Global Military Aircraft MRO Forecast

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Transcript of Global Military Aircraft MRO Forecast

  • ICF International | icfi.com

    Military Aircraft MRO ForecastA BRIDGE OVER TROUBLED WATERSA BRIDGE OVER TROUBLED WATERS

    Presented by:

    Michael Howard Principal, ICF SH&E

  • ICF International | icfi.com 1

    Todays Agenda

    MRO MILITARY~ April 7-10 ~

    2014Phoenix, AZ

    MRO MILITARY~ April 7-10 ~

    2014Phoenix, AZ

    Key Market Trends

    US Defense Budget Outlook

    Global Market Forecast

  • ICF International | icfi.com

    ICF SH&E is one of the most experienced global aviation and aerospace consultancies

    50yearsinbusiness(founded1963) 85professionalstaff

    Dedicatedexclusivelytoaerospaceandaviation Recruitedfromtheindustry

    Specialized,focusedexpertiseandproprietaryknowledge Broadfunctionalcapabilities Morethan8,000privatesectorandpublicsectorassignments BackedbyparentcompanyICFInternational($937Mrevenue) Globalpresence sevenmajoroffices

    Airports Airlines Aerospace & MRO Asset Advisory Safety / SecurityAirports Airlines Aerospace & MRO Asset Advisory Safety / Security

    NewYork Boston AnnArbor London Singapore Beijing HongKong

    joined ICF in 2012

    joined ICF in 2011

    joined ICF in 2007

  • ICF International | icfi.com 3

    Key Market Trends

  • ICF International | icfi.com

    Field

    Airframe

    Component

    NorthAmerica

    Europe

    AsiaPacificMiddleEast

    Africa

    LatinAmerica

    48%

    22%

    16%

    3%4%

    8%

    2013 MRO By Region 2013 MRO By Activity

    Source: ICF Analysis

    KEYMARKETTRENDS

    Total $60.7B

    WorldwidemilitaryMROspendwasnearly$61Bin2013

    18%

    52%

    16%

    14%Engine

  • ICF International | icfi.com

    TherearethreekeytrendsimpactingmilitaryMROtodayKEYMARKETTRENDS

    Fleet Renewal

    Global Military MRO

    Global Military MRO

    Shifting Buying Behavior

    Political uncertainty

  • ICF International | icfi.com

    11,000deliveriesareexpectedoverthenextdecadeand75%willbeforreplacement

    KEYMARKETTRENDS

    75% of all new deliveries will be to replace retiring aircraft such as the JSF for the F-16

    Another 800 potential deliveries exist for programs not currently identified

    0

    200

    400

    600

    800

    1000

    1200

    1400

    2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

    Military Aircraft Deliveries2013-2022

    Replacement

    Growth

    Potential New Programs

    Source: ICF Analysis

  • ICF International | icfi.com

    OverhalfoftheretirementswillcomefromlargeexistingfleetssuchastheF16andS70

    KEYMARKETTRENDS

    Aircraft Family2013

    Installed Fleet

    Total Retirements (2013-2022)

    % of Installed

    Base

    F-16 2968 683 23%S-70 3306 480 15%UH-1 1524 461 30%F-4 330 330 100%F-5 720 380 53%F-18 1509 373 25%AH-64 1121 331 30%OH-58 819 259 32%CH-47 933 258 28%MIG-21 766 239 31%

    Top 10 Retirements2013-2022

    Majority of retirements are focused on large installed base fleets such as F-16 and S-70

    This creates the potential for surplus material to cannibalize sales of new material

    Also, reduces the MRO activity by retiring more maintenance-intensive aircraft

    Source: ICF Analysis

  • ICF International | icfi.com

    Fleetrenewalhasthreemajorimplicationsforindustry

    KEYMARKETTRENDS

    Countries can change their sustainment strategy with new platforms

    Likely to create opportunities for industry

    New Maintenance

    Strategies

    New Maintenance

    Strategies

    Retirements of aircraft with large installed bases means more excess material on the market

    Could impact spare parts sales

    More Surplus Material

    More Surplus Material

    Retirements of F-16s and S-70s opens up possibility of new markets for non-JSF customers

    Creates opportunities for industry to support

    Potential Tertiary Market

    Potential Tertiary Market

    Source: ICF Analysis

  • ICF International | icfi.com

    KEYMARKETTRENDS

    In2009and2013,ICFSH&Econductedanextensivesurveyofmilitarysustainmentpractices

    SecondaryResearch PrimaryResearch ReportSynthesis

    Useofpubliclyavailabledatabases

    CompanywebsitesandInvestorFilings

    MajordefenserelatedperiodicalsandNewsletters

    Extensiveinterviewprogramwhichincludedalmost300interviews Nearly100sustainment

    suppliers Over100Government/

    MilitaryRepresentatives Nearly50OEMs 40localexperts

    Fortyofthefiftysevencountrieswerevisited

    Additionalinformationalinterviewswereconductedbyphonetocloseinformationgaps

    Ateamof10consultantswasutilizedtodevelopthecountryprofiles

    Eachprofilesummarizes: CountryGeopoliticalIssues CurrentMilitaryFleet MajorSustainment

    Installations Detailedsustainmentstrategy

    foreachaircrafttype

    Analysisofnewprocurementsandsustainmentopportunities

    Sixfinalreportstotaling1500pagesandfiftysevencountryprofileswereproduced

    Source: ICF Analysis

  • ICF International | icfi.com

    Themilitaryoperatorhasacceleratedoutsourcingoverthepast4years

    KEYMARKETTRENDS

    2009 Sustainment Supply

    Organic, 65%

    Outsourced, 35%

    A 10% increase in outsourced activity for airframe, component, and engine depot maintenance; an almost $3B change in industry revenue

    Reflects the dynamic shift that occurred in the market as a result of the financial crisis

    Organic, 55%

    Outsourced, 45%

    2013 Sustainment Supply

  • ICF International | icfi.com

    AndareincreasinglyusingPBL contractsasthemethodforoutsourcing

    KEYMARKETTRENDS

    2009 Sustainment Supply

    Transactional, 75%

    Performance Based, 25%

    Of the outsourced activity, only 25% was under a PBL in 2009

    In 2013 that has shifted to about 35% of the outsourced activity

    However, the majority of these PBLs tend to be material or supply chain PBLs which focus on inventory management and availability as opposed to labor

    2013 Sustainment Supply

    Transactional, 65%

    Performance Based, 35%

  • ICF International | icfi.com

    Militariesarelookingforwaytoensurebestvaluefortheirsustainmentdollar

    KEYMARKETTRENDS

    Countries are looking to industry to provide best-in-class capability

    Limited outsourcing of labor-intensive workOutsourcingOutsourcing

    Long term contracts incentivize suppliers to improve reliability

    Predictable costs allow militaries to best plan operations

    Use Of Performance

    Based Contracts

    Use Of Performance

    Based Contracts

  • ICF International | icfi.com

    KEYMARKETTRENDS

    Changingpoliticsanddecliningbudgetsaredrivingmilitariestorationalizetheirforce

    PoliticalUnrest

    Russia,N.Korea,Iran,andSyriaallhavethepotentialtoquicklybecomehotspotsthatrequireinterventionfromtheU.S.andNATOpartners

    Ataminimum,tensionintheseregionswillrequireanactiveforceinregionasadeterrent

    BudgetDichotomy

    BudgetsinN.AmericaandEuropecontinuetobeinfreefall

    Budgetsinemergingeconomiesappeartogrowing,particularlyinAsiaandRussia

    Bottomline:NATOpartnersfaceachallengebetweensupportingcurrentweaponssystemsandfieldingnewones

  • ICF International | icfi.com 14

    U.S.budgethasstabilized,butgrowthisslowKEYMARKETTRENDS

    Spain devotes less than 1% of GDP to military spending in 2012

    Given the general cuts in spending in Europe, militaries will have to converge requirements to maintain capability readiness

    Russia to boost defense spending 59% by 2015

    Country Defense Budget

    Russia 25.8%

    Poland 20.4%

    Germany 2.1%

    France 0.0%

    UK -1.0%

    c

    Sou

    rce:

    Nat

    iona

    l Def

    ense

    Bud

    gets

    Budget growth is rapid in Asia with a major emphasis on new weapons systems

    Japan passed law to allow export of defense items

    Indian Air Force inked deal with Dassault for $30B for Rafale

    Country DefenseBudget

    India +15.8%

    China +13.2%

    S. Korea +7.8%PB is now in line with BCA Over the next 10 years, the growth in the defense budget will slow, but the fact of the matter is this: It will still grow, because we have global responsibilities that demand our leadership. In fact, the defense budget will still be larger than it was toward the end of the Bush administration.

    - US President Barack Obama

    Country Defense Budget

    USA ~ 2.0%

  • ICF International | icfi.com 15

    US Defense Budget

  • ICF International | icfi.com

    U.S.DefenseBudgetasbeenreducedsignificantlyasaresultoftheBudgetControlActof2011

    Forecast CAGR 2012-2017 = 0.1%

    Defense Budget Forecast

    2015 Defense Budget Breakdown

    All Values In Real U.S. Dollars

    USDEFENSEBUDGET

    Source: ICF SH&E, Market Interviews

    $0

    $100

    $200

    $300

    $400

    $500

    $600

    DefenseBudget 2012

    O&M Sustainment AircraftSustainment

    Bill

    ions

    $0$100$200$300$400$500$600$700

    2012a 2013a 2014a 2015f 2016f 2017f

    Bill

    ions

    Base Budget OCO Budget Sequester

    Base budget reflects the FY2015 Presidential Budget request

    OCO spending assumes an approved request of ~$45B for 2015 and then an annual reduction of ~$20B to a 2017 budget of 0

    Sequester budget is based on the annual spending limit and $54.7B spending reduction as determined by the Budget Control Act of 2011

    Key Assumptions:

  • ICF International | icfi.com

    PresidentsFY2015BudgetRequestisflatwith2014,butadds$6BforO&M

    USDEFENSEBUDGET