The MRO Market & Key Trends - APMEXPO...The race is on… new battlegrounds are emerging across the...

ICF proprietary and confidential. © ICF 2018

THE MRO MARKET & KEY TRENDSMRO Summit29 May 2018London

Richard BrownPrincipal

[email protected]

© ICF 2018


Today’s Agenda

1. Industry Context

2.MRO Market

3.Trends to watch

2


Industry

Context

3


The global airline industry is forecast to achieve a record profitability of over $38B USD in 2018

INDUSTRY CONTEXT

GLOBAL AIRLINE PROFITABILITY, 1998 – 2018F

-$30

-$20

-$10

$0

$10

$20

$30

$40

$USD

Billions

Europe, $11.5B

Africa, -$0.1B

North America, $16.4B

Asia Pacific, $9B

Middle East, $0.6BLatin America, $0.9B

$38.3B

4

Source: IATA/ ICF Analysis


…but many airlines continue to struggle though North America has been a bright spot and was leading the way in 2017

INDUSTRY CONTEXT

-1.8%

-4.7%

0.1%

2.3%

1.0%

-0.9%

3.4%

4.7%

0.7%1.5%

3.0%

-0.4%

12.9%

5.2%

4.5%

2.9%

0.7%

-3.6%-5%

0%

5%

10%

15%2008 2012 2017F

Source: IATA/ ICF Analysis

GLOBAL AIRLINE EBIT MARGIN BY REGION

5


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

Dec-0

7

Apr-

08

Aug

-08

Dec-0

8

Apr-

09

Aug

-09

Dec-0

9

Apr-

10

Aug

-10

Dec-1

0

Apr-

11

Aug

-11

Dec-1

1

Apr-

12

Aug

-12

De

c-1

2

Apr-

13

Aug

-13

Dec-1

3

Apr-

14

Aug

-14

Dec-1

4

Apr-

15

Aug

-15

Dec-1

5

Apr-

16

Aug

-16

Dec-1

6

Apr-

17

Aug

-17

De

c-1

7

Apr-

18

U.S. Gulf Coast Kerosene-Type Jet Fuel Spot Price

Jet fuel price has remained low over the past couple of years but has been creeping up recently

INDUSTRY CONTEXT

Source: EIA; ICF analysis

US$ per

Gallon

6


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

COMMERCIAL AIRCRAFT OEM PRODUCTION BACKLOG DRIVERS OF OEM BACKLOG

Backlog more than doubled

between 2010 and 2014,

driven by:

– Emerging market growth

– Very low interest rates and

plentiful capital

– High oil and commodity

prices

– Introduction of new

technology aircraft/engines

In 2017, total backlog

decreased for the first time

since 2009 as deliveries ramp-

up and orders slowdown

Commercial aircraft OEM production backlog remains at historical highs

INDUSTRY CONTEXT

Source: CAPA, ICF Analysis

Order

BacklogBacklog/

% Active Fleet

# of aircraft

7


MRO Market

8


NarrowbodyJet

WidebodyJet

Turboprop

Regional Jet

55%

13%

19%

13%

The current commercial air transport fleet consists of ~29,100 aircraft; ~8,500 are located in North America

MRO MARKET

2017 GLOBAL COMMERCIAL AIR TRANSPORT FLEET

Source: ICF Analysis: CAPA 2017

BY AIRCRAFT TYPE

~29,100

Aircraft

BY GLOBAL REGION

29%

29%

24%

7%

6%5%

Latin America

Africa North

America

(~8,500)

Asia

Pacific

Middle East

~29,100

Aircraft

Europe

9


29%35%

37%

29%

23%

20%24%

23%

22%

7%

8%

8%

7%

7%

5%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2017 2027 2037

Africa, 3.5%

Middle East, 5.6%

South America, 3.6%

Europe, 2.5%

North America, 0.8%

Asia Pacific, 5.0%

The combination of strong air travel demand and the need to replace ageing aircraft will drive fleet growth at a healthy 3.1% p.a.

MRO MARKET

20 YEAR GLOBAL AIR TRANSPORT FLEET GROWTH


~29,100

~39,600

Region, 10y CAGR

Total: 3.1%

# Aircraft

~46,900

10

~9,600

~17,500

~8,500

~8,500

~9,200

~13,700


Engines

Components

Line

Airframe

Modifications

42%

13%

17%

7%

2017 commercial air transport MRO demand is $75.5B; Asia is now larger than North America and Europe in market size

MRO MARKET

2017 COMMERCIAL AIR TRANSPORT GLOBAL MRO DEMAND


BY MRO SEGMENT

$75.5B

BY GLOBAL REGION

31%

26%

25%

8%

6% 4%Middle

East

Africa

Asia

Pacific

North America

$19.4B

South

America

$75.5B

Europe

~$19B21%

11


42%

45%46%

21%

20%

20%

17%

15%

14%

13%

12%

11%

8%

8%

8%

$0

$20

$40

$60

$80

$100

$120

$140

2017 2027 2037

Modfications, 5.8%

AHM, 3.5%

Line, 3.3%

Component, 4.3%

Engine, 5.2%

The global MRO market is expected to grow by 4.6% per annum to ~$118B by 2027

MRO MARKET

20 YEAR GLOBAL COMMERCIAL AIR TRANSPORT MRO DEMAND

Source: ICF Analysis: CAPA 2017, 2017 constant $

~$76B

~$118B

Total: 4.6%

$ USD

(billions) ~$140BRegion, 10 y CAGR

12


31%

36%38%

26%

19%

18%

25%

23%

21%

8%

11%

10%

6%

7%

7%

5%

$0

$20

$40

$60

$80

$100

$120

$140

2017 2027 2037

Africa, 6.1%

South America, 5.7%

Middle East, 7.9%

Europe, 3.3%

North America, 1.7%

Asia Pacific, 6.1%

Asia continues to grow strongly and will generate 38% of MRO demand by 2037…

MRO MARKET

20 YEAR GLOBAL COMMERCIAL AIR TRANSPORT MRO DEMAND


~$76B

~$118B

Total: 4.6%

$ USD

(billions) ~$140BRegion, 10y CAGR

13

~$29.7B

~$19.2B

~$26.5B


42%43%

45%

21%

20%20%16%

15%14%

13%

12%12%

8%

9%9%

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

2017 2027 2037

Modfications, 2.9%

AHM, 1.3%

Line, 1.5%

Component, 2.0%

Engine, 2.4%

The MRO market in Western Europe is expected to grow by 2.1% per annum to ~$16B by 2027

MRO MARKET

20 YEAR COMMERCIAL AIR TRANSPORT MRO DEMAND IN WESTERN EUROPE


~$13B

~$16B

Total: 2.1%

$ USD

(billions)

~$17B

Region, 10 y CAGR

14


42%

45%44%

20%

20%

20%

17%

15%

15%

13%

12%

13%

8%

8%

8%

$0

$2

$4

$6

$8

$10

$12

$14

2017 2027 2037

Modfications, 6.6%

AHM, 4.4%

Line, 4.3%

Component, 5.5%

Engine, 6.2%

The MRO market in Eastern Europe & CIS is expected to grow by 5.5% per annum to ~$10B by 2027

MRO MARKET

20 YEAR COMMERCIAL AIR TRANSPORT MRO DEMAND IN EASTERN EUROPE


~$6B

~$10B

Total: 5.5%

$ USD

(billions)

~$12B

Region, 10 y CAGR

15

$25 $24 $23 $23 $22 $21 $20 $19 $17 $16 $14

$42 $44 $46 $47 $48 $48 $48 $47 $45

$42 $39

$9 $11

$14 $17 $21 $25 $30 $37 $45 $55 $64 $76

$79 $83

$87 $91

$94 $98

$103 $108

$113 $118

0

10

20

30

40

50

60

70

80

90

100

110

120

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

New, 22.2%

Mature, -0.7%

Sunset, -5.3%

The 1990s/2000s technology aircraft are generating most MRO; However, new technology aircraft will comprise ~55% of MRO spend in 2027

16

MRO MARKET

ICF FORECAST: 2017-2027 TOTAL MRO DEMAND BY A/C MATURITY

A/C Maturity, CAGR

Total: 4.6%

$ USD (billions)

Note: constant 2017 USD

A/C Maturity: Sunset (1960s, 1970s and 1980s), Mature (1990s), New (2000s, 2010s and 2020s)

Source: ICF



Trends To

Watch

17


Consolidation continues among System OEMs

TRENDS TO WATCH

Melrose acquires GKN

2018

Splits off 2 divisions,

keeps Aerospace

2017Rockwell Collins

acquires B/E

Aerospace

2016

Safran acquires

Zodiac

2017

UTC plans to

acquires

Rockwell Collins

2017

?

18

Next?Acquisitions?

Divestments?

BOEING

Boeing announces

acquisition of KLX

2018

?

ICF proprietary and confidential. © ICF 2018ICF proprietary and confidential. © ICF 2018 19

Impact of New

Technology

Aircraft

ICF proprietary and confidential. © ICF 2018ICF proprietary and confidential. © ICF 2018

~9k

17k

24k

~29k

~35k

~39k

0

10,000

20,000

30,000

40,000

2017 2022 2027

# aircraft

Limited AHM, -2.7%

AHM, 10.4%

ICF IN-SERVICE AIR TRANSPORT FLEET FORECAST OBSERVATION

ICF expects ~23,500 aircraft

will be equipped with Aircraft

Health Monitoring (AHM) by

2027, growing at 10.4% CAGR

This is driving a digitisation of

aircraft operations, which will

see high growth in the e-

enabled services and further

advances in health

management

The fleet of e-enabled aircraft is set to more than double over the next decade

20

IMPACT OF NEW TECHNOLOGY AIRCRAFT

Source: ICF

AHM adoption,

2017 – 2027

CAGR

TOTAL = 3.0%

~60%

~50%

~30%


AHM can be viewed as a subset of data management value chain…

21


Source: ICF

Diagnostics Prognostics

Determining whether

the component is

performing its

function

Predicting the

remaining life of a

component

Troubleshoot while

the aircraft is in

flight or after it lands

Customize

maintenance program

to prevent unscheduled

downtime

Diagnostic Prognostic

Aircraft Health Monitoring is inferring the state

of the aircraft.

Aircraft Health Management is extracting value

from this information.

Aircraft Health Management goes

beyond predicting and replacing

components, it incorporates flight

operations and helps airlines in fleet

and inventory management

Acquisition & Synthesis

Trans-mission

Storage AnalysisMRO

PlanningMRO

ActionRecords Keeping

Aircraft Data Management Value Chain


The race is on… new battlegrounds are emerging across the MRO market

22


Source: ICF

2017

AnalytX

BOEING

Avasio

2015

2015

Analytics

Division

Skywise

2017

2017

Aviatar2017

R2 Data Labs

2017

FlightPulse

2017

United

Technologies

Digital Division

Digital Solutions

2017

Prognos

2016

Availability

Centre

2017

EngineWise

2017

Predictive

Maintenance

Partnership

2018

2015

Digital

Collaboration

Centre in Dubai


OEMs & MROs are embracing partnerships to cover the MRO data value chain…

23


DATA VALUE CHAIN PARTNERSHIP EXAMPLES

Source: ICF


Trans-mission

Storage AnalysisMRO

PlanningMRO


Engine Health

Monitoring

Partnership

BOEING

Digital aviation

applications

partnership


Airbus FOMAX (RC) IBM Palantir In-house MRO network -

BOEINGTeledyne +

Honeywell?

ACARS /

Gate Wi-FiMicrosoft

BOEING

AnalytXBOEING BOEING

-ACARS /

Gate Wi-FiIBM

IBM provides

access to WatsonAMOS In-house FlyDocs

AFI-KLM -ACARS /

Gate Wi-Fin/a n/a In-house -

-ACARS /

Gate Wi-Fi -

… Though the level of partnership varies across the various parts of the data value chain

24


OVERVIEW OF AIRCRAFT DATA VALUE CHAIN PARTNERSHIPS

Source: ICF


Trans-mission

Storage AnalysisMRO

PlanningMRO


MRO Alliance


Digitisation could enable airlines to save in excess of $5B/year through lower fuel, maintenance and delay costs

25


Health Monitoring and Predictive Maintenance

Airline Industry savings: ~$3B (conservative estimate)

Driven by improved dispatch reliability, No Fault Found reduction, Inventory reduction

and Improved labour productivity

Fuel Cost Savings

Airline Industry savings: ~$1.7B (conservative estimate)

Continuous flight optimisation through live

weather updates, speed and altitude

optimisation…

Delay Reduction

Airline Industry savings:

~$0.8B (conservative

estimate)

Improved turnaround process,

in-flight routing optimisation

Source: ICF


Several airlines are seeing the first tangible benefits of their aircraft health monitoring trials


Source: MRO-Network

Delta achieved a 100% completion

factor for 241 days in 2017, with a

98% reduction in maintenance-

related cancellations

Results of Delta’s Predictive Maintenance approach

1,000(Over 1-year timespan)

Drop in maintenance-related cancellations of…

Southwest to install AHM on complete 737 NG

fleet to improve performance

98%(Over 2010 - 2016)

Avoided Engine Events Cancellation reduction

31 Events

31 instances of Skywise correctly predicting

faults before they occurred in service,

allowing the carrier to intervene and remove

components before they failed

easyJet 51%

Cathay Pacific reduced APU-related delay

minutes by 51% using Honeywell’s

predictive maintenance trial program

Cathay Pacific

26


Lifecycle

Strategies

27


Finally, Aftermarket strategies vary across the aircraft lifecycle

AFTERMARKET BATTLEGROUNDS

Source: ICF

Introduction Growth Mature Sunset

737CL757

767

MD80

A300/310

747-400A320

Family

A330777

737NG

CRJ-7/-9/-1000

E170/190

A380E2

CSeries

MRJ

MS-21

737MAX

787

A350

Revenue/

ProfitAircraft

OEMS

MRO

Integrators

Independent

MROs

Surplus parts

DER / PMA

747-8

A320neo

Component OEMs

Engine OEMs

Big Data & Connectivity

Intellectual Property Protection

28


Considerations

29


In Conclusion…

CONSIDERATIONS

• The Global Air Transport MRO

market outlook remains robust at

$76B growing to $118B over the

next decade (an expected growth of

4.6% per annum)

• European MRO generates $19.4B of

MRO demand and will grow to

$26.5B by 2027 at 3.3% CAGR

• New technology aircraft and engines

are creating both new challenges

and opportunities for aviation

stakeholders including how best to

leverage big data to reduce operator

costs, help increase efficiency and

increase reliability

30

ICF proprietary and confidential. Do not copy, distribute, or disclose. 31

Let’s Make Big

Things PossibleConsulting for the

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Airlines | Airports | Aircraft | Aerospace and Maintenance

Helping you manage assets and

operations, mitigate risk, and maximize

return on investment.

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Serving the

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Community

Since 1963

Broad Perspective.

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aviation practice was founded as SH&E in 1963 and expanded with

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Visit us online at icf.com/aviation.

ICF Aviation

Comprehensive Services:

Airlines

Fleet and network planning, pricing

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Airports

Strategic planning, policy, route

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Aircraft

Valuations, cash flow forecasts,

portfolio due diligence, market analysis,

technical services

Aerospace & MRO

Operations assessment, M&A support,

marketing analysis, strategy development

32


Aerospace and MRO

ICF guides manufacturers, airlines, independent MROs, suppliers, and

the financial community through every step of the aerospace and MRO

supply chain to realize value and deliver strategies that drive growth.

We understand and focus on the key aspects of the industry, and have

the proprietary tools necessary for successful operations. Below, we

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Strategy Development

Leveraging years of aerospace and

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Transaction Support

For clients’ investment decisions,

ICF combines global thought

leadership in aerospace and MRO

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Operations and Supply Chain

ICF’s proven tools and methodologies

offer improved performance and cost

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MRO Business Improvement

For airlines, OEMs, and independent

MROs, ICF has deep experience in

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financial diagnostics based on

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followed by results-oriented

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AEROSPACE AND MRO PRODUCTS

ICF’s suite of proprietary aerospace & MRO

tools, models, and databases helps

stakeholders navigate key business

challenges to their advantage.

Fleet &

MRO ForecastsValue

Database

MRO Best Practices

and Benchmarks

Proprietary, independent

forecasts for commercial and

business aviation, industrial

gas turbine, and military

markets.

Production value breakdown

by component category and

raw material content across

the aerospace supply chain.

Comprehensive, proprietary

databases on processes,

costs, and organization.

33

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