The Global MRO Forecast A Look Forward 2008 - 2018 by TeamSAI

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Transcript of The Global MRO Forecast A Look Forward 2008 - 2018 by TeamSAI

  • 0The Global MRO Forecast A Look Forward

    2008 - 2018

    North American MRO ConventionApril 2008

    Presented by:Christopher DoanPresident & CEO

  • 1Conflicting Forces

    Globally, the airline industry has returned to profitability, but market forces make for a turbulent ride ahead

    Economic downturn Reduced traffic of late Oil hits new highs All while new aircraft delivery forecast up:

    Fuel efficiency creates a cost advantage But if revenue or demand falls too much, near term deliveries may be pushed out

    Despite these ominous signs from the airlines, MRO market growth predictions remain strong

    Regional competitiveness & general skilled labor shortages driving labor rates up Maintenance queued up for forecast period is a result of fleet/schedule decisions of

    5 & 10 years ago Deferrals would require parking or permanent capacity reductions

    How can we reconcile the conflicting forces at work?

  • 2Global Airline Industry Struggles To Maintain Recovery

    After 6 straight years of losses Finally a return to profit in 2007 $42B losses since 2001 U.S. airlines hardest hit

    Unit revenues have been improving slowly Seats more balanced with demand Utilization of aircraft increasing Fares are clearly higher

    Oil prices pushing fuel to 30% of operating costs

    $110/b all-time record Decline expected with bubble burst IATA still forecasting $78/b for 2008 Goldman Sachs forecast: $60-$200/b

    Starting to see a shift in carrier behavior Capacity reductions New bankruptcies Cessation of operations

    Source: IATA and Energy Information Administration

  • 3Airline Industry Giving Mixed Signals

    Credit market crisis driving U.S. and global economy to the brink of recession

    Passenger and cargo traffic slowing due to economic weakness Record backlog and new plane deliveries cannot be sustained

    Likely to produce delivery deferrals

    Environmental concerns will be increasingly at the forefront

    U.S. Expect drop in profits Disciplined capacity growth

    Focus on more profitable intl routes Consolidation considered imminent

    Europe Somewhat insulated from downturn Stronger euro in face of rising fuel prices

    Gulf region expansion will challengeEuropean carriers profitable routes

    Asia Pacific Sheltered, but margins eroding Cargo market sees continued decline

    Middle East Fast growth may begin to normalize as industry matures

    South America Higher exposure to U.S. Downturn Growth hampered by infrastructure problems

  • 4But MRO Growth Forecast Remains Strong

    Market drivers all have impact on MRO, but long-term growth is still expected

    Economic Downturn/ Reduced Traffic

    Maintenance requirements accumulate due to previous flying (limited)

    Airline ConsolidationReduction in capacity will ultimately be outpaced by realignment of work & overall increase in demand

    Possible Reduced New Deliveries

    Reduction in deliveries will likely just mean slowing; in the long run, travel demand will bring about fleet & utilization growth (limited)

    More Efficient AircraftImproved technology & longer intervals will influence MRO spend as these aircraft replace older models

    Environmental DemandsYet to be determined but certain to hasten the advent of more efficient & complex improvements

    Labor Shortage/Weak Dollar

    Labor rates are on the rise; reflected in 4.5% of the market increase

    immediate lastingDRIVER EFFECT ON MRO MARKET SIZE

  • 5Partners

  • 6Orders Are Stronger Than Expected

    2007 third straight year of record orders Total backlog now nearly 7,300

    40% of in-service fleet

    Fleet growth forecast at 4.6% CAGR from 18,816 to 29,437

    ASMs will grow faster at 5.7% CAGR Utilization rates remain high Larger aircraft & more seats Longer routes

    Fleet data courtesy ASCEND

    200818,816

    201829,437

    4.6% CAGR

    Rrgional Jets17%

    Widebody23%

    Narrowbody60%

    Regional Jets19%

    Widebody24%

    Narrowbody57%

    Fleet Average Number of SeatsComposition 2008 2018

    RJ 62 73NB 133 139WB 245 252

    Total 147 154

  • 7MRO Industry Outlook Remains Healthy

    Global growth is expected to maintain a 4.3% CAGR through 2018

    $45.1B industry will grow to $68.6B over 10-year forecast period

    Engine remains largest segment

    Engines42%

    Component19%

    Line18%

    HMV&Mod21%

    2008 Segment Value Mix

  • 8MRO Forecast & Historical Forecast

    2007-2008 growth rate strongest YoY in history10.9%

    4.4%

    3.5%

    4.0%

    07-08

    08-13

    13-18

    08-18

    9.6%

    4.6%

    4.4%

    4.5%

    07-08

    08-13

    13-18

    08-18

    10.4%

    4.2%

    4.2%

    4.2%

    07-08

    08-13

    13-18

    08-18

    x`

    10.3%

    4.2%

    4.2%

    4.2%

    07-08

    08-13

    13-18

    08-18

    x`

    growth rates

  • 9MRO Growth Varies As The World Market Matures

    N Americas commanding market share will continue to fall

    $16.6B in 2008 (37% share) $20.2B in 2018 (29% share)

    W Europes share will fall slightly(27% vs. 25%)

    Asia Pacific, excluding China & India, will gain market share

    $6.0B in 2008 (13% share) $11.1B in 2018 (16% share)

    S America gains one point $2.1B in 2008 (5% share) $3.9B in 2018 (6% share)

    All other regions combined gain 5%, growing from $8.4B to $16.3B

    But the top three regions will only fall from 77% to 71%

  • 10

    But U.S. Sees Recent Capacity Reductions

    Major U.S. carriers announce planned parking to reduce capacity

    Less fuel efficient aircraft due for maintenance likely targets

    Abrupt cessation of operations adds to the reduction

    MRO impact will generally be isolated to the North American region, representing relatively small percentage of total market

    Estimated $300M reduction most likely case; potentially $500M for worst case scenario

    But for the MROs that the downturn hits, such impacts are not inconsequential

    North America$16.336%

    impact on market $0.31%

    Asia Pacific$6.013%

    Rest of World$10.523%

    Western Europe$12.027%

    Total Global MRO Market - $45.1B

    North America$16.637%

  • 11

    Continued cost pressures drive outsourcing trends

    MRO Unit Cost Improvements Significant

    Unit costs have fallen 15% since 2001 Influences include

    Outsourcing (lower labor rates) Productivity improvements Design improvements Maintenance program improvements

    But labor pressures are increasing Bill rates in some regions are definitely

    climbing W Europe rates at top of scale China aligned with Asia Pacific average Weak U.S. dollar

    Labor supply tightening

  • 12

    Outsourcing Continues To Grow

    Provides total cost advantage Offers more flexibility to operators Gives independent MROs opportunity to

    form credible network

    Affords larger players key advantages Lufthansa Technik & ST Aero have been

    very aggressive leaders driving globalization

    Additional regulation may temper outsourcing growth somewhat, but large players will adapt

    Independent MROs have theability to offer more value

  • 13

    Airframe Outsourcing Stays Close To Home

    Outsourced 64%Spend $1.5B1

    N. America 65%Asia 26%

    Europe 3%Other 6%

    North America Europe Asia

    1 HMV (check) activity excludes modifications here for this analysis. Total HMV (including Mods): NA = $3.6B, Europe = $3.2B, Asia = $1.7B; Other = $1.2B and includes Middle East, South America, Africa

    Outsourced 47%Spend $1.0B1

    Europe 76%Asia 12%

    N. America 2%Other 10%

    Outsourced 56%Spend $0.6B1

    Asia 93%Europe 4%

    N. America 0%Other 3%

  • 14

    Same Trend For Engines, Except In Asia

    1 Total Engine: NA = $6.8B, Europe = $4.9B, Asia = $4.5B; Other = $2.6B and includes Middle East, South America, Africa

    Outsourced 77%Spend $5.2B1

    N. America 75%Europe 19%

    Asia 2%Other 4%

    North America Europe AsiaOutsourced 71%

    Spend $3.5B1

    Europe 71%N. America 23%

    Asia 3%Other 3%

    Outsourced 73%Spend $3.3B1

    Europe 45%N. America 28%

    Asia 26%Other 1%

  • 15

    Trends&

    Strategies

  • 16

    Globalization & Consolidation Continue

    Bigger Players Offer

    More services More points of repair More innovation More flexibility Competitive prices

    Increasing market share Total care services Logistics services/

    component Single point-of-service

    management Outsourcing to cost-

    competitive locations OEMs accessing repair

    revenue streams

    Examples

    Lufthansa Technik & ST Aero AAR: Reebaire & Avborne acquisitions Abu Dhabi Aircraft Technologies

    expanding into total care provider Dubai Aerospace making substantial

    investment AMETEK: Drake Air, Umeco Significant partnership expansion

    - Boeing / Air India JV- CFM56 capacity growth- LHT Hyderabad partnership

    Messiers move from Dulles to Mexico Delta/Chromalloy CFM56 PMA deal

    Impact

  • 17

    Search For Value Continues To Bring About Change

    Financial Players Offer

    Opportunities for new business ventures and products

    Increased working capital

    Increased investment capital

    Private equity over debt

    Improved operational focus

    Greater market penetration and share

    New business revenue

    Technology improvements

    DAE divest Landmark Aviations FBO business to GTC