GLOBAL MRO FORECAST 2011-2021

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Transcript of GLOBAL MRO FORECAST 2011-2021

  • TEAMSAI2011MRO Americas 2011 Conference

    The Global MRO Forecast 2011 - 2021

    Presented by:

    Dave MarcontellPresident, TeamSAI M&E Solutions

    A Delicate Recovery

  • Lets start with the summary

    4/12/2011

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    TEAMSAI2011

    The

    Good News 2010 represented the bottom of the MRO business cycle

    The

    ChallengeAligning 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

    4/12/2011 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

    4/12/2011

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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

    4/12/2011

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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

    Cost will remain a singular focus by airlines

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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

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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

    4/12/2011

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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

    4/12/2011

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    Source: TeamSAI

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

    4/12/2011

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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

    ValueProposition

    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 Realityfor the3rd 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

  • First a review of the MRO rebound for 2011

    Global MRO spend will be up 10.8% in 2011, to $46.9B

    The drivers of the change are important to understand Fleet change alone drives a 3.2%

    increase, due to fleet renewal

    Utilization increase drives market up a small amount (utilization up 1.5% for the year driving 0.4% for market)

    Component increases outpacedeclines to airframe and line for asmall net increase of 1.0%

    Engine MRO drives a significant6.4% increase

    And last, labor rates have easeddown ever so slightly

    4/12/2011

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    Fleet 2010 + Deliveries - Retirements - Stored Fleet 2011

    19,675 + 1,076 - 396 - 152 20,203

    The recovery has starteddelicate though it may be

  • 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

    2.7%CAGR

    3.5%CAGR

    201019,675

    201120,203

    202128,591

    4/12/2011

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  • MRO industry outlook has continued shift to the right

    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

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  • TEAMSAI20104/12/2011

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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 CaribbeanEurope = 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%

  • Mid-term growth in North America will be slow

    Limited aircraft are slated for NA operators

    Only NB fleet is expected to grow in next 5 years

    WB and RJ fleet to contract (RJ contraction continues through 2021)

    Negative 0.3% CAGR from 2011 to 2016 overall Then a positive 1.4% CAGR from 2016-2021

    Operators are unlikely to bring back most parked aircraft

    Economic recovery is giving airlines confidence to make longer term plans

    Supply of hangar and engine slots is tightening But rising oil prices could erase positive impact

    of capacity discipline

    4/12/2011

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    North Americas MRO growth is limited by low fleet growth

    Regional MRO North America

    Billions 2011 2016 2021

    # Aircraft 7,130 7,028 7,529

    ASM (M) 1,073,977 1,209,355 1,388,362

    Line Mtce $2.6 $2.6 $2.8

    Components $2.8 $2.8 $3.1

    Engines $6.5 $6.9 $7.6

    HMV& Mods $3.0 $3.0 $3.1

    Total MRO $14.9 $15.3 $16.5

  • 2010 TeamSAI, Inc.

    In Summary

  • Business expectations are changing rapidly

    Relationship Based Performance Based

    Inventory Tolerant Inventory Intolerant

    Asset Utilization Not a Focus Turn-Around Time Prioritized

    Little Accountability Accountability for Results

    Limited Competitive Threat Global Competition

    Metal & Mechanical Composites & Electronic

    Western Focused Eastern Focused

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  • Business strategies must recognize the changing conditions

    When the world is stable and the customer is expanding, creating a sustaining business if reasonably predictable

    But when instability disrupts the status quo, profitability becomes very challenging and calls for adjustments in strategy

    Growth in the airline business will continue to generate new MRO demands The good life of 2007 is gone forever and the business is changing rapidly

    Cost and performance pressures will continue to intensify

    Demand may be more erratic as airlines quickly adjust capacity for disruptive conditions

    The MRO business challenge remains the same: Create value for the airline customer

    Grow the business and thrive despite the changeable input from airline operators

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