0

MRO Forecast and Market Trends

Presented by:

Jonathan M. BergerVice President ICF International

jberger@icfi.com

9-10 March, 2016

11

Today’s Agenda

MRO Forecast

New Technology Aircraft

Impact

Meet the Frackers!

The Next Big Thing…

22

MRO Forecast

33

The current

commercial

air transport fleet

consists of over

27K aircraft

Source: CAPA 2015

NarrowbodyJet

WidebodyJet

Turboprop

Regional Jet

27,114

Aircraft

14%

53%14%

19%

By Aircraft Type By Global Region

North America

Asia Pacific

Europe

Latin America

Middle East

31%

27%

25%

8%

5% 5%

27,114

Aircraft

2015 Global Commercial Air Transport Fleet

44

The combination of

strong air travel

demand and the

need to replace

ageing aircraft will

drive fleet growth at

3.4% annually

Source: ICF International, CAPA 2015

Air traffic growth of ~4.1%

Fuel costs in $55/bbl range

~19,600 aircraft deliveries

~8,800 aircraft retirements

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2015 2025

Africa

Middle East

Latin America

Europe

Asia Pacific

North America

27,100

31% 26%

37,900

27%

25%

8%

32%

23%

8%

# Aircraft

3.8%

2.5%

1.6%

5.2%

5.3%

5.1%

CAGR

3.4% Avg.

5%

6%

10 Year Global Air Transport Fleet Growth

55

Current air transport

MRO demand is

$64.3B; Asia Pacific

is now equivalent to

North America and

Europe

Source: ICF International

Engines

Components

Line

Airframe

Modifications

14%

17%

22%

40%

7%North

America

Asia Pacific

Europe

Middle East

Latin America

Africa

29%

28%

26%

8%

6%4%

$64.3B$64.3B

By MRO Segment By Global Region

2015 Global MRO Demand

66

The global MRO

market is expected

to grow by 4.1%

per annum to $96B

by 2025

Source: ICF International; Forecast in 2015 $USD, exclusive of inflation

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2015 2025

Modifications

Airframe

Line

Component

Engine

40%

22%

14%

17%

$64.3B

$96.0B

2.8%

3.6%

4.3%

4.4%

CAGR

4.1% Avg.

5.3%

41%

22%

16%

13%

10 Year Global MRO Demand Growth

77

The Asia Pacific

fleet consists of

nearly 7,300

aircraft, with 37%

(approx. 2,700

aircraft) in China

Source: CAPA 2015

NarrowbodyJet

WidebodyJet

Turboprop

Regional Jet

7,289

Aircraft

5%

59%13%

23%

By Aircraft Type By Country

China

Japan

AustraliaIndonesia

South Korea

Malaysia

Other

7,289

Aircraft

37%

9%8%

26%

8%

4%

4%4%

2015 Asia Pacific Commercial Air Transport Fleet

88

The Asia Pacific

MRO market is

expected to nearly

double to approx.

$32.2B by 2025, at

6.0% per annum

Source: ICF International; Forecast in 2015 $USD, exclusive of inflation

0

5

10

15

20

25

30

35

2015 2025

Modifications

Airframe

Line

Component

Engine

39%

23%

12%

19%

$17.9B

$32.2B

5.8%

4.6%

5.7%

6.8%

CAGR

6.0% Avg.

6.9%

42%

23%

16%

12%

8%

10-Year Asia Pacific MRO Demand Growth

99

Over the next

decade, China and

Asia Pacific region

will drive absolute

MRO spend growth

Source: ICF International; Forecast in 2015 $USD, exclusive of inflation

Difference in MRO Spend, 2025 vs. 2015 – By Global Region

$ USD Billions

$7.9

$6.4$5.2

$3.2$2.6 $2.2 $2.0

$1.2$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

Asia Pacific(excl China)

China Middle East NorthAmerica

LatinAmerica

EasternEurope (incl

CIS)

Africa WesternEurope

71% 93% 103% 17% 73% 72% 85% 10%Percent

Change:

1010

2014 Top 10 Airframe MROs by Man-Hours Performed

In Millions

Among the top ten

airframe MRO

providers,

ST Aerospace and

HAECO account

for 50% of man-

hours performed in

2014

Source: Aviation Week

12.0

11.7

4.9

3.6

3.0

2.9

2.9

2.2

2.0

2.0

ST Aerospace

HAECO

AAR

AFI KLM E&M

Lufthansa Technik

GAMECO

Turkish Technic

Evergreen Aviation Tech.

Aviation Technical Services

Sabena Technics

1111

Impact of

New Technology Aircraft

1212

In the next decade,

the global fleet of

new generation

aircraft fleet will

grow by approx.

531% to nearly

19,000 aircraft

10-Year Fleet Forecast by Aircraft Generation

2,993

18,896

22,212

18,487

2015 2025

Global

New Gen

Mid Gen

Old Gen

Source: ICF International

Old Gen: 727, 737 Classic, 747 Classic, DC10, L1011, A300

Mid Gen: 757, 767, 747-400, A320 Family, A330/A340, 737NG, 777, ERJ, CRJ

New Gen:, 777X, 787, A350, A330neo, A380, E170/175/190/195, CRJ-7/9/1000, 737MAX

Asia Pacific

+531%

-70%

-17%

613

6,1016,296

5,838

2015 2025

+895%

-7%

-61%

1313

Over the next

decade, MRO spend

on new technology

A350 & Boeing 787

aircraft will double

every three years

Source: ICF International; Forecast in 2015 $USD, exclusive of inflation, includes Boeing 787 and Airbus A350

10-Year MRO Spend for New Technology A350 & 787 Aircraft

$ USD Billions

$1.1 $1.6 $2.2 $2.6 $3.0 $3.4$4.0

$0.5$1.0

$1.6

$2.3

$3.3

$4.4

$5.8

$7.1

$8.4

$9.7

$11.1

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

RoW

North America

Europe

Middle East

Asia Pacific

+2000%

1414

New technology

aircraft challenge

traditional MRO

sourcing strategies= Heavy C-Check= Light C-Check

767

A/C Age 1 2 3 4 5 6 7 8 9 10 11 12

787

Volume(C-checks)

Intensity(man-hours)

Days(Hangar)

767 8 95,000 136

787 4 33,000 47

Impact

Cost Savings: ~65% fewer routine airframe heavy maintenance

man-hours drives an estimated savings of ~$3.5M

Asset Utilization: ~90 additional available flying days enables

increased revenue generation potential

12 Year Heavy Maintenance Schedule

*Based on 4,000 FH/yr utilization

767 C-check = 18mo, 4C = 72mo; 787 C-check = 36mo, 4C = 144mo

Assumed industry standard labor man-hour rate

Aircraft out of Service (AooS) calculated for C/4C/8C checks assuming industry standard MRO hangar productivity

Return on investment

challenges:

Facilities

Tooling & Equipment

Training

IT Systems

1515

Challenge: How best

to realize value from

the disparate terabytes

of data generated by

new technology

aircraft

Source: ICF Analysis

Number of AHM

Parameters

A320: 15,000

B787: 100,000

2012 2022

~ 137TB

~11TB

777 787

~ 28MB

< 1MB

Stakeholder Battle: Who

will control and profit from

the operating data IP?

Operators

Lessors

OEMs

MRO SuppliersTransmittable Data

(MB/Flt)

A/C Data Generated(TB/Year)

767: 10,000

~1,100%

1616

Meet the Frackers!

1717

Breakthrough

technologies in

horizontal drilling

and hydraulic

fracturing (aka

fracking) resulted

in a US-led energy

revolution

Source: BP Statistical Review of World Energy June 2015, ICF International Analysis

North American crude oil and natural gas

production have soared in recent years…

3,500

4,500

5,500

6,500

7,500

8,500

9,500

10 year growth = 105%(7.45% CAGR)

Thousands

1,250

1,450

1,650

1,850

2,050

2,250

2,45010 year growth = 66%

(5.22% CAGR)

Billion cu. ft.

U.S. Crude Oil Production(Barrels / day)

U.S. Natural Gas Production(Monthly marketed production)

1818

The US energy

revolution has

completely

disrupted the global

economic and

geopolitical balance

of power

Source: BP Statistical Review of World Energy June 2015, ICF International Analysis

…making the U.S. a global powerhouse

in energy production

728

579

177 173 162135

109 10883 73

0

100

200

300

400

500

600

700

800

11.6 11.5

10.8

4.3 4.23.7 3.6

3.3 3.12.8

0

2

4

6

8

10

12

14

Global Oil Production(Million barrels / day as of June 2015)

Global Natural Gas Production(Billions of cubic meters as of June 2015)

1919

Continued low fuel

costs will have

significant

repercussions

throughout the

aviation & MRO

supply chain

Source: EIA; ICF International analysis

Aviation fuel costs have dropped by approx.

66% during the past 24 months…

U.S. Gulf Coast Jet Fuel Price per Gallon

$0.8

$1.3

$1.8

$2.3

$2.8

$ USD

~66% Decline

2020

While Asia Pacific

& North American

airlines have

enjoyed record

profitability, other

regions continue

to struggle

Source: IATA

Global Airline Profitability, 2004-2016

$19

$7

$10

-$30

-$20

-$10

$0

$10

$20

$30

$40

$USD

Billions$36B

Rest of World

North America

Asia Pacific

2121

China’s seemingly

insatiable demand for

global commodities

was a key driver of

global economic

growth

Source: IMF, World Economic Outlook Database October 2015, ICF International Analysis

After years of remarkable GDP growth,

China’s economy has been steadily slowing

5%

7%

9%

11%

13%

15%

2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F2015F 2016F

China GDP Year-on-Year Growth (%)

2222

The fall in

commodity prices

have had a dramatic

impact of economies

dependent on

commodity exports

Source: Dow Jones Commodity Index

Over the past 5 years, commodity prices

have plummeted more than 55%

Dow Jones Commodity Indices (DJCI)(January 2011 Indexed to 100)

40

50

60

70

80

90

100

110

- 56.0%

Indexed

Values

2323

The dramatic increase

in oil & gas market

supply and reduceddemand for

commodities has led

to a stronger US Dollar

Partially offsets the positive impact of low fuel costs for operators

Increases the cost of dollar based flight hour agreements (and parts/material in general)

Cost of labor for in-country MROs is cheaper driving up margins for US dollar based contracts

Buying/leasing aircraft becomes more expensive

FOREX Impact

Source: Oanda historical exchange rates, ICF International Analysis

Russian Ruble-55.1%

Brazilian Real-41.1%

S. African Rand-34.1%

Can Dollars-23.1%

Aus Dollars-20.8%

Euro-20.0%

British Pound-12.8%

Japanese Yen-11.9%

Indian Rupee-7.8%

Chinese Yuan-7.2%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

B

R

C

S

A

The “CRABS”: Countries with economies that are

heavily dependent on commodity exports

Global Currency Exchange Rates vs USD% Value Change, Jan. 2014 – Jan. 2016

2424

The Next Big Thing…

2525

ICF believes that

virtual reality (VR)

technology will be

as disruptive to

MRO training as 3D-

printing is to parts

manufacturing

2626

The Asia Pacific region continues to drive global MRO

demand growth

The two largest global airframe MRO suppliers are

headquartered in the Asia Pacific region

New Technology aircraft are creating both new

challenges and opportunities for aviation

stakeholders

The US energy revolution combined with the

economic slowdown in China are having a significant

impact on commodity export dependent CRABS

Virtual reality has the potential to transform the way

technicians are trained

In Summary…

27

For questions regarding this

presentation, please contact:

Jonathan M. BergerVice President Aerospace & MRO

jberger@icfi.com +1 404.819.7669

THANK YOU!

9-10 March, 2016

2828

Market Research & Analysis

Airline Maintenance Benchmarking

M&A Commercial Due Diligence

OEM Aftermarket Strategy

Aviation Asset Valuations & Appraisals

MRO Information Technology (IT) Advisory

Strategic Sourcing & Supply Chain Mgt.

LEAN Continuous Process Improvement

Military Aircraft Sustainment

ICF provides a full range of MRO

advisory services

2929

ICF is one of the world’s largest and

most experienced aviation & aerospace

consulting firms

53 years in business (founded 1963)

100+ professional staff

− Dedicated exclusively to aviation and aerospace

− Blend of consulting professionals and experienced

aviation executives

Specialized, focused expertise and

proprietary knowledge

Broad functional capabilities

More than 10,000 private and public sector

assignments

Backed by parent company ICF International

(2014 revenue - $1.05B)

Global presence –– offices around the world

joined ICF in 2011

joined ICF in 2007

New York • Boston • Ann Arbor • London • Singapore • Beijing • Hong Kong

Aerospace

& MRO

Aircraft Asset

Advisory

Airline Advisory

Airports

3030

A/C = aircraft

AHM = Aircraft Health Management

CAGR = Compound Annual Growth Rate

CRABS = Canada, Russia, Australia, Brazil, and South Africa

GDP = Gross Domestic Product

IP = Intellectual Property

M&A = mergers and acquisitions

MRO = maintenance repair overhaul

OEM = original equipment manufacturer

RoW = Rest of World

USD = United States dollar

Acronym Definitions