GLOBAL MRO FORECAST 2011-2021 MRO Europe

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Transcript of GLOBAL MRO FORECAST 2011-2021 MRO Europe

  • TEAMSAI2011 MRO Europe 2011 Conference

    The Global MRO Forecast 2011 - 2021

    Presented by:

    Chris Doan President & CEO, TeamSAI

    A Delicate Recovery

  • Lets start with the summary

    9/22/2011

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    TEAMSAI2011

    The

    Good News 2010 represented the bottom of the MRO business cycle

    The

    Challenge Aligning MRO business strategies for success with the new reality of a delicate recovery

    The

    Reality The business has changed forever

  • The airline & MRO business has become extremely sensitive to shocks

    4/18/2011 TEAMSAI2011

  • The global business cycle has a strong influence on MRO activity

    Long term traffic growth remains strong

    However, disruptions are becoming more frequent and pronounced

    In a global economy connected largely through air transport, isolated impacts have far-ranging effects

    Air transport remains the single largest driver of MRO demand

    9/22/2011

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    Source: Air Transport Association (ATA), USDA Economic Research Service

    But the business is forever changed

  • Airlines have refined the art of capacity management

    2010 marked a notable leveling of capacity

    ASMs declined 1% in 2010

    Mostly long-haul WB traffic

    But the 1% decline in capacity has taken a dramatic toll on the associated MRO

    2010s MRO market was down 7.5%

    Airlines are now poised to adjust more rapidly to future changes in demand than they may have in the past

    9/22/2011

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    Source: Ascend, BACK, TeamSAI

    MRO is susceptible to short-term fluctuation

    -7.5%

    -1.0%

  • Oil price is no longer the wild card its volatility is the new reality

    Oil prices returned to over $100/bbl in the last few months

    Fuel now represents about 30% of operating cost

    With few exceptions, airlines cannot control this cost

    Oil forecast raised from $96 to $110/b in three months

    Average for the year is now expected to be higher than 2008

    2012 is forecast for $100/b

    Increasing percent of income

    Cost will remain a singular focus by airlines

    9/22/2011

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    Source: IATA

    MROs can expect additional pressure from airlines as fuel prices rise

  • Global fleet growth projections show wide variations

    While N America and W Europe have the largest fleets and MRO markets, the growth areas lie in emerging regions

    India, China, E. Europe

    While these emerging regions are growing fast, their overall size represents just fraction of the total market

    Nevertheless, the fleet forecast clearly indicates a shift to the east which is expected to drive a level of parity when combining

    The Americas Europe (Western & Eastern) Asia, including China & India

    4/18/2011

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    Global recovery is forecast to be segmented with emerging markets leading the way

    Note: bubble size indicates populationSource: Ascend, Economic Research Service/USDA

  • Average HMV and line maintenance costs have dropped significantly

    $0.3

    $0.4

    $0.5

    $0.6

    2006 2007 2008 2009 2010 2011

    Mill

    ion

    s

    Average MRO Cost per Aircraft

    HMV Line

    777 upwards of 50% less than 767

    HMV frequencies moving from 4-6 to 8-12 years

    A350 and 787 promising further improvement

    9/22/2011

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    Source: TeamSAI

    Airframe OEMs have leveraged technology to reduce MRO costs

  • While engine maintenance costs have not followed that trend

    $0.3

    $0.4

    $0.5

    $0.6

    2006 2007 2008 2009 2010 2011

    Mill

    ion

    s

    Average Cost per Engine

    Engine cost per hour continues to climb with each passing year

    Fleet rationalization (2008-2010) helped to curtail average total spend per engine

    However, total operating costs are coming down when considering the improvement in fuel consumption on newer engine types

    9/22/2011

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    Source: TeamSAI

  • Engine OEMs lead the way in successfully capturing the value of the aftermarket stream

    9/22/2011

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    Mid 1990s, engine OEMs embarked on strategy to capture the total maintenance value as part of their product life cycle

    History

    Control material prices which is significant portion of mx costs Control intellectual property

    Approach

    Provide predictable costs (PBTH) Remove asset ownership cost of spare parts Offer expertise that operators cannot easily maintain on their own Provide single source for all maintenance needs Spread the investment in exotic tooling over a larger base Manage the complexity

    Value Proposition

    Component and airframe OEMs have adopted similar models Component and airframe OEMs have developed less maintenance-intensive

    equipment which they control closely Labor arbitrage applies pressure to 3rd party / airline MROs

    Todays Reality for the 3rd Party/ Airline MRO

    If you arent an OEM MRO, you need a strategy to align yourself to deliver maximum value and stable costs to the customer over the long term

  • 2010 TeamSAI, Inc.

    MRO Forecast by the Numbers

    2011 - 2021

  • Long term fleet growth still looks solid

    Population growth and the growing middle class is what is driving our long term forecast

    Fleet growth forecast at 3.5% CAGR to 28,591 in 10 years

    ASM growth will increase at 5.3% CAGR over same period Unit a/c utilization rates remain high Larger aircraft, more seats Longer routes

    Through August 2011, fleet growth seems to be nearly on pace for the year Fleet currently stands at 20,617, up 2.0% for the year thus far Compare to a 2011-21 CAGR forecast of 3.0% in Jan 2011 NA fleet continues to contract though

    2.7% CAGR

    3.5% CAGR

    2010 19,675

    2011 20,203

    2021 28,591

    9/22/2011

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  • MRO industry outlook has continued to shift to the right

    In 2011, global MRO spend will be up 10.8% over 2010, to $46.9B

    Global growth is expected to maintain a 3.9% CAGR through 2021

    $46.9B industry will grow to $69.0B over 10-year forecast period

    2011 up 10.8% from 2010

    Engine remains largest segment with the highest growth rate

    9/22/2011

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  • Europes growth will has been solid with the East leading the way

    Overall, Europe can expect ~4% growth over the next 5 to 10 years

    Western Europe, as a mature region will experience ~3% growth

    YTD, fleet growth has been slightly stronger than expected WE has returned to fleet growth after a decline in 2010

    Eastern Europe is amongst the fastest growth regions worldwide

    Relatively smaller than its next door neighbor, though it is forecast to gain 8-9% of the overall share by 2021

    YTD, fleet growth is very healthy; on pace to break 1000 aircraft threshold by the end of the year

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    CAGR

    Fleet WE EE Total

    2011 2.7% 9.9% 4.1%

    2016 3.2% 6.9% 4.1%

    2021 2.9% 8.4% 4.1%

    Total MRO ($M)WE EE Total

    2011 3.2% 9.3% 4.3%

    2016 3.2% 7.5% 4.1%

    2021 3.2% 8.4% 4.2%

    9/22/2011

  • MRO movement in the European and Middle East region

    Western Europe, with its established infrastructure (especially in engines), takes in more work than it exports to Eastern Europe or the Middle East

    9/22/2011

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    EE ME

    WE

    8%

    31%

    4% 61%

    1%

    4%

    Airframe

    EE ME

    WE

    1%

    28%

    0%

    88%

    0%

    0%

    Engine

  • But growth varies considerably region to region

    Middle class growth (represented by GDPPC) is driving demand for air travel (among all other things) which drives MRO demand

    Red-to-green gradient in GDPPC aligns well with the forecast MRO growth

    9/22/2011

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    SAIRegion GDPPC GDP Pop

    North America 1.8% 2.6% 0.8%

    Western Europe 1.6% 1.9% 0.4%

    Africa 2.5% 4.7% 2.2%

    Asia Pacific 1.6% 2.7% 1.1%

    Middle East 2.7% 4.3% 1.6%

    Latin America & Caribbean 3.3% 4.4% 1.0%

    Eastern Europe 4.2% 3.8% -0.4%

    China 7.6% 8.0% 0.4%

    India 7.3% 8.6% 1.2%

    2011-2021 CAGR

    Note: Regions are ordered by forecast MRO growth rate.

    GDPPC, GDP, and Pop are ordered according to the MRO growth.

    Red, Yellow, Green indicates relative order within GDPPC, GDP, and Pop GDPPC = Gross Domestic Product per Capita

    GPD = Gross Domestic Product

    Pop = Population

  • TEAMSAI2010 9/22/2011

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    Looking at the regions combined show relative parity in ten years time

    $0.0

    $5.0

    $10.0

    $15.0

    $20.0

    $25.0

    Americas Europe Asia Middle East Africa

    2011 2021

    Americas Europe Asia Middle East Africa

    Market ($B) (2011) $17.0 $13.7 $11.6 $3.1 $1.5

    Mkt Share (2011)

    36% 29% 25% 7% 3%

    Note: Americas = North America and Latin America & the Caribbean Europe = Western and Eastern Europe; Asia = Asia Pacific, China, and India

    CAGR (2011-21)

    2.4% 4.7% 6.8% 5.3% 3.5%

    Mkt Share (2021)

    29% 30% 30% 7% 3%

  • In Summary