ICF’s MRO Market Forecast and Trends

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Transcript of ICF’s MRO Market Forecast and Trends

  • ICF International | icfi.com ICF 2015 00

    MRO Market Forecast & Trends

    3 November 2015 - Singapore

    Presented by:

    David StewartVice President, ICF [email protected]

  • ICF International | icfi.com ICF 2015 1

    MRO Market Forecast

    Takeaways

    Trends

    MRO = maintenance, repair and overhaul

  • ICF International | icfi.com ICF 2015 2

    MRO Market Forecast

    Agenda MRO Market Forecast & Trends

  • ICF International | icfi.com ICF 2015 33

    Of the 27,500 global fleet, 25% is located in Asia Pacific where the share of turboprops and regional jets is much smaller

    MRO MARKET FORECAST

    Source: ICF International

    Narrowbody Jet

    Widebody Jet

    Turboprop

    Regional Jet

    6%

    16%

    23%

    56%

    Narrowbody Jet

    Widebody Jet

    Turboprop

    Regional Jet

    14%

    17%

    18%

    51%27,500Aircraft

    7,100Aircraft

    2014 Global Fleet 2014 Asia Pacific Fleet

  • ICF International | icfi.com ICF 2015 44

    The Asian fleet will see a large growth over the next decade and the second fastest growth globally of 4.7% CAGR; +4,200 aircraft

    MRO MARKET FORECAST

    0

    5,000

    10,000

    15,000

    20,000

    25,000

    30,000

    35,000

    40,000

    2014 2024

    Africa

    Middle East

    South America

    Europe

    Asia Pacific

    North America

    Air Transport Fleet Growth 20142024

    Source: ICF International, ACAS September 2014; CAGR = compound annual growth rate

    3.8%

    2.7%

    4.7%

    1.4%

    5.3%

    4.8%

    27,500

    37,900CAGR*

    3.2% Average

    ~7,15025%

    ~11,35030%

    Highlights

    Air travel growth of ~3.8%

    ~19,000 aircraft deliveries

    ~8,600 aircraft retirements

    AsiaPacificAsia

    Pacific

  • ICF International | icfi.com ICF 2015 55

    The current air transport MRO market is $62.1B; Asia Pacific accounts for ~27% of global demand (~$16.9B)

    MRO MARKET FORECAST

    Engines

    Components

    Line

    Airframe

    Modifications

    15%

    17%

    22%

    40%

    6%North

    America

    Asia Pacific

    Europe

    Middle East

    South America

    Africa

    29%

    27%

    27%

    7%

    6% 4%

    2014 Global MRO Demand

    Source: ICF InternationalForecast in 2014 $USD, exclusive of inflation

    $62.1BTotal

    $62.1BTotal

    By MRO Segment By Region

  • ICF International | icfi.com ICF 2015 66

    $60.7B

    $0

    $10

    $20

    $30

    $40

    $50

    $60

    $70

    $80

    $90

    $100

    2014 2024

    Modifications

    Heavy Airframe

    Line

    Components

    Engine

    The global MRO market is expected to grow to $90B by 2024, at 3.8% per annum

    MRO MARKET FORECAST

    Global MRO Spend 20142024 ($B)

    15%

    17%

    22%

    40%

    13%

    17%

    24%

    38%

    6%

    8%

    Highlights

    Average growth is forecast to be 3.8% CAGR

    The strongest drivers of growth are the engine and component markets

    Reduced labor intensity of airframe heavy checks as the fleet renews and increased intervals

    Aircraft upgrades (e.g. interiors, winglets) drive high modifications growth

    2.6%

    3.7%

    4.5%

    3.5%

    5.9%

    CAGR

    3.8% Average

    $90B

    $62.1B

    Source: ICF InternationalForecast in 2014 $USD, exclusive of inflation

  • ICF International | icfi.com ICF 2015 77

    Over the next decade, MRO growth will be 3.8% with Asia Pacific and China driving this growth.

    MRO MARKET

    Source: ICF analysisForecast in 2014 $USD, exclusive of inflation * absolute growth in annual spend

    US$ Billions

    $0.0

    $10.0

    $20.0

    $30.0

    $40.0

    $50.0

    $60.0

    $70.0

    $80.0

    $90.0

    $100.0

    2014 2024

    Africa

    Eastern Europe (Incl. CIS)

    Latin America

    Middle East

    China

    Asia/Pacific (Excl. China)

    Western Europe

    North America

    2014-2024 Annual MRO Spend By Region

    6.8%

    1.7%

    1.2%

    CAGR

    3.8% Average

    $62.1B

    $90.1B

    6.7%

    5.2%

    6.1%

    6.4%

    4.9%

    Africa

    E. Europe

    L. America

    M. East

    China

    APAC (ex. China)

    W. Europe

    N. America

    Highlights

    Highest % growth rates are the Middle East and China regions

    Highest absolute growth (in $ terms) in Asia Pacific and China

    2024 annual spend in China and Asia Pacific combined $12B higher than in 2014

    $5.8B

    $11.1B

    $11.2B

    $18B

  • ICF International | icfi.com ICF 2015 8

    Agenda MRO Market Forecast & Trends

    Trends

  • ICF International | icfi.com ICF 2015 9

    The aftermarket has evolved from being an afterthought to a market of significant importance and a revenue opportunity

    TRENDS

    1980 2000 Post-2000s

    Airlines

    Maintenance mainly a cost centre

    Low cost carriers drive new approach to maintenance -increased outsourcing

    Limited focus on aftermarket; Rolls-Royce ahead of the game

    Significant growth of point-of-aircraft sale MRO contracts by OEM*s to recover design/ development costs

    OEMs

    MROs Supply mostly in-house

    few large airline MRO suppliers and hugely fragmented independent sector

    Growth of integrated component services

    Globalization of demand

    The aftermarket has evolved from a cost centre to a highly competitive market

    OEM = original equipment manufacturer

    http://www.lexingtonlaw.com/blog/finance/ways-airline-travel-empty-bank-account.html/attachment/airliner-landing-in-stormy-weatherhttp://www.lexingtonlaw.com/blog/finance/ways-airline-travel-empty-bank-account.html/attachment/airliner-landing-in-stormy-weather

  • ICF International | icfi.com ICF 2015 10

    Engine OEMs have the most mature and strongest OEM position across the main air transport aftermarket segments

    TRENDS

    55%

    35%

    2% 0%

    20%

    25%

    44%

    82%

    25%

    40%

    54%

    18%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    Engineoverhaul

    ComponentO&R

    AirframeHeavy

    Linemaintenance

    Non-OEMMRO

    Airline in-house

    OEM

    Source: ICF International

    Highlights

    OEMs tend to have the strongest share in the more material intensive markets (e.g. engine overhaul)

    Component OEM market share lower than engine OEMs

    Aircraft OEMs have an almost non-existent position in the airframe-related aftermarket

    Air Transport Supply (2015)

  • ICF International | icfi.com ICF 2015 11

    The ramp up and introduction of new generation aircraft creates the opportunity to change the aftermarket supply chain

    TRENDS

    Source: ICF International

    -

    200

    400

    600

    800

    1,000

    1,200

    1,400

    1,600

    1,800

    2,000

    2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

    Aircraft deliveries (units)Highlights

    New aircraft with higher reliability, lower manhours and complex technology change the business case for establishing MRO capability

    especially with greater airline focus on financial returns

    This is a catalyst to change the MRO supply model.

    Creating new opportunity for OEMs and aftermarket providers

    Mature Aircraft

    New Generation Aircraft

  • ICF International | icfi.com ICF 2015 12

    ICF believes there are three key trends that are defining the future of the Aftermarket

    TRENDS

    Control of operational data

    Control of the Workscope

    Control of the Assets

    Critical to success in market participation and in gaining operational feedback for design and reliability improvement

    Critical to success in driving parts choice and aftermarket margins

    Critical to success in growing integrated service market

  • ICF International | icfi.com ICF 2015 13

    A key challenge for aviation stakeholders is how best to realize value from the terabytes of data being generated

    TRENDS:

    Source: ICF Analysis

    Number of AHM Parameters

    767: 10,000

    A320: 15,000

    787: 100,000

    777 787

    ~ 28MB

    < 1MB

    Transmittable Data(MB/Flight)

    Aircraft Data Generation(TB/Year)

    2012 2022

    ~ 137TB

    ~11TB

    ~1,100%

    increase

    DATA

    Data ownership versus data access and use are of great concern to operators, and data processing business models are unproven (except at engine OEMs?)

  • ICF International | icfi.com ICF 2015 14

    Aircraft OEMs are vying to use their leverage to become the arbiters of data for the connected airline

    TRENDS:

    Boeing EDGE: Information Services , the

    Digital Airline and Gold Care brands

    Notable Aircraft Health Management (AHM)

    successes

    Services by Airbus: Including engineering

    and maintenance e-solutions

    Airbus Smarter Fleet partnership with IBM

    - integration of e-solutions

    Boeing View of AHM System Architecture

    Aircraft OEMs believe that their scale and position in the market make them a natural middleman for data aggregation and analysis

    DATA

  • ICF International | icfi.com ICF 2015 15

    Control of workscope is key to input decisions hence the historic focus on this by engine OEMs and the former PMA* War

    TRENDS: WORKSCOPE

    100%

    90%

    80%

    70%

    60%

    50%

    40%

    30%

    20%

    10%

    0%

    Engine

    Materials80%

    Labour20%

    Airframe

    Materials20%

    Labour80%

    Components

    Materials55%

    Labour45%

    Line

    Materials15%

    Labour85%

    Typ

    ical

    MR

    O C

    ost

    Bre

    akd

    ow

    n

    Typical Aftermarket Cost BreakdownInsight

    For engine and component activity Whoever controls the workscope controls the parts decision this is a key driver behind related OEM aftermarket strategies

    Use of PMA, repairs and surplus are important alternatives to OEM new parts

    Source: ICF International; PMA = parts manufacturer approval

  • ICF International | icfi.com ICF 2015 16

    The share of integrated programs in component support is set to increase

    TRENDS: ASSETS

    Component Support Buying Behaviour

    Growth Drivers

    Small fleet size

    Perceived technology risk

    Improved Return on Investment

    Maintenance no longer core

    Predictable outgoings

    Attractive value propositions

    Lower investment, less infrastructure

    Source: ICF International

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    2004 2014 2024

    Integrated*

    Traditional

    Integrated Component Programs

    Penetration

    777 787/A350

    ~20% 55%-70%

    9%

    30%

    45%

    Control of assets enables aftermarket players to support integrated programs more effectively The more inventory held by a supplier, the lower the

    inventory cost per aircraft supported

  • ICF International | icfi.com ICF 2015 17

    Takeaways

    Agenda MRO Market Forecast & Trends

  • ICF International | icfi.com ICF 2015 18

    Today, airlines have strong ownership/control of their destiny, but do they make the most of it?

    TAKEAWAYS

    Who Owns The Workscope?

    Who Owns The Assets?

    Airlines

    StrongKey Weak Improving Worsening

    Eng Comp Airframe

    Who controls the operational data?

    Who controls the workscope?

    Who controls the assets?

    Source: ICF International

    Airlines, as a buyer of aircraft and the owner of the operational data, should push the aftermarket supply chain...to benefit from better,

    more cost efficient solutions

  • ICF International | icfi.com ICF 2015 19

    The Airframe and Component OEMs who have the most to gain will be very active and focused on MRO moving forward

    TAKEAWAYS

    Airlines

    OEMs *

    Airline MRO

    Eng. OEMs

    Source: ICF International

    WHO HAS MOST TO GAIN(example benefits)

    Higher reliability (e.g.,

    predictive maintenance)

    Lower costs (fuel,

    maintenance, less inventory)

    Operational data for feedback

    into design loop

    Increased revenue & margin

    Reduce costs and improve

    competitiveness

    Market access

    CURRENT POSITION IN MARKET

    Operational data for feedback

    into design loop

    Increased revenue & margin

    http://www.lexingtonlaw.com/blog/finance/ways-airline-travel-empty-bank-account.html/attachment/airliner-landing-in-stormy-weatherhttp://www.lexingtonlaw.com/blog/finance/ways-airline-travel-empty-bank-account.html/attachment/airliner-landing-in-stormy-weather

  • ICF International | icfi.com ICF 2015 20

    Large airline integrator MROs are well positioned in contrast to independent MROs

    TAKEAWAYS

    Who Owns The Data?

    Who Owns The Workscope?

    Who Owns The Assets?

    Airline MROs

    Independent MROs

    StrongKey Weak ImprovingWorsening

    Who controls the operational data?

    Who controls the workscope?

    Who controls the assets?

    Takeaways

    For Airline MROs, significant scale is a must for engine and component markets

    The business case for small airline MROs will erode significantly moving forward

    Independent MROs have to become the lowest cost producer and/or align with the large airlines or OEMs

  • ICF International | icfi.com ICF 2015 21

    In summary...

    TAKEAWAYS

    Airlines have the opportunity to drive efficient solutions and competition into the aftermarket

    Airframe and Component OEMs will invest more and increase their focus on aftermarket especially on integrated component packages

    (Large) Airline MROs can and need to protect their market position versus the OEMs

    Scale and scope of assets under management is vital

  • ICF International | icfi.com ICF 2015 22

    Last but not least, it is very important not to forget the MRO market for current aircraft is large and growing

    TAKEAWAYS

    Current Generation

    New Generation

    Old Generation

    5%

    22% 73%

    Current

    Old Generation

    New Generation

    3%

    24%

    73%$16.9B $29.1B

    2014 Asia Pacific MRO Demand 2024 Asia Pacific MRO Demand

    Source: ICF InternationalForecast in 2014 $USD, exclusive of inflation

    ...And the supply chain and competition for this current generation of aircraft is not changing so dramatically and is well served by all MROs

  • 23 ICF International 2015

    Thank you!For questions regarding this presentation, please contact:

    David StewartVice PresidentAerospace & MRO Advisory

    +44 (0)7770 410011 [email protected]

    icfi.com/aviation

    mailto:[email protected]

  • ICF International | icfi.com 24 ICF International 2015 24

    M&A Commercial Due Diligence

    MRO Market Research & Analysis

    Aerospace Manufacturing Strategy

    Aviation Asset Valuations & Appraisals

    MRO Cost & Performance Benchmarking

    MRO Information Technology (IT) Assessment

    MRO Strategic Sourcing Support

    Supply Chain Management

    LEAN Continuous Process Improvement

    Military Aircraft Sustainment

    ICF Internationals Aviation advisory services include the following: