© Oliver Wyman AVIATION

David A. Marcontell Vice President

APRIL 5, 2016

WINDS OF CHANGE 2016-2026 GLOBAL FLEET & MRO MARKET FORECAST

1 © Oliver Wyman

OUR EXPERIENCE

• +230 professionals across Europe and North America

• Deep aviation knowledge and capabilities allow the practice to deliver data-driven solutions and provide strategic, operational, and organizational advice

OUR CLIENTS

We have worked with more than ¾ of the industry’s Fortune 500 companies, including: • All major US airlines • Leading airlines, MROs, OEMs, and

independent parts manufacturers in the Americas, Europe, and Asia

• Dominant aerospace and defense firms

OUR APPROACH

Data-driven: unbiased benchmarking and forecasting tools to establish problems and identify solutions Innovative: ideas that are forward-thinking Actionable: results-oriented recommendations Collaborative: an emphasis on working with our clients, alongside executives, management, and support teams

Oliver Wyman’s Aviation, Aerospace & Defense practice is the largest and most capable consulting team dedicated to the industry

© Oliver Wyman

2 © Oliver Wyman

This presentation incorporates the betterinsight™ 2016-2026 Global Fleet and MRO Market Forecast and the Oliver Wyman MRO Survey 2016

The betterinsight™ Global Fleet & MRO Market Forecast Commentary, and related market intelligence data is available at planestats.com/betterinsight

3 © Oliver Wyman

The future is now

4 © Oliver Wyman

0

1,000

2,000

3,000

4,000

5,000

2010 2011 2012 2013 2014 2015F 2016FAvailable Seats Revenue Passengers

$0

$100

$200

$300

$400

$500

$600

$700

$800

2010 2011 2012 2013 2014 2015F 2016F

Revenue Expenses Net Profit

0

20

40

60

80

100

2010 2011 2012 2013 2014 2015F 2016FAvailable Freight Tons Freight Tons

Global Air Transport Passenger Volume by Year

Amid weakening economic conditions, the global airline industry is achieving record passenger volumes, record cargo volumes, and record net profits

Millions of Seats

The North American operators are, by far, delivering the strongest financial performance

Global Air Transport Industry Financial Performance by Year

$0

$100

$200

$300

$400

$500

$600

$700

$800

2010 2011 2012 2013 2014 2015F 2016F

Billions of US Dollars

Global Air Transport Cargo Volume by Year

Millions of Tons

Revenue Expenses Net Profit

Available Seats

Revenue Passengers

Available Freight Tons Freight Tons

5 © Oliver Wyman

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Jet Fuel Brent WTI

Crude Oil and Jet Fuel Spot Prices per Gallon by Year

Record net profits are due in large part to the glut in the oil market. As oil prices are expected to remain low over the short term, many are concluding that operators will delay retirements, and defer new aircraft.

US Dollars

New gen narrowbody aircraft are more profitable than current gen

New gen widebody aircraft are more profitable than current gen

To date, operators have not shown signs of significantly altering fleet plans. OEM order backlogs continue to grow, and new aircraft deliveries are at an all time high.

Jet Fuel WTI Crude Oil Brent Crude Oil Cone of Uncertainty

6 © Oliver Wyman

2001-2015 Aircraft Delivery Year Over Year Growth Rate Compared to Fuel Price

Compared to Net Profit

Compared to Economic Indicators

Contrary to popular belief, jet fuel prices and economic indicators have not had a direct effect on the delivery of new aircraft

Aircraft Delivery Growth Rate

Aircraft Delivery Growth Rate

Aircraft Delivery Growth Rate

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2001 2004 2007 2010 2013

Real GDP 10 Year T Note

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2001 2004 2007 2010 2013

Jet Fuel

-600.0%

-400.0%

-200.0%

0.0%

200.0%

400.0%

600.0%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2001 2004 2007 2010 2013

Net Profit

Percentage Rate

Percentage Rate

Percentage Rate

Of all factors that could have an effect on new aircraft deliveries, net profit from two years prior has the strongest correlation coefficient (70%)

10 Year T Note

Real GDP Jet Fuel Net Profit

7 © Oliver Wyman

Q: Below what sustained oil price would you consider adding older aircraft into your fleet?

Q: How much longer would oil prices need to stay below $50 to have a real impact on your fleet decisions?

In order to corroborate trends in deliveries and retirements, we asked operators how the price of fuel was impacting their fleet decisions in the Oliver Wyman MRO Survey 2016

12 Months

18 Months or longer

Already noticing a change

71%

At no price

$60-$70

$40-$50

70%

18%

12%

6%

23%

Delivery decisions are made many years in advance and make a very stable and predictable variable that runs independently of macro level factors

8 © Oliver Wyman

Transferred to a

commercial operator 8

Completed freighter conversion

49

Unknown prior exclusion 59

Removed from storage 419

New aircraft delivery

1,633

Storage for conversion

into a freighter (3)

Transferred to a

non-commercial operator (18)

Involved in an accident

(28)

Formally retired (166)

Sent to storage

(1,198)

2,168 Aircraft Additions (1,413)

Aircraft Removals

Year Over Year Changes to the In-Service Fleet by Transaction Type

Over the past year, status changes to 3,581 aircraft have lead the in-service fleet to experience a net growth of 755 aircraft, representing a 3.2% annual growth rate

3.2%

23,785 2015 In-Service Fleet

24,540 2016 In-Service Fleet

New aircraft delivery 1,633

9 © Oliver Wyman

18,000

23,000

28,000

33,000

38,000

43,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Brent

18,000

23,000

28,000

33,000

38,000

43,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Fleet

Global In-Service Fleet Forecast by Year

While the fleet is growing at a healthy rate, and the industry is reveling in historic net profits, uncertainties surrounding economic growth, interest rates, and oil could disrupt the delicate balance we are enjoying today

Number of Aircraft

24,540

We forecast the fleet will increase by nearly 9,900 aircraft by 2026, representing an average annual growth rate of 3.4%

34,437

Historical Fleet betterinsight™ Forecast

10 © Oliver Wyman

18,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 202618,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Fleet

Global In-Service Fleet Forecast by Year

While the fleet is growing at a healthy rate, and the industry is reveling in historic net profits, uncertainties surrounding economic growth, interest rates, and oil could disrupt the delicate balance we are enjoying today

Number of Aircraft

No matter which forecast scenario comes to fruition, the winds of change are blowing through our industry

24,540

CLOUD NINE

GDP

FUEL PRICES

TRAFFIC

INTEREST RATES

Historical Fleet betterinsight™ Forecast

Likely Alternate Scenarios Best/Worse Case Alternate Scenarios

11 © Oliver Wyman

18,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 202618,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Fleet

Global In-Service Fleet Forecast by Year

While the fleet is growing at a healthy rate, and the industry is reveling in historic net profits, uncertainties surrounding economic growth, interest rates, and oil could disrupt the delicate balance we are enjoying today

Number of Aircraft

No matter which forecast scenario comes to fruition, the winds of change are blowing through our industry

24,540

BLACK SWAN

GDP

FUEL PRICES

TRAFFIC

INTEREST RATES

Historical Fleet betterinsight™ Forecast

Likely Alternate Scenarios Best/Worse Case Alternate Scenarios

12 © Oliver Wyman

18,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 202618,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 202618,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Fleet

Global In-Service Fleet Forecast by Year

While the fleet is growing at a healthy rate, and the industry is reveling in historic net profits, uncertainties surrounding economic growth, interest rates, and oil could disrupt the delicate balance we are enjoying today

Number of Aircraft

No matter which forecast scenario comes to fruition, the winds of change are blowing through our industry

24,540

STRENGTHENED ECONOMY

GDP

FUEL PRICES

TRAFFIC

INTEREST RATES

Historical Fleet betterinsight™ Forecast

Likely Alternate Scenarios Best/Worse Case Alternate Scenarios

13 © Oliver Wyman

18,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 202618,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 202618,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Fleet

Global In-Service Fleet Forecast by Year

While the fleet is growing at a healthy rate, and the industry is reveling in historic net profits, uncertainties surrounding economic growth, interest rates, and oil could disrupt the delicate balance we are enjoying today

Number of Aircraft

No matter which forecast scenario comes to fruition, the winds of change are blowing through our industry

24,540

WEAKENED ECONOMY

GDP

FUEL PRICES

TRAFFIC

INTEREST RATES

Historical Fleet betterinsight™ Forecast

Likely Alternate Scenarios Best/Worse Case Alternate Scenarios

14 © Oliver Wyman

18,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 202618,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 202618,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Fleet

Global In-Service Fleet Forecast by Year

While the fleet is growing at a healthy rate, and the industry is reveling in historic net profits, uncertainties surrounding economic growth, interest rates, and oil could disrupt the delicate balance we are enjoying today

Number of Aircraft

No matter which forecast scenario comes to fruition, the winds of change are blowing through our industry

24,540 BLACK SWAN

WEAKENED ECONOMY

STRENGTHENED ECONOMY

CLOUD NINE

Historical Fleet betterinsight™ Forecast

Likely Alternate Scenarios Best/Worse Case Alternate Scenarios

15 © Oliver Wyman

1 2 3 4 New

Technology Regional

Shift Fleet Mix

Aircraft Retirements

16 © Oliver Wyman

2016-2025 Global New Aircraft Delivery Forecast Next Gen vs Legacy

The increase in new technology will be the prevailing tailwind behind the changes in the global fleet and the airline industry over the next decade

Number of Aircraft

By the end of the forecast period, next generation aircraft will account for nearly all new deliveries and comprise over half of the global fleet

2016-2026 Global In-Service Fleet Forecast Next Gen vs Legacy

Number of Aircraft

33%

97% 0

500

1,000

1,500

2,000

2,500

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Legacy Next Gen

1 2 3 4

10%

54%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Legacy Next GenLegacy Next Gen Legacy Next Gen

17 © Oliver Wyman

0

20

40

60

80

100

120

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Fleet

0

20

40

60

80

100

120

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Fleet

Global In-Service Fleet Data Generation per Year by Year

Next generation aircraft are equipped with new technologies enabling unprecedented collection and transmission of data at both the system and part level

Billions of Gigabytes

This surge of data, in the hands of a new breed of data scientists and innovative management teams, creates massive potential to change how aircraft are cared for

1 4

98

1 2 3 4

18 © Oliver Wyman

Increased interaction with third parties to interpret data

Increased need for data storage

Increased need for data analysis skills

Without a clear plan for its collection and application, big data can bring distractions for resource-constrained operators, leading to squandered efforts or abandoned intentions to integrate advanced analytics into MRO

Increased need for internal IT skills

The pathway to a high-impact, productive big data platform will begin with targeted successes on modest improvement initiatives, such as statistically reliability analysis on high-failure parts

Q: “Due to aircraft health monitoring we have experienced a noticeable...”

Increased guidance from third parties to plan and schedule maintenance

65%

45%

27%

22%

10%

1 2 3 4

19 © Oliver Wyman

As the mature North American and Western European markets continue to undergo significant re-fleeting efforts and tightly control capacity, there will be boisterous shift towards Asia

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

1 2 3 4

2016 In-Service Fleet by Region

North America

7,491

Latin America

1,762

Western Europe

4,942

Eastern Europe

1,209

Africa

1,048

China

2,460

Asia Pacific

3,986

Middle East

1,234

India

408

20 © Oliver Wyman

As the mature North American and Western European markets continue to undergo significant re-fleeting efforts and tightly control capacity, there will be boisterous shift towards Asia

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

1 2 3 4

2026 In-Service Fleet by Region

North America

8,067

Latin America

2,614

Western Europe

5,820

Eastern Europe

1,453

Africa

1,213

China 5,771 Middle East

2,313

India

706

3,000

0

1,000

2,000

Asia Pacific 6,477

21 © Oliver Wyman

If you are thinking about growth, you should be thinking about Asia

1 2 3 4

22 © Oliver Wyman

2016-2026 Global Fleet Forecast by Aircraft Class

Seeking to mitigate the financial risk from historically volatile fuel prices and to operate more efficiently, operators around the world are discarding smaller regional jets and turboprops to move up to narrow-body aircraft

Share of Fleet

The cargo fleet will always play an important role in air service, but it’s relative share of the fleet will decrease over the next decade. New generation passenger aircraft offer more cargo space, and competition from ships, trucks, and trains is mounting.

2016-2026 Global Fleet Forecast by Aircraft Usage

Share of Fleet

56% 63%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

NB WB RJ TP

1 2 3 4

92% 94%

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Passenger CargoPassenger Cargo NB WB RJ TP

23 © Oliver Wyman

2016-2025 Global Aircraft Retirement Forecast by Aircraft Vintage

0

200

400

600

800

1,000

1,200

1,400

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

1970's 1980's 1990's 2000's 2010's

Nearly half of the current global fleet is forecast to retire by 2026 with the majority of those being of 1990s vintage. In light of this, we asked operators about their retirement planning

Number of Aircraft

Nearly 80% reported that retirements are planned at least three years in advance, indicating that short-term industry events are not influencing retirement schedules

1 2 3 4

2 Years

1 Year

3-5 Years

16%

47%

5+ Years

Q: When does your organization start planning for a fleet retirement?

32%

5%

1970’s 1980’s

2000’s 2010’s

1990’s

24 © Oliver Wyman

2016-2026 Global Materials Market Forecast USM vs All Other Materials

Record increases in retirements are expected to have a significant impact on the availability and use of used serviceable material over the next decade

Billions of US Dollars

Greater utilization of USM material, particularly in 1990’s vintage aircraft, will impact material pricing, and may reduce the cost of an engine shop visit by 10%-20%

5.9% CAGR

4.3% CAGR

$30

$35

$40

$45

$50

$55

$60

$65

$70

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

All Other Materials USM

1 2 3 4

All Other Materials USM

25 © Oliver Wyman

Q: In five years, who will exert the greatest control over the surplus market?

Q: What is your current activity or near team (next 12 months) plan to purchase used serviceable material (USM) for aircraft maintenance in lieu of purchasing new or repairing an existing part?

Though growing, the USM market is not without challenges. OEMs are currently the largest customers of USM, and it is expected that their control of the market will continue to grow as they look to regain material pricing power

OEMs

Other

Airlines

80%

MROs

6%

6%

18%

Aggressively incorporate USM in all activities

Not a priority

Use it occasionally for cost analysis

37%

Use it occasionally

15%

15%

34%

1 2 3 4

26 © Oliver Wyman

LINE $12.8B

COMPONENT $13.1B

AIRFRAME & MODS $16.0B

Translating the fleet dynamics into MRO, we forecast the 2016 global commercial MRO market to be $67.7B

ENGINE $25.6B

Engine MRO continues to be the driver of growth in the market

2016 Global MRO Market Forecast by MRO Segment

27 © Oliver Wyman

$40

$50

$60

$70

$80

$90

$100

$110

$120

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Fleet

$40

$50

$60

$70

$80

$90

$100

$110

$120

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Fleet

Global MRO Market Forecast by Year

As MRO is a product of the size, complexion, and utilization of the fleet, the market should continue to grow at a robust pace, weathering all but the most traumatic economic shifts

Billions of US Dollars

$67.7

$98.9

We forecast total MRO spend to increase by over $31 billion by 2026, which would represent a year-over-year increase of 3.9%

Historical MRO betterinsight™ Forecast

28 © Oliver Wyman

$40

$50

$60

$70

$80

$90

$100

$110

$120

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026$40

$50

$60

$70

$80

$90

$100

$110

$120

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026$40

$50

$60

$70

$80

$90

$100

$110

$120

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Fleet

Global MRO Market Forecast by Year

As MRO is a product of the size, complexion, and utilization of the fleet, the market should continue to grow at a robust pace, weathering all but the most traumatic economic shifts

Billions of US Dollars

The uncertainty surrounding global economic conditions, while adversely impacting the size of the global fleet, could benefit the MRO Market

$67.7 BLACK SWAN

STRENGTHENED ECONOMY

WEAKENED ECONOMY

CLOUD NINE

Likely Alternate Scenarios Best/Worse Case Alternate Scenarios

Historical MRO betterinsight™ Forecast

29 © Oliver Wyman

2016-2026 North American MRO Market Forecast by MRO Segment

When singling out North America the picture looks quite different. The North American fleet is forecast to have an average annual growth rate of less than 1% as operators continue to refleet at unprecedented rates.

Billions of US Dollars

Additionally, the influx of new-build next generation aircraft, and the systematic elimination of aging fleets is expected to cause stagnation in the MRO Market

2016-2026 North American MRO Market Forecast Next Gen vs Legacy

Billions of US Dollars

3% 15%

$0

$5

$10

$15

$20

$25

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Legacy Next Gen

25% 21%

$0

$5

$10

$15

$20

$25

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Airframe Engine Component LineAirframe Engine Legacy Next Gen

Component Line

30 © Oliver Wyman

MR

O R

ESPO

ND

ENTS

AIR

LINE R

ESPON

DEN

TS

Q: In the next five years, the top three elements of differentiation and Competitive advantage for MROs will be:

With market stagnation expected, if you are thinking about growth in North America, you should think about how to compete on:

Price

Customer Service

Labor Rate

OEM Network Relationship

Overhaul Efficiency

Asset Availability

More Time On-wing

58%

58%

50%

33%

33%

17%

42%

17%

53%

32%

32%

26%

21%

5%

31 © Oliver Wyman

Take the controls and make strategic investments now:

New technology aircraft are creating unprecedented needs for data analysis

The mature markets are stagnating, and the nexus of MRO is shifting to Asia

The regional jet and turboprop markets will decline as operators upgauge to narrowbodies

Increased retirements will lead to greater availability and use of USM, which will significantly

impact MRO costs

Price and customer service are the driving levers to compete in a stagnant MRO market

Our intelligent forecast products are available for direct purchase at

planestats.com/betterinsight