MRO INDUSTRY TRENDS Four key MRO industry trends...

Four key MRO industry trends to watch…MRO INDUSTRY TRENDS

Surplus Parts

Fleet Role of OEM

ICF International | icfi.com © ICF SH&E 2014 13

Source: ICF SH&E

Industry Trends

AdditiveManufacturing

FleetDynamics

Role of OEMin MRO

Today, spending on air transport surplus parts is approximately $3 billion

KEY TRENDS: SURPLUS PARTS

Airframe

5%

Air Transport Surplus Parts Market*~$3 Billion

Surplus material for engines predominantly consist of piece parts (e.g., LLPs)

Surplus material for engines predominantly consist of piece parts (e.g., LLPs)

Typically slow moving

structural parts

Typically slow moving

structural parts


Engine

Components

65%

30%

* Sales to end customers; excludes intra-dealer sales

Component surplus are primarily rotables LRUs; Demand is driven by AOGs, BER and provisioning

Component surplus are primarily rotables LRUs; Demand is driven by AOGs, BER and provisioning

Source: ICF SH&E

Surplus dealers now obtain over 80% of their inventory from parting-out aircraft…


26%

8%20% 10%

50%60%70%80%90%

100%

2007 & 2012 Supplier Channels for Obtaining Surplus Materials

§ Leaner airline inventories

§ Improved material

ICF SH&E Insight


54%

82%

0%10%20%30%40%50%

2007 2012

Purchase From Surplus Dealer

Direct Purchase From Airline

Aircraft Part-Out

Source: ICFI SH&E AnalysisSource: ICFI SH&E Analysis

§ Improved material planning (and MRO IT capabilities)

§ Increased component pooling agreements

§ OEM after-market material control strategies

The surplus parts value chain is evolving as suppliers pursue integrated solutions


Aircraft & Engine Leasing

Aircraft & Engine

Disassembly

SurplusParts

TradingAsset

Management

Component & Engine

Repair

GA Telesis acquires Finnair Engine Services moving from

ILFC acquires AeroTurbine (aircraft & engine disassembly and surplus trading)

GECAS acquires Memphis Group adding disassembly and surplus trading capabilities

Lufthansa acquires 15% holding in AeroTurbine


AJ Walter acquires ex-Aveos component facility moving into component repair and asset management

GA Telesis acquires Finnair Engine Services moving from disassembly / trading into component & engine repair Finnair Engine

Services

Upstream Downstream

Kellstrom acquires AirLiance, merging surplus operations

Source: ICF SH&E


Role of OEMIn MRO

AdditiveSurplus


Source: ICF SH&E

Industry Trends


SurplusParts

Fleet Dynamics

KEY TRENDS: EVOLVING SUPPLIER RELATIONSHIPS

Integrators§ Scale§ Engine/

Engine & Component OEMs§ Focus on

Airframe OEMs§ Grow aftermarket services revenue§ FHS, GoldCare, MRO Network§ Part consignment programs

Relationships between the various MRO suppliers continue to evolve


Independent MROsEvaluating strategic options§ Seek partnerships?§ Niche competitor?§ PMA/DER usage?§ Access to new aircraft IP?

§ Engine/Component JV opportunities?§ Evaluation of core

vs. non-core

§ Focus on controlling IP§ Continue

successful capture of market share (especially for new gen equipment)§ Increased support

in growth regions via licensed service centers

Source: ICF SH&ESource: ICF SH&E

Aircraft OEMs are fast becoming major MRO players…

§ The EADS Vision 2020 goal is 25% services revenue by 2020

§ Two major acquisitions in 2011: Satair and Vector Aerospace

§ Numerous FHS contracts


50%60%

90%60%

80%

100%

Typical OEM Revenue Mix

Manufacturing


Sources: ICF SH&E Analysis, EADS Vision 2020

§ Launched EDGE in 2012 to create coordinated services brand

§ Major player in flight training, distribution, and consumables management

§ Two new GoldCare contracts

~50%~40%

~10%

90%

0%

20%

40%

Engine OEMs Component OEMs

Aircraft OEMs

Services

Component OEMs are increasingly embracing licensed service centres and/or partnerships to address growth regions

§ The engine licensed service centre network model is being replicated by component OEMs (e.g., following success of CF34/AE3007/CFM56 networks)

§ Some of the recent signings focus on

Recent Examples ofComponent OEM Agreements



Source: ICF SH&E / Company press releases

§ Some of the recent signings focus on support for new aircraft such as 787

§ The licensed service centre model has several benefits for OEMsØReduced need for bricks and mortarØAccess integrated support customers

§ The upshot: creates opportunities for well-positioned independent MROs on new generation equipment



Fleet Dynamics

SurplusParts


Source: ICF SH&E

Industry Trends

Dynamics

Role of OEMIn MRO

Parts

KEY TRENDS: ADDITIVE MANUFACTURING

Additive manufacturing is a long-term trend to watch in MRO; Aeroengines are a near-term opportunity

Examples of Additively Manufactured Aeroengine Parts

Fuel Nozzles LPT Blades/Vanes Housings/Features

ICF International | icfi.com © ICF SH&E 2014

Source: ICF SH&E analysis, GE Aviation, Avio, EU Project Merlin (Rolls-Royce)

CFM Leap Fuel Nozzles

• Improved performance, reduce part count, betterdurability

• JV with Parker Aerospace will makeLEAP fuel nozzles

• Reduced material production on expensive Ti-Al parts

• Not in production

GENX Ti-Al LPT Blade (Avio)

• External features added to forgings

• Reduces material waste and complexity

Housings/Casing Features

Applications are currently limited to complex-geometry static parts

Additive manufacturing is also being used for repairs

KEY TRENDS: ADDITIVE MANUFACTURING

Repair of Turbine Components Using Direct Metal Deposition (DMD)


Rebuilt turbine blade tip

As deposited DMD turbine blade tip

Turbine blade squealer tip is built up using

DMD

Source: DM3D, MT Additive

DMD includes a patented closed loop feedback control of the deposition process

MRO INDUSTRY TRENDS Four key MRO industry trends...

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