growth of 828 aircraft, representing a 3.4% annual growth rate

Transferred to acommercial operator

3

Completed freighterconversion

30

Unknown prior exclusion6

Removed from storage630

New aircraft delivery1,641

Storage for conversioninto a freighter

(5)

Transferred to anon-commercial operator

(42)

Involved in an accident(34)

Formally retired(198)

Sent to storage(1,180)

2,310Aircraft Additions(1,482)

Aircraft Removals

3.4%

24,5402016 In-Service Fleet

25,3682017 In-Service Fleet

$12.8BLine

$13.1BComponent

$16.1BAirframe & Modifications

$25.7BEngine

Translating the fleet dynamics into MRO, the 2017 market is forecast to be $72.1B, with engine MRO continuing to be the driver of growth

4© Oliver Wyman

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Global MRO Market Forecastby Year

Global Fleet Forecastby Year

While the fleet continues to grow at a healthy rate, and the industry is still recording near historic net profits, uncertainties surrounding economic growth, interest rates, and oil could disrupt and hinder growth and stability of the global commercial air transport industry

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$72.1

$103.8

The fleet is forecast to increase by 10,133 aircraft over the next 10 years driving the $72.1B MRO market to go grow at 3.7% per year on average, topping out at $103.8B in 2027

Billions ofUS Dollars

5© Oliver Wyman

In North America, commercial air travel demand is weakening after several years of moderate growth

Fleet growth in the region will be limited as most new aircraft deliveries are slated to replace older, less fuel efficient aircraft

7,674

Fleet

2.5%

Traffic

4,564

Deliveries

4,084

Retirements

0.8% AVERAGE ANNUAL FLEET GROWTH

After two years of modest growth, demand for travel in the region is weakening. Operators will need to continue practicing capacity discipline to maintain

profitability

North American operators will account for 40% of all

retirements over the next 10 years. 46% of the region’s

retirements will be narrowbody aircraft.

North America will lead the world in both deliveries and retirements over the next 10 years; however, growth will be anemic. The region will add only 621 aircraft to the active in-service fleet in 10 years time.

Operators in North America are expected to take nearly one quarter of all deliveries over the next 10 years. The systematic elimination and replacement of older, less fuel efficient aircraft is expected to improve the bottom line of operators by reducing fuel and maintenance costs over the life of the aircraft

6© Oliver Wyman

2017-2027 North American MRO Market Shareby MRO Segment

2017-2027 North American MRO Market Forecastby MRO Segment

By 2027 55% of the North American commercial air transport fleet will have been delivered within the last 10 years, resulting in an MRO market forecast that is virtually flat, growing an anemic 1.0% per year on average

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1.1%-0.7%

2.7% 1.0%

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2017 '17-'22CAGR

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Airframe & Modifications

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The region will be heavily impacted by less intensive airframe maintenance and engine and component honeymoon periods accompanying new aircraft deliveries

7© Oliver Wyman

North American commercial operators generate $12.2B in airframe, engine, and component MRO demand while commercial MRO service providers in the region supply more than $13B in MRO services

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SupplyDemand Africa Asia Pacific China Eastern

Europe India Latin America Middle East North America

Western Europe

Africa $504 $76 NEGL $1 NEGL NEGL $19 $388 $1,270

Asia Pacific NEGL $4,833 $304 $2 NEGL $1 $19 $630 $2,266

China NEGL $1,513 $1,354 NEGL NEGL $25 $13 $441 $1,763

Eastern Europe NEGL $14 $36 $364 NEGL $3 $48 $265 $1,716

India NEGL $627 $3 NEGL $183 NEGL $14 $47 $531

Latin America NEGL $101 $140 NEGL NEGL $597 $44 $948 $1,444

Middle East $7 $439 NEGL $1 NEGL NEGL $778 $288 $2,404

North America $8 $891 $47 $7 NEGL $575 $30 $8,608 $2,078

Western Europe $10 $340 $91 $116 NEGL $11 $97 $1,420 $8,335

North American demand performed in other regions

($3.6B)30%

Rest of world demand performed in North America

$4.4B11%

North America is a net exporter of MRO services$0.8B

8© Oliver Wyman

MRO$21.3BParts

Mfg/Dist$22.9B

Part 145186,410

Part 12123,783

Parts Mfg/Dist67,199

US Civil Aviation Maintenance Industry Economic Activityby Firm Classification

US Civil Aviation Maintenance Industry Employmentby Firm Classification

In order to supply nearly $18B in commercial air transport MRO services, plus an additional $3-5B in business and general aviation MRO services, the US civil aviation maintenance industry employees more than 277,000 people

277,392 $44.1B

MRO service providers, across all aviation segments, employ nearly 76% of the total US civil aviation maintenance industry and generate over 48% of the industry’s economic activity

9© Oliver Wyman

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GU VI MP

US Civil Aviation Maintenance Industry Economic Activityby State/Territory

US Civil Aviation Maintenance Industry EmploymentBy State/Territory

California, Georgia, Texas, and Florida combined employ 40% of the total US civil aviation maintenance industry. California and Washington generate the most economic activity followed by Arizona, Texas, Connecticut, Georgia, Kansas, and Florida; together, these states generate 58% of the total economic activity.

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Billions ofUS Dollars

10© Oliver Wyman

What training should maintenance technician programs prioritize in order to keep up with changes in the industry?*

2017-2027 North American Fleet Developmentby Year

In 2003 the GAO found that FAA Part 147 Aviation Maintenance Technician Schools curriculum had not changed significantly in over 50 years. This is still true today, and as a result graduates are ill prepared to work on modern aircraft and require further training in today’s technology.

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Number of Aircraft

85%Proper Documentation of Work Performed and Next Steps

Inspection and Repair Techniques for composites

Troubleshooting of Avionics and Test Equipment

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75%

Moving the curriculum requirements out of CFR Part 147 and into the Master Operations Specifications will allow for faster changes to curricula for latest technologies, plus authorize distance learning, and vastly improve graduate preparedness

11© Oliver Wyman

We are in a period of increased turbulence and risk

FAAReauthorization

ImportTaxesBREXIT NAFTA

RenegotiationTurn Away from

GlobalizationTravel

Restrictions