MRO Forecast Key Trends - Aviation ??MRO Forecast Key Trends ... Source: Oanda historical exchange...

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  • 0

    MRO Forecast & Key TrendsSingapore 26 September 2016

    Presented by:

    Richard BrownPrincipal ICF International

    richard.brown@icfi.com

    ICF International 2016

  • 11

    Todays Agenda

    Industry Context

    MRO Market

    Trends To Watch

  • 22

    Industry Context

  • 33

    Airlines are

    achieving

    historically high

    return on invested

    capital (ROIC) levels

    theres an evident

    correlation with

    changes in fuel

    costs

    Source: IATA, ICF Analysis

    Fuel Price and Global Airline Return On Invested Capital

    0.0%

    1.0%

    2.0%

    3.0%

    4.0%

    5.0%

    6.0%

    7.0%

    8.0%

    9.0%

    10.0%

    $0

    $20

    $40

    $60

    $80

    $100

    $120

    $140

    Jet Fuel Price ($/barrel) Airline ROIC (%)

    Airline ROIC

    Jet Fuel Price

  • 44

    Commercial aircraft

    OEM production

    backlog remains at

    historical record

    levels driven by:

    Commercial Aircraft OEM Production Backlog

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    0

    2,000

    4,000

    6,000

    8,000

    10,000

    12,000

    14,000

    16,000

    Order

    Backlog

    Backlog/

    Active Fleet

    Emerging market growth

    High oil and commodity

    prices

    Introduction of new

    technology

    aircraft/engines

    Low interest rates

    Source: CAPA, ICF Analysis

  • 55

    Continued low fuel

    costs are having,

    and will have,

    important

    repercussions for

    airlines, aviation and

    the MRO supply

    chain

    U.S. Gulf Coast Jet Fuel Price per Gallon

    $0.8

    $1.1

    $1.4

    $1.7

    $2.0

    $2.3

    $2.6

    $2.9

    $3.2

    $ USD

    Source: EIA; ICF International analysis

  • 66

    such as an already

    visible drop in

    aircraft retirements

    Potential Impact:

    Reduced part-out feed

    stock for surplus market

    Mature aircraft being placed

    with new operators

    Increase in airframe and

    engine MRO spend on

    older airframes

    Less pressure OEM new

    parts sales

    Higher used part values /

    pricing

    Commercial Air Transport Annual Aircraft Retirements

    0.0%

    0.5%

    1.0%

    1.5%

    2.0%

    2.5%

    3.0%

    3.5%

    0

    200

    400

    600

    800

    1,000

    1,200

    # Retirements

    Retirement as % of installed fleet

    % Installed

    Fleet

    1990-99 Average: 191

    2000-09 Average: 473

    Source: Flight Global ACAS June 2015, CAPA, Airline Monitor, ICF Analysis

  • 77

    Thanks partially to

    these low fuel

    prices, airlines are

    anticipating record

    profits in 2016,

    especially in

    North America

    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

  • 88

    Chinas 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

    5%

    7%

    9%

    11%

    13%

    15%

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

    China GDP Year-on-Year Growth (%)

    But now, after years

    of remarkable GDP

    growth, Chinas

    economy has been

    steadily slowing

  • 99

    Chinas situation

    exacerbated the 54%

    fall in commodity

    prices in the past

    five years

    Source: Dow Jones Commodity Index

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

    40

    50

    60

    70

    80

    90

    100

    110

    - 54.0%

    Indexed

    Values

    which has had a

    dramatic impact on

    economies dependent

    on commodity exports

  • 1010

    Russian Ruble-87.1%

    Brazilian Real-62.2%

    S. African Rand-35.8%

    Can Dollars-23.6%

    Aus Dollars-20.4%

    Euro-16.9%

    British Pound-15.5%

    Indian Rupee-10.3%

    Japanese Yen-9.0%

    Chinese Yuan-4.8%

    -100%

    -90%

    -80%

    -70%

    -60%

    -50%

    -40%

    -30%

    -20%

    -10%

    0%

    10%

    The increase in oil &

    gas market supply

    and reduced demand

    for commodities has

    led to a stronger US

    Dollar

    Partially offsets the positive

    impact of low fuel costs

    Increases the cost of dollar

    based parts and materials /

    flying hour agreements

    Buying/leasing aircraft

    becomes more expensive

    FOREX Impact

    B

    R

    C

    S

    A

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

    The CRABS: Countries with

    economies that are heavily

    dependent on commodity exports

    Source: Oanda historical exchange rates, ICF International Analysis

  • 1111

    These four industry

    factors are driving

    uncertainty

    But this has yet to

    impact the backlog

    materially -

    cancellations and

    deferrals will be vital

    harbingers of airline

    and supply chain

    confidence and

    outlook

    Exchange Rates Commodity Prices

    China

    Implications of Industry Outlook.

    Fuel Price

    Order deferrals and/or cancellations?

  • 1212

    MRO Market

  • 1313

    The current

    commercial

    air transport fleet

    consists of over

    27K aircraft

    Source: CAPA 2015

    NarrowbodyJet

    Widebody Jet

    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

    ICF International 2016

  • 1414

    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 PacificNorth 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

    ICF International 2016

  • 1515

    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

    ICF International 2016

  • 1616

    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

    ICF International 2016

  • 1717

    The Asia Pacific

    fleet consists of

    nearly 7,300

    aircraft, with 37%

    (approx. 2,700

    aircraft) in China

    Source: CAPA 2015

    NarrowbodyJet

    Widebody Jet

    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

    ICF International 2016

  • 1818

    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

    ICF International 2016

  • 1919

    Over the next