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Page 1: 2015-2025 Asia-Pacific Fleet and Asian MRO Market Forecast

© Oliver WymanAVIATION

Christopher DoanVice President

TUESDAY, NOVEMBER 3, 2015

TURBULENCE AHEADDISENGAGE THE AUTOPILOT2015-2025 GLOBAL FLEET & MRO MARKET FORECAST

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1© Oliver Wyman

Oliver Wyman acquired TeamSAI and integrated the business into CAVOK, its aviation technical consulting and services practice

The respected TeamSAI Global Fleet & MRO Market Forecast, and related betterinsight™ market intelligence data, remains available at www.planestats.com/betterinsight

~150Dedicated CAVOK employees

located in DFW and ATL(Supported by +250 Oliver Wyman

aviation consultants)

+70%of CAVOK staff hold FAA certification/license

+2,300 yearsof combined airline operations expertise

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Global Fleet &MRO Market Outlook

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13,12416,949

21,089

4,686

5,753

7,181

3,396

3,222

2,906

2,721

3,079

3,232

23,927

29,003

34,408

5.2%

4.2%-1.0%2.5%

4.5%

4.5%-2.0%1.0%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2015 '15-'20CAGRS

2020 '20-'25CAGRS

2025

Narrowbody Widebody Regional Jet Turboprop

• Global fleet will grow on average 3.7% annually over the full forecast period

• Passenger fleet expected to grow at 3.8% annually

• Cargo fleet forecast to grow by 2.3% annually

• Narrowbody aircraft will lead the growth

• Regional jets will actually decline in the mix

Key Fleet Forecast Growth Rates

2015-2025 Global Fleet Forecastby Aircraft Class

The global air transport jet and turboprop fleet will grow by more than 10,000 net new aircraft by 2025

Num

ber o

f Airc

raft

The growth outlook, however, varies widely from region to region

3.9%

3.5%

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A 5 pt spread in regional growth rates leads to a significant share shift over the decade ahead

The mature North American and Western European markets will continue to undergo significant refleeting efforts during the next 10 years

2015 Fleet Size

722North America

Europe

Latin America& the Caribbean

Africa / Middle East

Asia Pacific / China / India

0.9%

2.8%

4.7%

5.5%

6.1%

6,131

1,720

1,965

997

1,562

5,235

10YRCAGR

2015- 2025Absolute Growth

2,204

7,420

6,452

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A 5 pt spread in regional growth rates leads to a significant share shift over the decade ahead

The mature North American and Western European markets will continue to undergo significant refleeting efforts during the next 10 years

2025 Fleet Size

North America

Europe

Latin America& the Caribbean

Africa / Middle East

Asia Pacific / China / India 6.1%

7,420

6,131

1,720

2,204

6,452

8,096

2,717

3,766

11,687

8,142

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New Cargo Deliveries

423

New Passenger Deliveries

18,068

664

Cargo Retirements

7,346

Passenger Retirements

Passenger Fleet

716

P2F ConversionsCargo Fleet

43% of all new aircraft deliveries will replace old technology aircraft over the forecast period

The systematic elimination and replacement of older aircraft with new technology aircraft will drive significant change is the business for airlines and maintainers

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New Cargo Deliveries

423

New Passenger Deliveries

18,068

664

Cargo Retirements

7,346

Passenger Retirements

Passenger Fleet

716

P2F ConversionsCargo Fleet

10,481Net Growth

43% of all new aircraft deliveries will replace old technology aircraft over the forecast period

The systematic elimination and replacement of older aircraft with new technology aircraft will drive significant change is the business for airlines and maintainers

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2025 Global Air Transport Fleetby Vintage

2015 Global Air Transport Fleetby Vintage

The significant move towards late generation aircraft, in addition to improving airline costs, will undoubtedly impact MRO dynamics

The result is a staggering change in fleet mix by 2025

1970's2%

1980's26%

1990's63%

2000's9%

1970's0.1%

1980's9%

1990's46%

2000's16%

2010's29%

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22% 19% 17%

42% 45% 47%

19% 18% 19%

18% 18% 18%

0%10%20%30%40%50%60%70%80%90%

100%

2015 2020 2025

Airframe Engine Component Line

$14.5 $15.9 $16.7

$27.9$37.1

$46.8$12.4

$15.2$19.2

$12.3

$15.0

$17.8

$67.1

$83.2

$100.4

1.9%

5.9%

4.1%

4.0%

1.0%

4.8%

4.7%

3.5%

$0

$20

$40

$60

$80

$100

$120

2015 '15-'20CAGRS

2020 '20-'25CAGRS

2025

Airframe Engine Component Line

Global MRO Market Share Forecastby MRO Segment

Global MRO Market Size Forecastby MRO Segment

The fleet dynamics of the period result in a forecast that tops $100 billion by 2025, a 4.1% average annual growth rate

2015

Dol

lars

($U

SB)

Mar

ket S

hare

Airframe Heavy Maintenance costs improve with the new technology while both Engine and Component sectors will take a larger share

4.4%

3.8%

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Shadowing the fleet trends, large differences in regional growth rates will lead to a significant shift in MRO demand

Asia/Pacific, China, & India will be challenged to build the necessary infrastructure capable of handling the volume of MRO the combined region will demand

2015 MRO Spend ($USB)

$1.3North America

Europe

Latin America& the Caribbean

Africa / Middle East

Asia Pacific / China / India

0.6%

3.3%

7.3%

5.5%

6.6%

$17.9

$3.2

$7.0

$3.3

$5.3

$16.5

10YRCAGR

2015- 2025Absolute Growth ($USB)

$7.5

$18.3

$20.0

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Shadowing the fleet trends, large differences in regional growth rates will lead to a significant shift in MRO demand

Asia/Pacific, China, & India will be challenged to build the necessary infrastructure capable of handling the volume of MRO the combined region will demand

2025 MRO Spend ($USB)

North America

Europe

Latin America& the Caribbean

Africa / Middle East

Asia Pacific / China / India 6.6%

$20.0

$17.9

$3.2

$7.5

$18.3

$21.3

$24.9

$6.5

$12.8

$34.8

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Asian Fleet &MRO Market Outlook

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Passenger traffic is soaring in Asia, outpacing fleet growth by 3.0%. Still, the young fleet is growing very quickly

2015 PASSENGER TRAFFIC (RPK) GROWTH

9.1%2015 CURRENT FLEET

6,452

6,500+2015-2025 AIRCRAFT DELIVERIES

1,300+2015-2025 AIRCRAFT RETIREMENTS

+6.1%2015-2025

FLEET CAGR

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Top 10 Asia Aircraft Families - 2025Top 10 Asia Aircraft Families - 2015

In 10 years, over 56% of Asia’s fleet will be new technology aircraft requiring new technical skills and capabilities

A320C/NEO

737NG/MAX

777

747

A330

A340

737CL

A380

767

ATR

A320C/NEO

737NG/MAX

777

A330

787

A350

747

C919

A380

ATR

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$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

2,000 2,800 3,600 4,400$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

2014 2015WTI Brent Jet A

Aircraft Profitability CurveCurrent Generation vs New Generation

Crude Oil Spot Priceper Gallon

Oil prices have plummeted over the past year and could remain low over the short term. Many are concluding that this will cause airlines to alter fleet plans and drive an increase in MRO.

2015

US

Dol

lars

($U

SD)

2015

US

Dol

lars

($U

SD)

Flight Hours

Our view: Long term, oil prices will likely recover, OEM order books will remain largely unaffected, and net fleet growth will progress as forecasted

AUG2014

AUG2015

1 YEARPRICE DROP

New gen aircraft are more profitable than current gen

New gen aircraft are less profitable than current gen

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$18.3 $19.9$22.3 $22.5 $23.8

$26.6 $27.8 $29.2 $30.3 $32.4$34.8

$0

$5

$10

$15

$20

$25

$30

$35

$40

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025Airframe Engine Component Line

2015-2025 Asia MRO Market Forecastby MRO Segment

A sharp increase in the rate of deliveries drives a world-leading 6.6% growth rate in MRO spend over the next ten years

MR

O S

pend

in 2

015

US

Dol

lars

($U

SB)

Despite the solid growth, aftermarket participants will still need to have an aggressive and innovative plan to maintain or grow market share.

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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

Asia/Pacific China India

2015 Asia MRO Market Forecastby Operator Country

Many different dynamics are at play in a region comprised of 44 countries and states; differences in individual economies and resource availability will produce uneven growth in the region

2015

US

Dol

lars

($U

SB)

$5.1

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Australia/New Zealand• Fleet Size: 689• MRO Market: $1.6BHighly affected by strong currencies, operators and MROs in these countries are finding it difficult to compete with the emerging economies of the region.

Indonesia/Malaysia/Singapore• Fleet Size: 877• MRO Market: $2.4BWith a broad range of MRO capabilities, the countries act as the hub of the Asian MRO Market. Continued investments in capabilities and skilled labor will help the countries continue to grow and remain highly competitive with new entrants in the Philippines, Thailand, and Vietnam.

Philippines/Thailand/Vietnam• Fleet Size: 475• MRO Market: $1.5BCountries can open a broad market for themselves by targeting MRO work within Asia. Introducing new capacity and developing a skilled labor force to meet future demand in the region.

China/Hong Kong/Taiwan• Fleet Size: 2,467• MRO Market: $7.5BChina will be a key driver of growth in the region for the next decade. This rapid growth, coupled with rises in labor costs will ultimately cause the operators in the region to look south and east to fulfill their maintenance needs.

Japan• Fleet Size: 593• MRO Market: $1.7BJapan suffers from a lack of workforce. The country will continue supplying materials to the industry, but it does not have the human resources to take on a significant amount of contracted MRO work.

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• Decisions necessary enter new markets for each of airframe, engine and component repairs

New repair capabilities required

• Health monitoring and predictive maintenance will reduce overall time-on-tool requirements for individual checks with fewer repairsLess maintenance

• Increased aftermarket market share for the newest generation of aircraft

OEM’s increased aftermarket presence

• Critical new source of value to the aftermarket driven by those who design the best algorithms and most rigorous data management

Increased use of data analytics

Market participants will need aggressive and innovative plans for growth

Fleet changes and technological advances will create turbulence for the MRO business

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MRO Survey Results

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Oliver Wyman’s 2015 MRO Survey identified a slew of new technologies that are poisedto come to marketMost prominent new technologies by 2020 (All respondents)

Aircraft Health Monitoring Systems

Predictive Maintenance

“Live” maintenance through wearable and mobile technology

Composite repair capabilities

New repair technology

Additive manufacturing

Artificial intelligence

Drone-supported maintenance 4%6%

25%26%

35%57%

66%66%

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The collection, storage, aggregation and analysis of data will be key factors in aircraft health monitoring and predicative maintenanceWho is best positioned within the industry to benefit from predictive maintenance?

0%

7%

9%

19%

65%

PMA Manufacturers

MROs

Too early to predict

OEMs

Airlines

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However, digesting innovative change is not standard fare for the MRO industry…

Survey respondents completed this sentence: “The MRO industry innovates...”

• Historically, little need to build internal organizations devoted to R&D, corporate strategy and product development

• Lack of regular disruptions decrease relative:– Devoted resources– Tried and tested review processes– Time and attention of executives– Clarity of ownership / leadership– Assessment infrastructure

• Internal ability to recognize, assess and prepare for change is not a core capability for the industry

… frequently 13%

21%… primarily as a

response to OEM innovation

27%… sporadically

39%… periodically

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…and though they have a vision, many organizations struggle with how to rapidly evaluate and bring innovative ideas to marketPositive survey responses

We can quickly translate the identified opportunities into pilot projects and fast-to-market roll-out programs

Our innovation process allows us to quickly translate identified opportunities into plans and get sign-off from top management

We use a strategic planning method to visualize areas of opportunity and identify the most promising prospects

Top management has a clear, shared vision and strategy for growth in new business areas

Use a strategic planning method to visualize areas of opportunity and identify the most promising prospects

Our innovation process allows us to quickly translate identified opportunities into plans and get sign-off

We quickly pilot ideas and roll out fast-to-market programs

Decreasing impact;

More difficulty

bringing vision to market

76%

68%

43%

33%

Top management has a clear, shared vision and strategy for growth in new business areas

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So what’s really inhibiting change in MROs?

• The primary inhibitors of innovation at my organization are:

Budget / capital availability

Total cost / lack of clear payback

Inability to prove innovative process / product / service will offer margin

benefits over current techniques

Organization resistance

Implementation difficulties

Review and approval process

Lack of personal capability

Lack of need for change

How can you eradicate

these barriers within your

own organization?

6%

21%

21%

32%

35%

44%

44%

50%

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New technologies will reshape our perception of MRO aftermarket commercial offers.

Advances could cut or redistribute 15 to 20 percent of MRO spend, but also spawn new business models and revenue streams.

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Take the controls and make strategic investments now:Technologies will likely come online faster than anticipated

• Expected to be a significant driver of innovation over the next five years

• Boeing recently invested $100M into expanding AHM

• A 787 flight can generate 500GB of data

Aircraft Health Monitoring (AHM) and Big Data

Additive Manufacturing(3D Printing)

• Quickly gaining traction– A350 will feature 3D-printed

plastic and metal brackets– GE will introduce 3D-printed

fuel nozzles in its CFP LEAP engine

– Out-of-production parts can be printed “on-demand”

Augmented Reality and Automated Inspection Tech

• Augment reality allows for live audio and visual communication with OCC

• Robots used for visual inspections and non-destructive testing– Highly efficient– Highly accurate

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Time to disengage the Autopilot

• Focusing solely on business as usual is a risky strategy in the coming years

• Relying on current commercial offers, sales practices, resources, will challenge an MRO’s future business

• Advances could cut 15-20% of MRO spending from the aftermarket

• But also spawn new business models and revenue streams

• Amounts to a reduction or redistribution of $10-15B among current industry players & new competitors

• MROs and operators must actively choose technologies to develop and exploit

• Those that fail will end up as innovation takers, ceding further aftermarket control to competitors

Is your corporate Auto Pilot engaged?

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29© Oliver Wyman

The future is now

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30© Oliver Wyman

Oliver Wyman insights come directly from the industry, and we value your insights

as they help shape the future.

If you are interested in shaping our 2016 MROSurvey in January, send an email to

[email protected] a subject line with the phrase “count me in”

and you’ll receive the survey upon its release

Thank You!

Page 32: 2015-2025 Asia-Pacific Fleet and Asian MRO Market Forecast