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Transcript of Engine MRO Forecast & Industry Trends Regional Jet Widebody Jet Narrowbody Jet. Source: CAPA,...

  • Engine MRO Forecast &

    Industry Trends

    Jonathan M. Berger Managing Director November 6-8, 2018, Singapore

  • 1

    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 Advisory Airlines

    Aviation &

    Aerospace Investors

    Business &

    General Aviation

    Aerospace Manufacturers

    & Supply Chain MRO & Aftermarket Airports Specialty Projects

  • 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., Europe,

    China, Hong Kong, and Tokyo with additional associates worldwide

    COMPANY INTRODUCTION

    411 Fifth Avenue

    Suite 801

    New York, New York

    10016

    USA

    +1 212 256 8488 New.York@AltonAviation.com

    New York

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    China Overseas Plaza

    South Tower, Floor 11,

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    Chaoyang, Beijing 100020

    China

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    Hong Kong

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    Tokyo

    No. 1 Grants Row

    Lower Mount Street

    Dublin, Ireland

    +353 1 566 8933 Dublin@AltonAviation.com

    Dublin

  • 3

    TODAY’S AGENDA

    Global Fleet Dynamics & MRO Forecast

    “Revenge of the Engine PMA”

    New Engine Technologies on the Horizon

  • 4

    GLOBAL FLEET DYNAMICS & MRO FORECAST

  • Historically, fleet growth has been directly correlated to GDP…

    GLOBAL FLEET DYNAMICS & MRO FORECAST

    5Source: 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 growth GDP

    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

    GLOBAL FLEET DYNAMICS & MRO FORECAST

    6Source: Airbus Global Market Forecast 2016-2036, 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

    2 0

    Y e

    a r

    G ro

    w th

    R a te

    H o

    u s

    e h

    o ld

    s (

    m il

    li o

    n s

    )

    2016 2036 20 yr % growth

    Middle Class Growth by Region (2016 – 2036)

  • 7Source: CAPA, Alton analysis

    Record high OEM backlog continues to drive investor interest, joint

    venture, and M&A activity in MRO providers and OEM supply chain

    GLOBAL FLEET DYNAMICS & MRO FORECAST

    0

    500

    1,000

    1,500

    2,000

    2,500

    3,000

    3,500

    4,000

    10 Year Engine Backlog by OEM

    Other

    IAE

    Rolls-Royce

    Pratt & Whitney

    GE, CFM

    0

    500

    1,000

    1,500

    2,000

    2,500

    3,000

    3,500

    4,000

    4,500

    10 Year Aircraft Backlog by Region

    Turboprop

    Regional Jet

    Widebody Jet

    Narrowbody Jet

  • 8Source: CAPA, Alton analysis

    Over the past 25 years, the global fleet has grown at a rate of 4.9%, with

    narrowbody aircraft accounting for over 57% of today’s fleet

    GLOBAL FLEET DYNAMICS & MRO FORECAST

    0

    5,000

    10,000

    15,000

    20,000

    25,000

    30,000

    1993 1998 2003 2008 2013 2018

    Widebody Jet

    Turboprop

    Regional Jet

    Narrowbody Jet

    20%

    10%

    13%

    57%

    Global Fleet Count (1993 – 2018) Engines by Manufacturer (1993 – 2018)

    0

    10,000

    20,000

    30,000

    40,000

    50,000

    60,000

    70,000

    1993 1998 2003 2008 2013 2018

    Other

    IAE

    Rolls-Royce

    Pratt & Whitney

    GE, CFM

  • 9 Source: 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

    GLOBAL FLEET DYNAMICS & MRO 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%

    2,100 41%

    17%

    28%

    14%

    1,300

    39%

    7%

    3%

    51% 2,100

    Growing to 44,000 aircraft by 2028

    3.8% CAGR

    2028

    2018

  • 10Source: CAPA, Alton analysis

    0

    1,000

    2,000

    3,000

    4,000

    5,000

    Driven by narrowbody aircraft deliveries, the installed engine base in Asia-

    Pacific primarily consists of the CFM56-5/7 and V2500

    GLOBAL FLEET DYNAMICS & MRO FORECAST

    Installed Base by Engine Model (Asia-Pacific Region)

    0

    1,000

    2,000

    3,000

    4,000

    5,000

    6,000

    7,000

    8,000

    Installed Base by Country (Top 10 by Volume; Asia-Pacific Region)

    OTHER GEnx

    CF34 PW4000

    CF6 GE90

    Trent 700 PW100

    V2500 CFM56-5

    CFM56-7

    ~ 9,850 engines

    ~ 6x

  • 11Source: CAPA, Alton analysis

    There are already over 4,400 confirmed orders for the CFM LEAP & P&W

    Geared Turbo Fan (GTF) engines in the APAC region

    GLOBAL FLEET DYNAMICS & MRO FORECAST

    Alton Insight

    ▪ Both the CFM LEAP and P&W GTF are

    meeting fuel efficiency targets

    ▪ Given the recent Airbus / Bombardier

    venture, analysts predict a potential

    doubling of previous C Series/A220 order

    estimates (great news for P&W!)

    ▪ P&W has secured significant GTF MRO

    capacity in APAC via JVs with SAIEC (Eagle

    Services Asia in Singapore) and Air New

    Zealand (Christchurch Engine Center), IHI in

    Japan, and MTU Zuhai (China Southern JV)

    ▪ In APAC, GE plans to support the LEAP in

    its Singapore facility; MTU will also support

    the LEAP in its Zuhai, China facility

    $66B

    0

    200

    400

    600

    800

    1000

    1200

    10 Year Engine Count by Country (Top 10 Asia Pacific Countries by Volume)

    P&W GTF

    CFM LEAP

  • 12Source: 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%

    GLOBAL FLEET DYNAMICS & 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

  • 13

    REVENGE OF THE ENGINE PMA

  • 14

    Alton Insight

    ▪ From emissions, to noise, to time-

    on-wing & MTBR, the CFM56-5/7 and

    V2500 exceeded expectations on

    virtually every performance metric

    ▪ Many would argue the engines were

    too durable (shop visits driven by

    LLP, not EGT)

    ▪ Much to the delight of the MRO

    supply chain, the infamous shop

    visit “bow wave” has finally arrived,

    creating competition for shop visit

    slots