MRO Middle East :10 Year Forecast and Trends

MRO Middle East: 10 Year Forecast and Trends

Presented by David Stewart

1 February, 2011

Aviation Week MRO Middle East, Dubai

Ann Arbor, Michigan • Amersham, United Kingdom • Singapore

www.AeroStrategy.com

http://www.aviationweek.com/events/current/mme/index.htm

Aviation Week MRO Middle East 2011© 2011 AeroStrategy

Agenda

2

MRO Middle East

MRO Market Recovery

Market Challenges And Trends

Aviation Week MRO Middle East 2011© 2011 AeroStrategy 3

2010 Air Transport MRO Market ($43.6B)

By

Activity

By

Region

Source: AeroStrategy/OAG Aviation

2010 Civil MRO Spend Was $43.6B; Middle East Operators Account For 5% Of Spend, Or $2.3B

Engine35%

Components23%

Line20%

Airframe Heavy15%

Modifications7%

North America, 32%

Europe, 30%

Asia Pacific, 17%

Latin America, 5%

Middle East, 5%, $2.3B

China, 5%

Africa, 4% India, 1%

Air Transport

MRO Market

Outlook


CAGR

Air Transport MRO Market Growth By Segment ($M)*

Source: AeroStrategy OAG Aviation

* Constant 2009 US$

The Long Term Growth Rate Is 3.3%; Airframe Heavy Maintenance Has The Slowest Growth

Air Transport

MRO Market

Outlook

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2010 2019

Modifications, 8.4%

Airframe Heavy, 0.5%

Line, 1.3%

Components, 2.9%

Engine, 4.5%

$43.6B

$58.4B

Total = 3.3%


Air Transport MRO Market Growth By Region ($M)*

CAGR


* Constant 2009 US$

The Fastest Regional Growth Rates Are India, China And Middle East; Middle East Grows To $4.8B Or 8% Of Global Demand In 2019

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2010 2019

India, 11%

Middle East, 8.3%

China, 10%

Rest of World, 3%

Asia Pacific, 4.1%

North America, 1.1%

Europe, 2.1%

Total = 3.3%

Air Transport

MRO Market

Outlook

$43.6B

$58.4B

M. East:

$2.3B, 5%

of total

M. East:

$4.8B, 8%

of total


Military MRO Market Growth By Region ($M)*


* Constant 2009 US$

Military MRO Spend Is $60B Of Which Middle East Accounts For 7% ($4B); Middle East Shows Above Average Growth (3.1%) To $5.4B In 2019

Military MRO

Market

Outlook

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

2010 2019

Rest of World, 7%

Middle East, 3.1%

Asia Pacific, 1.5%

Europe, 1.2%

N. America, 1.5%

CAGR

Total = 3.1%

$59.8B

$71.5B

M. East:

$4B, 6.9%

of total

M. East:

$5.4B, 7.6%

of total


Business Aviation MRO Market Growth By Region ($M)*


* Constant 2009 US$

Business Aviation MRO Spend Is $6.7B Of Which M. East Accounts For 3.4% ($227M); M. East Shows The Highest Growth (12%) To $640M In 2019

Business

Aviation

MRO Market

Outlook

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2010 2019

Rest of World, 10%

Middle East, 12.1%

Asia Pacific, 10.9%

L. America, 6.8%

Europe, 11%

N. America, 6.6%

CAGR

Total = 7.8%

$6.7B

$13.1B

M. East:

$227M,

3.4% of total

M. East:

$640M, 4.9%

of total


Civil Helicopter MRO Market Growth By Region ($M)*


* Constant 2009 US$

Civil Helicopter MRO Spend Is $5.3B Of Which M. East Accounts For 6% ($335M); M. East Demand Grows To $412M In 2019

Civil

Helicopter

MRO Market

Outlook

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

2010 2019

Other, 2.5%

Middle East, 2.3%

L. America, 6.1%

Asia Pacific, 4.4%

Europe, 4.5%

N. America, 4.8%

CAGR

Total = 4.5%

$5.3B

$8B

M. East:

$335M, 6%

of total

M. East:

$412M, 5.2%

of total


Middle East MRO Market Growth By Market Segment ($M)*


* Constant 2009 US$

Total Middle East MRO Demand Is $7B And This Is Set To Grow To $11.2B In 2019 At 5.3% CAGR

Middle East

MRO Market

Outlook

CAGR

0

2,000

4,000

6,000

8,000

10,000

12,000

2010 2019

Helicopter, 2.3%

Business Aviation, 12%

Military, 3.1%

Air Transport, 8.3%

$7B

$11.2B

Total = 5.3%


Agenda

10

MRO Middle East

MRO Market Recovery

Market Trends And Challenges


In Times Of Crisis, Spending Behaviour Changes And De-Stocking, Deferred Maintenance And Reduced Workscopes Attenuate Fundamental Spend

11

Simplified MRO Supply Chain

• Predicted airline maintenance

spending as a result of

aircraft demographics,

utilization, equipment

reliability, maintenance

programs and regulations

• A good predictor of supplier

MRO and aftermarket activity

in normal times

1. Fundamental Demand For Aircraft MRO

• Inventory stocking &

destocking, use of surplus

components, deferred and

reduced scope maintenance

• All of the above act as a

buffer between fundamental

demand and realized revenue

by OEMs and MRO suppliers

• Important in times of crisis

2. MRO Supply Chain Practices

Air Transport

MRO Market

Recovery


…As A Result, OEM Aftermarket And MRO Supplier Revenues Plunged In 2009

12

Airline

Operator Overhaul

Shop

Outside

Parts

Repairs &

Processes

Service

Parts

Casting,

Forging &

Raw

Materials

2009 Reduction In MRO Supply Chain Revenues Due To Industry Crisis

(10 – 15%) (15 – 30%) (20 – 40%)Near-term reduction in

supplier revenues

Fundamental

MRO demand

down in 2009

• Most suppliers had a 10 –25% reduction in MRO/aftermarket revenue in 2009; the effects

were more pronounced for parts suppliers than overhaul shops

Source: AeroStrategy

Air Transport

MRO Market

Recovery


12%

88%

A Key Difference From Previous Recessions Is The Smaller Scope Of Parked Aircraft That Could Come Back – Given Today’s Fuel Prices

13

Air Transport Fleet: Temporarily Inactive/ In Storage

1,553

High

potential to

return to

service at

current fuel

prices

Low-

moderate

potential /

obsolete

• Despite the large size (1,553) of the parked fleet, only a

small portion – 200 – is likely to return to service at current

fuel prices

• This equates to 1% of global capacity….or approximately

two months of production rates

Source: OAG Aviation

Aircraft Family Sep-10

737-3/4/500 201

MD80 181

DC9 136

737-1/200 106

146 74

727 73

EMB-135/140/145 78

757 54

747-1/2/300 47

747-400 47

CRJ-100/200 56

F100 48

A300-600 43

DC8-6/70 32

DC10 38

F28 31

328JET 29

A310 12

A300 19

MD11 9

717 9

L1011 12

707 10

F70 4

BAC 1-11 2

MD10 5

MD90 6

Total 1,362

Aircraft Family Sep-10

767 67

737-6/7/8/900 15

777 3

A320 Series 64

A330 11

A340 20

CRJ-700/900/1000 4

EMB-170/190 7

Total 191

Air Transport

MRO Market

Recovery


An Estimated 15-20 Aircraft Are Being “Parted Out” Each Month…

14

• Globally, 15-20 aircraft per month are being “parted out”

• Engines, avionics, and other aircraft components are re-

circulated to the market, thereby suppressing MRO

demand

• Facilitating this phenomenon is a new breed of surplus

parts suppliers, with an impressive blend of financial

skills, technical capability and market savvy

• “Parting out” is not limited to mature aircraft; new

generation aircraft are also being cannibalized including

A320, A340, and advanced B767 models

• “Hot” surplus parts markets include:

− Aircraft: B737-3/4/500, B767, B747-400, CRJ

− Engines: CFM56-3, CFM56-5, CF34, V2500A1,

CF6-80C2

− High value components: APUs, avionics, others

• Surplus parts represent 15%+ of total aircraft parts

spending…and for some products 30-40%!

Source: AeroStrategy interviews

Air Transport

MRO Market

Recovery


…Which Is Suppressing Aftermarket Demand Even As Inventory De-Stocking Runs Its Course

+%

-%

Start of

global

recessionReduction To

Fundamental MRO

Demand Due To

Deferred Maintenance

& Destocking

Reduction To

Fundamental MRO

Demand Due To

Aircraft Cannibalization

& High Use Of Surplus

Parts

Addition To

Fundamental MRO

Demand Due To

Deferred Maintenance

& Destocking

“Normal”

MRO Demand

(Fundamental

Demand =

realized

supplier

demand)

15

Factors Supressing Fundamental MRO Demand


Air Transport

MRO Market

Recovery


AeroStrategy Anticipates Mid-To-Upper Single Digit MRO Growth In 2011

16

Air Transport MRO Market – Realized Supplier Revenue($B) *

0

10

20

30

40

50

60

2008 2010 2012 2014 2016 2018


* Constant 2009 US$

2009: Down 15-20%

Fundamental MRO

demand

Realized supplier

revenue

2010: Low Single

digit growth

2011: Mid-to-upper

single digit growth

2012: Low double

digit growth

Key Assumptions

• Fuel costs remain

high (>$80/bbl)

• Modest global GDP

growth

• Improved airline

profitability

continues in 2011

Air Transport

MRO Market

Recovery


Agenda

17

MRO Middle East

MRO Market Recovery

Market Trends And Challenges


There Are Six Trends That Will Drive The Structure Of The Overall MRO Sector In The Long Term…

Growing interest

in MRO market

from Airframe

OEMs

Continued

increases in

outsourcing

Continuing focus

on cost reduction

Demand for

integrated

support services

Larger share of

demand from

newer generation

aircraft

Civil MRO

Market

Trends


Globalisation

18


Why?

Growing interest

in MRO market

from Airframe

OEMs

Continued

increases in

outsourcing

Continuing focus

on cost reduction

Demand for

integrated

support services

Larger share of

demand from

newer generation

aircraft

Civil MRO

Market

Trends


Globalisation

• New source of revenue and

margin growth for airframe

OEMs

• Natural fleet

migration to

more

efficient

airframes

• Economic

imperative

for airlines

• High relative

growth in

developing

regions

• Global supply

chain

• Predictable

cash flow

• Outsource

investment/

risk

• Focus on core business

• Cost of establishing capability

• Competitive third party market

19


As A Result, Airlines And MROs Face A Number Of Key Challenges In The Future

Civil MRO

Market

Challenges


• Increasingly OEM-centric

supply chain in the long

term

• New relationships

between airframe and

component OEMs,

airlines and independents

will need to develop

• Challenge to airline costs

represented by OEM

price escalation

• Reduce the complexity of

MRO and the supply

chain

• Size, financial strength

and breadth of service

increasingly important

to win larger contracts

• Logistics management

as critical success

factor

20

Growing interest

in MRO market

from Airframe

OEMs

Continued

increases in

outsourcing

Continuing focus

on cost reduction

Demand for

integrated

support services

Larger share of

demand from

newer generation

aircraft

Globalisation


1Thank you for your attention!

EMEA

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United Kingdom

Phone: +44 1494 431-600

Fax: +44 1494 434-500

Email: [email protected]

21

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101 North Main Street, Suite 400

Ann Arbor, Michigan 48104

United States of America

Phone: +1 734 821-0220

Fax: +1 734 821-0221


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Singapore 247977

Phone: +65 9111-8435

Fax: +65 6884-4951


www.aerostrategy.com

MRO Middle East :10 Year Forecast and Trends

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