WINDS OF CHANGE - Oliver Wyman€¦ · © Oliver Wyman AVIATION Dave Stewart FEBRUARY 8, 2017 WINDS...

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© Oliver Wyman AVIATION Dave Stewart FEBRUARY 8, 2017 WINDS OF CHANGE 2016-2026 GLOBAL FLEET & MRO MARKET FORECAST

Transcript of WINDS OF CHANGE - Oliver Wyman€¦ · © Oliver Wyman AVIATION Dave Stewart FEBRUARY 8, 2017 WINDS...

Page 1: WINDS OF CHANGE - Oliver Wyman€¦ · © Oliver Wyman AVIATION Dave Stewart FEBRUARY 8, 2017 WINDS OF CHANGE 2016-2026 GLOBAL FLEET & MRO MARKET FORECAST

© Oliver Wyman

AVIATION

Dave Stewart

FEBRUARY 8, 2017

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

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1 © Oliver Wyman

OUR EXPERIENCE

• 232 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

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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

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3 © Oliver Wyman

The future is now

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4 © Oliver Wyman

0

1,000

2,000

3,000

4,000

5,000

2010 2011 2012 2013 2014 2015F 2016F

Available 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 2016F

Available 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

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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

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6 © 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

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7 © 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 prices could disrupt the delicate balance enjoyed 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

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8 © Oliver Wyman

18,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

18,000

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 prices could disrupt the delicate balance enjoyed 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

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9 © Oliver Wyman

18,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

18,000

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 prices could disrupt the delicate balance enjoyed 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

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18,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

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 prices could disrupt the delicate balance enjoyed 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

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18,000

23,000

28,000

33,000

38,000

43,000

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

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 prices could disrupt the delicate balance enjoyed 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

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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 2026

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 prices could disrupt the delicate balance enjoyed 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

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1 2 3 New

Technology

Regional

Shift

Aircraft

Retirements

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14 © 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

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

1 2 3

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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

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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 management we have experienced a noticeable...”

Increased guidance from

third parties to plan and

schedule maintenance

65%

45%

27%

22%

10%

1 2 3

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17 © 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 a continuing shift to the East

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

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

1 2 3

Page 19: WINDS OF CHANGE - Oliver Wyman€¦ · © Oliver Wyman AVIATION Dave Stewart FEBRUARY 8, 2017 WINDS OF CHANGE 2016-2026 GLOBAL FLEET & MRO MARKET FORECAST

18 © 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 a continuing shift to the East

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

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

1 2 3

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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

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

1 2 3

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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 USMAll Other Materials USM

1 2 3

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LINE $12.8B

COMPONENT $13.1B

AIRFRAME & MODS $16.0B

Translating the fleet and market dynamics into MRO, we estimate the 2016 global commercial MRO market was about $68B

ENGINE $25.6B

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

2016 Global MRO Market Forecast

by MRO Segment

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$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, mix, 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

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$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

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$0

$2

$4

$6

$8

$10

$12

$14

$16

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026B

illi

on

s

Middle East Africa

2016-2026 Middle East and Africa MRO Market Forecast

by MRO Segment

The Middle East and Africa regions will experience robust MRO growth over the next ten years at an average annual rate of 6.9% and 4.8%, respectively

Billions of

US Dollars

Engine MRO spend more than doubles during the forecast period while airframe

maintenance remains relatively stagnant

21% 18%

$0

$2

$4

$6

$8

$10

$12

$14

$16

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Airframe Engine Component LineAirframe Engine

Component Line

2016-2026 Middle East and Africa MRO Market Forecast

Middle East vs Africa

Billions of

US Dollars

Middle

East Africa

6.9% p.a

4.8% p.a.

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$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

$2.0

Middle East Africa

Across the Middle East and Africa; spend is concentrated in certain countries, else it’s highly fragmented

201

5 U

S D

ollars

($U

SB

)

$2.8

2016 Middle East and Africa MRO Market Forecast

by Operator Country

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26 © Oliver Wyman

2016-2026 Middle East MRO Market Forecast

by MRO Segment

In the Middle East, the MRO spend generated by the next generation fleet will grow at more than 28% per annum

Billions of

US Dollars

A cautionary note: not all this growth in spend is available to third party suppliers

2016-2026 Middle East MRO Market Forecast

New Gen vs Legacy

Billions of

US Dollars

9% 59%

$0

$2

$4

$6

$8

$10

$12

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026B

illi

on

s

Legacy New Gen

18% 18%

$0

$2

$4

$6

$8

$10

$12

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Airframe Engine Component LineAirframe Engine Legacy New Gen

Component Line

-1.3% p.a

28.4% p.a.

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Saudi Peninsula

• Fleet Size: 290

• MRO Market: $1.0B

While oil prices have stabilized, the area’s

economy is still dependent on this

commodity. Growth opportunities exist but

are limited and/or focused – it’s critical to

get the business case right and do

appropriate due diligence before investing

capital

Sub-Saharan Africa

• Fleet Size: 734

• MRO Market: $1.2B

Declining commodities prices and lower demand

from the sub region’s largest importer China

currently hamper the economic outlook of the

region. Despite on going political turbulence, many

look to the long-term prospects of this commodity-

rich, high population region

United Arab Emirates/Qatar

• Fleet Size: 611

• MRO Market: $3.6B

Significant growth is concentrated in Dubai, Abu

Dhabi and Doha, but not all MRO supply chain

activities are or will be outsourced. OEMs have

the most to gain from the large operators as the

average fleet age is low. Other MRO supply

chain participants must have strong value

propositions and the right market entry strategy

to convince such large airlines to outsource.

North Africa

• Fleet Size: 314

• MRO Market: $0.7B

The fleet consists of mostly aging

turboprops, regional jets and narrow body

aircraft. Outsourced MRO market is

relatively small. This combined with the

political uncertainties makes the sub-region

less attractive for those not already

operating there

Iran, Iraq, Jordan, Lebanon, Syria

• Fleet Size: 333

• MRO Market: $1.0B

Geopolitical uncertainty still abounds and

constrains ability to grow. Lifting of economic

sanctions on Iran should allow the gradual

improvement in the outlook of economies

across the region

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28 © Oliver Wyman

Take the controls and make strategic investments now:

New technology aircraft growth is creating

unprecedented change across the value chain

The mature markets are stagnating,

and the nexus of MRO is shifting Eastwards

Increased retirements will lead to greater

availability and use of USM, which will significantly

impact MRO costs

Growth in the Middle East region is highly

concentrated; opportunities exist but may be tougher

to access than the growth rates imply

Middle East airlines are among the leading

operators of new technology aircraft (scale and

experience); this represents a business opportunity

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29 © Oliver Wyman

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Oliver Wyman’s annual MRO Survey For over a decade, we’ve synthesized key trends and issues in the MRO marketplace via a global survey; all participants get detailed feedback

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David Stewart

Oliver Wyman/Cavok

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London W1U 8EW

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