MRO Middle East :10 Year Forecast and Trends

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  1. 1. 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
  2. 2. Aviation Week MRO Middle East 2011 2011 AeroStrategy Agenda 2 MRO Middle East MRO Market Recovery Market Challenges And Trends
  3. 3. 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 Engine 35% Components 23% Line 20% Airframe Heavy 15% Modifications 7% North America, 32% Europe, 30% Asia Pacific, 17% Latin America, 5% Middle East, 5%, $2.3B China, 5% Africa, 4% India, 1% Air Transport MRO Market Outlook
  4. 4. Aviation Week MRO Middle East 2011 2011 AeroStrategy 4 CAGR Air Transport MRO Market Growth By Segment ($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 $58.4B Total = 3.3%
  5. 5. Aviation Week MRO Middle East 2011 2011 AeroStrategy 5 Air Transport MRO Market Growth By Region ($M)* CAGR Source: AeroStrategy OAG Aviation * 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% NorthAmerica, 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: $4.8B, 8% of total
  6. 6. Aviation Week MRO Middle East 2011 2011 AeroStrategy 6 Military MRO Market Growth By Region ($M)* Source: AeroStrategy OAG Aviation * 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: $5.4B, 7.6% of total
  7. 7. Aviation Week MRO Middle East 2011 2011 AeroStrategy 7 Business Aviation MRO Market Growth By Region ($M)* Source: AeroStrategy OAG Aviation * 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: $640M, 4.9% of total
  8. 8. Aviation Week MRO Middle East 2011 2011 AeroStrategy 8 Civil Helicopter MRO Market Growth By Region ($M)* Source: AeroStrategy OAG Aviation * 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: $412M, 5.2% of total
  9. 9. Aviation Week MRO Middle East 2011 2011 AeroStrategy 9 Middle East MRO Market Growth By Market Segment ($M)* Source: AeroStrategy OAG Aviation * 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%
  10. 10. Aviation Week MRO Middle East 2011 2011 AeroStrategy Agenda 10 MRO Middle East MRO Market Recovery Market Trends And Challenges
  11. 11. Aviation Week MRO Middle East 2011 2011 AeroStrategy 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
  12. 12. Aviation Week MRO Middle East 2011 2011 AeroStrategy 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
  13. 13. Aviation Week MRO Middle East 2011 2011 AeroStrategy 12% 88% A Key Difference From Previous Recessions Is The Smaller Scope Of Parked Aircraft That Could Come Back Given Todays 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
  14. 14. Aviation Week MRO Middle East 2011 2011 AeroStrategy 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 spendingand for some products 30-40%! Source: AeroStrategy interviews Air Transport MRO Market Recovery
  15. 15. Aviation Week MRO Middle East 2011 2011 AeroStrategy Which Is Suppressing Aftermarket Demand Even As Inventory De-Stocking Runs Its Course +% -% Start of global recession Reduction 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 Source: AeroStrategy Air Transport MRO Market Recovery
  16. 16. Aviation Week MRO Middle East 2011 2011 AeroStrategy 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 Source: AeroStrategy * 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
  17. 17. Aviation Week MRO Middle East 2011 2011 AeroStrategy Agenda 17 MRO Middle East MRO Market Recovery Market Trends And Challenges
  18. 18. Aviation Week MRO Middle East 2011 2011 AeroStrategy 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 Source: AeroStrategy Globalisation 18
  19. 19. Aviation Week MRO Middle East 2011 2011 AeroStrategy 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 Source: AeroStrategy Globalisation New source of revenue and margin growth for airframe OEMs Natural fleet migration to more efficient airf