Global MRO Market Forecast by 2020

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  1. 1. TheGlobalMROForecastTheGlobalMROForecast 20102010 20202020 Presentedby: DavidA.Marcontell President&COO,M&ESolutions 2010 TeamSAI,Inc.MROEurope2010Conference UporDown?WhatUporDown?WhatsNext?sNext?
  2. 2. TEAMSAI201010/8/2010 1 TeamSAI Strategic&TacticalConsulting Airline,MRO,Corporate& AirportManagement Process&Performance Improvements AcceleratedChange Partnerswiththe AviationWeekGroup GlobalMROForecasting MROProspectorData Industry LeadingMarketResearch CustomizedOnGoing AirlineSupport TechnicalServices MaintenanceManagement TechnicalProcurement www.teamsai.com
  3. 3. TEAMSAI201010/8/2010 2 SignsofRecoverySurfaceItWontBeEasyorImmediate Thestormseemstobeclearing slowly! Airlineindustry expectsstrong recovery Airlineindustry expectsstrong recovery Source:TheNewNation(9/14/10) IATA:Passenger numberscontinue torisebutpost recessionrebound maybeslowing IATA:Passenger numberscontinue torisebutpost recessionrebound maybeslowing Source:ATWDailyNews(8/17/10) Airlinesaresoaring, butaircraftservices getleftbehind Airlinesaresoaring, butaircraftservices getleftbehind Source:MarketWatch(8/13/10)
  4. 4. TEAMSAI201010/8/2010 3 GlobalMROspendwillbedown7.5%in2010,to$42B Thedriversofthechangeare importanttounderstand Fleetchangealonedrivesa4.2% drop,duetocapacityreduction Utilizationdropdrivesmarket downfurther(down9% fortheyear) Airframe,component,andline costshavefallenbringingthe marketdownanother1.4% EngineMROdrivesa1.6% increase Andlast,laborrateshave easeddowneversoslightly FirstaReviewoftheMRODriversfor2010 newdeliveries=$1,833M +1,128a/c stored/retired=$(3,751M) 783a/c Fleet2009 +Deliveries Retirements Stored Fleet2010 19,330 +1,128 399 384 19,675
  5. 5. TEAMSAI201010/8/2010 4 NewAircraftTypesEffectingMRO Whiletheworldfleethascontinuedtogrow,newer,lessmaintenanceintensive aircraftareshowingtheirinfluence Thecontributionoftheoldervintages hasbeenindeclineasretirementshave accelerated Andtheyoungervintageaircrafthave significantlylowerunitcosts Injust2years timetherehasbeen asignificantshiftintheshareofthe youngervintagefleets Asaresult,theaverageMROcost peraircraftperyearhasfallen 2008 $2.4M 2010 $2.1M 2010shouldbethetippingpointasfleet sizeandutilizationincreasetomeetdemand
  6. 6. TEAMSAI201010/8/2010 5 GrowthWillReturnbutNotTillLaterintheForecastPeriod 7.5% +4.4% Itwouldbefoolishtothinkthatanotherdowncycleisnotpossible
  7. 7. TEAMSAI201010/8/2010 6 Populationgrowthandtheburgeoningmiddleclassiswhatisdrivingourlong termforecast Fleetgrowthforecastat3.3%CAGRto27,303in10years ASMgrowthwillincreaseat5.1%CAGRoversameperiod Unita/cutilizationratesremainhigh Largeraircraft%moreseats Longerroutes LongTermFleetGrowthLooksSolid
  8. 8. TEAMSAI201010/8/2010 7 MROIndustryOutlookhasContinuedShifttotheRight Globalgrowthisexpectedtomaintaina 4.4%CAGRthrough2020 $42.3Bindustrywillgrowto$65.3Bover 10yearforecastperiod 2010down7.5%from2009 Engineremainslargestsegment
  9. 9. TEAMSAI201010/8/2010 8 AP CH IN ME LA&C EE $6.6 $2.4 $0.6 $2.4 $1.9 $1.8 16% 6% 1% 6% 5% 4% 5.3% 9.6% 9.4% 5.3% 6.6% 9.8% NA WE AF Market($B) (2010) $13.9 $11.0 $1.5 MktShare (2010) 33% 26% 4% CAGR (201020) 1.6% 3.6% 3.5% E.EuropeisExpectedtoRecoverMoreQuicklythantheRestofthe World,whileW.EuropeLeadstheWayforSlowerGrowthRegions
  10. 10. TEAMSAI201010/8/2010 9 LookingattheRegionsCombinedShowRelativeParityinTenYearsTime Americas Europe West|East Asia MiddleEast Africa Market($B) (2010) $15.8 $12.9 $11.0|$1.9 $9.7 $2.4 $1.5 MktShare (2010) 37% 30% 26%|4% 23% 6% 4% Note:Americas=NorthAmericaandLatinAmerica&theCaribbean Europe=WesternandEasternEurope Asia=AsiaPacific,China,andIndia CAGR (201020) 2.4% 4.7% 3.6%|9.8% 6.8% 5.3% 3.5% MktShare (2020) 31% 31% 24%|7% 29% 6% 3%
  11. 11. TEAMSAI201010/8/2010 10 MidtermGrowthinEuropewillbeSlowerthanLongTermbutSolid EUaircraftgrowthissolid Combined,allfleetclasses expectedtogrowinnext 5and10years CAGRacceleratesgrowthin secondhalf WERJsindecline,butmore thanbalancedbyEERJs Operatorsareunlikelytobringback someparkedaircraft Inactivefleethasfallenby273whilestored fleethasgrownby100suggesting continuedretirements Despitetightenedcapacityandahigher levelofdiscipline,concernsremainthat expectedfleetgrowthcouldoutpace demandattheexpenseofprofitability EUmarketgrowthlargelymirrors changeinfleet NBMROmakesuplargestshare,butWB MROinWEenjoyssignificantlylargershare EuropesMROshouldbenefitfrommoderatefleetgrowth Regional MRO Western Europe Eastern Europe Europe Billions 2010 2015 2020 2010 2015 2020 2010 2015 2020 # Aircraft 4,278 4,631 5,525 797 1,275 1,940 5,075 5,906 7,465 ASM (M) 880,941 1,078,810 1,323,225 125,976 211,988 328,764 1,006,917 1,290,798 1,651,990 HMV& Mods $2.4 $2.8 $3.6 $0.5 $0.7 $1.1 $2.9 $3.5 $4.8 Engines $4.2 $4.7 $5.4 $0.6 $1.0 $1.5 $4.8 $5.7 $6.9 Components $2.2 $2.7 $3.5 $0.4 $0.7 $1.1 $2.6 $3.4 $4.5 Line Mtce $2.2 $2.5 $3.2 $0.4 $0.6 $1.0 $2.6 $3.2 $4.2 Total MRO $11.0 $12.8 $15.7 $1.8 $3.0 $4.7 $12.9 $15.7 $20.4
  12. 12. TEAMSAI201010/8/2010 11 UncertaintySurroundsImpactofVolcanicAshonEngineMRO Consensussuggestsvolcanicashcanhavea significantimpactonengines Potentialforaffectingenginemaintenanceof aircraftflownthroughvolcanicashplumes However,mostflights werecancelledduring theheightofthe Iceland(Eyjafjallajokull) eruptions Anymaintenancebumpsshouldbelimited, potentiallyextendmaintenanceintervals But,iftherewaspersistent/lingeringashas flightsresumed,itdoescreatethequestion: Willitaffectengineoverhauls? Iftheregulationschangetoallow[more]flying duringsuchevents,theissuemaybemore pronounced
  13. 13. 2010TeamSAI,Inc. TrendsandStrategiesTrendsandStrategies
  14. 14. TEAMSAI201010/8/2010 13 AirlineFinancialResultsIntensifiestheCOSTFocus Profitshavebeenelusiveinthelast decade Oneprofitableyear Net$45.7Bincumulativelosses Thequestforprofitabilitydrives businessbehavior Revenuefocusedinnovationisevident Costimprovementsareneededateveryturn ForMROvaluestream,thismeans Motivationtowardbestvalue Outsourcingwillcontinuetogrow Supplychaininnovationwillbeimperative Preparingforanewgenerationof technology Consolidationwillbeimportanttovalue creation Valueorientedinnovationwillberewarded Source: IATA and Energy Information Administration
  15. 15. TEAMSAI201010/8/2010 14 CostSavings:OutsourcingandOptimizing Note:OutsourcedMROincludesworkoutsourcedtoindependentMROsortoOEMsbutnotworkdonebyoperatoraffiliatedMROs OptimizedMaintenancePrograms Airlineshaveincreasinglybeguntoexaminetheir maintenanceprograms,payingparticularattention tointervals Effortsareunderwaytoexamineindustrystandards forbestpracticesandappropriateintervals EscalationofAandCcheckintervalsoffers significantopportunities Airlineinterestinoutsourcingandoptimizingalignswiththeir desiretoseekoutbestvalue Benefits Optimizedmaintenanceprograms Longertimebetweenmaintenance Reducedcosts Immediatesourceofcostsavings
  16. 16. TEAMSAI201010/8/2010 15 TheTransformationoftheValueStreamRepresentsaDramaticShift TowardBestValueInnovations Airline/Operator MRO Labor keydecisionguidelinesforchoosingmaintenanceservices/outsourcing Material Turntime Performance Quality Engineering TechnicalServices SupplyChain Planning DirectMaintenance Airlinewill managecoreoperations(flying) outsourcemaintenanceasit chooses,basingoutsourcing decisiononkeyguidelines M&E Customerservice Scheduledservice CoreOperations Planning Marketing Etc. focus:cost MROmust identifynewmarketneedsand valueaddedservicesthat supportairlinerequirements reinventthebusinessmodelto positionitselftomeetneeds developbusinessprocessesto optimizeservice focus:value Theairlines unrelentingfocusoncostcontinuestodrivechange NewValueStream Engineering TechnicalServices SupplyChain Planning DirectMaintenance M&E
  17. 17. TEAMSAI201010/8/2010 16 GivenSignificantFleetRenewal,FollowtheGrowthPlatforms Newtechnologyairframesareforecastto makeupanincreasingshareofthemarket overtheperiod Criticalfuturecapabilities Compositeairframematerialrepair ReenginedNBrepair(includingGTF) Dropinfuelenginerepair NextGenerationcapableavionicsrepair/ automatedtestequipment Intelligent/healthmanagementsystemsandthe abilityforMROstointerfacewiththesystem Training Demandplanning Outsourcedinventorymanagement Informationtechnologysystems Shifttonewaircraftdrivestheneedforimprovedofferings tailoredtotherealityofthenewfleetmix
  18. 18. TEAMSAI201010/8/2010 17 Toptobottomvaluechainassessment willidentifyoptimumcoststructure Continuedpressuretooutsourcenoncore activities Supplychaininnovation Newgenerationoftechnology Consolidationtocreatevalue MarketUpsandDownsAside,AirlinesFocusedonSTAYINGintheBlack MROsmustdoeverythingpossibletohelpcustomermeetthisgoal Valueorientedinnovationwillberewarded Profit Time
  19. 19. TEAMSAI201010/8/2010 18 ThankYouToOurPartners
  20. 20. TEAMSAI201010/8/2010 19 TransformingtheMROBusinessModelAroundValueCreation WhatareYOU doingtotakethe outofthis business? Ups and Downs
  21. 21. TEAMSAI201010/8/2010 THANKYOU!
  22. 22. TEAMSAI201010/8/2010 21 ConsolidationofandInvestmentinMROProvidershas PotentialtoGenerateBetterValue GlobalAerospace&Defense(A&D)M&A 2009 2010 Valueatlowestlevelinadecade overalldeals:$10B,54%vs2008 causes:worriesaboutcosts,delays,fewer militaryorders,lowerpassengernumbersand reducedfreightmovements Nearterm expectsmall&strategicacquisitionsto remaindominant activityforecastfor$10$20B(leaning towardhighendofrange) Volumeatnearrecordlevels transactionsskewedtowardsmallsize Longterm improvedconditionsfordealsizestogrow asstockmarketclimbsandfinancing becomeseasier M&Aactivityinaerospace/defensesectorwasrelativelysluggish in2Q10 butoptimismforreasonable acquisitionsremains GlobalM&A AfterrecordlowM&Aactivityin2009,dealsexpectedtorisein 2010 AsiahassignificantlyoutpacedEuropeandUSinQ12010 Misalignedexpectations