Engine MRO Forecast &
Industry Trends
Jonathan M. BergerManaging DirectorNovember 6-8, 2018, Singapore
1
Agile. Global. Independent.
COMPANY INTRODUCTION
Alton Aviation Consultancy is a boutique aviation consulting firm
with deep domain expertise across the aviation value chain
Aircraft Leasing &
Financing AdvisoryAirlines
Aviation &
Aerospace Investors
Business &
General Aviation
Aerospace Manufacturers
& Supply ChainMRO & Aftermarket Airports Specialty Projects
In China, Alton Aviation Consultancy is known as 德世国际航空咨询(北京)有限公司, or De Shi.
Alton supports a global client base from offices in the U.S., Europe,
China, Hong Kong, and Tokyo with additional associates worldwide
COMPANY INTRODUCTION
411 Fifth Avenue
Suite 801
New York, New York
10016
USA
+1 212 256 [email protected]
New York
8 Guanghua Dongli
China Overseas Plaza
South Tower, Floor 11,
Suite A053
Chaoyang, Beijing 100020
China
+86 10 8598 [email protected]
Beijing
136 Des Voeux Road
Suite 1202
Central
Hong Kong
+852 8191 [email protected]
Hong Kong
Taiyo Seimei
Shinagawa building
28th Floor, 2-16-2 Konan,
Minato-ku, Tokyo 108-0075,
Japan
+81 90 8057 [email protected]
Tokyo
No. 1 Grants Row
Lower Mount Street
Dublin, Ireland
+353 1 566 8933 [email protected]
Dublin
3
TODAY’S AGENDA
Global Fleet Dynamics & MRO Forecast
“Revenge of the Engine PMA”
New Engine Technologies on the Horizon
4
GLOBAL FLEET DYNAMICS & MRO FORECAST
Historically, fleet growth has been directly correlated to GDP…
GLOBAL FLEET DYNAMICS & MRO FORECAST
5Source: CAPA, USDA ERS, Alton analysis
Fleet and GDP Growth by Region (1997 – 2017)
10%
7% 7%
6%
5%
3%
3.8%
4.4%4.2%
2.5%
1.8%
2.2%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0%
2%
4%
6%
8%
10%
12%
14%
Middle East Asia-Pacific Africa Latin America Europe North America
% Fleet growthGDP
Avg. GDP
Growth/yr
Avg. Fleet
Growth/yr
…perhaps a better determinant of future fleet growth is the so-called
“Disneyland factor”; the growth rate of a country’s middle class
GLOBAL FLEET DYNAMICS & MRO FORECAST
6Source: Airbus Global Market Forecast 2016-2036, Alton analysis
103%
6%
51%
2%
149%
41%
75%
0%
20%
40%
60%
80%
100%
120%
140%
160%
-
500
1,000
1,500
2,000
2,500
3,000
20
Ye
ar
Gro
wth
Rate
Ho
us
eh
old
s (
mil
lio
ns
)
2016203620 yr % growth
Middle Class Growth by Region (2016 – 2036)
7Source: CAPA, Alton analysis
Record high OEM backlog continues to drive investor interest, joint
venture, and M&A activity in MRO providers and OEM supply chain
GLOBAL FLEET DYNAMICS & MRO FORECAST
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
10 Year Engine Backlog by OEM
Other
IAE
Rolls-Royce
Pratt & Whitney
GE, CFM
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
10 Year Aircraft Backlog by Region
Turboprop
Regional Jet
Widebody Jet
Narrowbody Jet
8Source: CAPA, Alton analysis
Over the past 25 years, the global fleet has grown at a rate of 4.9%, with
narrowbody aircraft accounting for over 57% of today’s fleet
GLOBAL FLEET DYNAMICS & MRO FORECAST
0
5,000
10,000
15,000
20,000
25,000
30,000
1993 1998 2003 2008 2013 2018
Widebody Jet
Turboprop
Regional Jet
Narrowbody Jet
20%
10%
13%
57%
Global Fleet Count (1993 – 2018) Engines by Manufacturer (1993 – 2018)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1993 1998 2003 2008 2013 2018
Other
IAE
Rolls-Royce
Pratt & Whitney
GE, CFM
9Source: CAPA, Alton analysis
Today’s commercial air transport fleet consists of approximately 28,000
aircraft, with Asia Pacific now equal in size to North America
GLOBAL FLEET DYNAMICS & MRO FORECAST
Narrowbody Jet
Regional Jet
Turboprop
Widebody Jet
51%
24%
9%
16%
8,400
61%
11%
10%
18%
6,600
63%
5%
10%
22%
8,400
59%
17%
14%
10%
2,10041%
17%
28%
14%
1,300
39%
7%
3%
51% 2,100
Growing to 44,000 aircraft by 2028
3.8% CAGR
2028
2018
10Source: CAPA, Alton analysis
0
1,000
2,000
3,000
4,000
5,000
Driven by narrowbody aircraft deliveries, the installed engine base in Asia-
Pacific primarily consists of the CFM56-5/7 and V2500
GLOBAL FLEET DYNAMICS & MRO FORECAST
Installed Base by Engine Model(Asia-Pacific Region)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Installed Base by Country(Top 10 by Volume; Asia-Pacific Region)
OTHER GEnx
CF34 PW4000
CF6 GE90
Trent 700 PW100
V2500 CFM56-5
CFM56-7
~ 9,850 engines
~ 6x
11Source: CAPA, Alton analysis
There are already over 4,400 confirmed orders for the CFM LEAP & P&W
Geared Turbo Fan (GTF) engines in the APAC region
GLOBAL FLEET DYNAMICS & MRO FORECAST
Alton Insight
▪ Both the CFM LEAP and P&W GTF are
meeting fuel efficiency targets
▪ Given the recent Airbus / Bombardier
venture, analysts predict a potential
doubling of previous C Series/A220 order
estimates (great news for P&W!)
▪ P&W has secured significant GTF MRO
capacity in APAC via JVs with SAIEC (Eagle
Services Asia in Singapore) and Air New
Zealand (Christchurch Engine Center), IHI in
Japan, and MTU Zuhai (China Southern JV)
▪ In APAC, GE plans to support the LEAP in
its Singapore facility; MTU will also support
the LEAP in its Zuhai, China facility
$66B
0
200
400
600
800
1000
1200
10 Year Engine Count by Country(Top 10 Asia Pacific Countries by Volume)
P&W GTF
CFM LEAP
12Source: Alton Analysis, all figures constant dollars ($2018 USD)
Today’s commercial air transport MRO market demand is approx. $69B,
growing to $103B by 2028 – an annualized growth rate of 4.1%
GLOBAL FLEET DYNAMICS & MRO FORECAST
$0 $20 $40 $60 $80 $100 $120
World Total
Asia Pacific
North America
Europe
Middle East
Latin America
Africa
$103B
10yr CAGR
5.0%
5.0%
6.5%
2.2%
1.6%
5.7%
$0 $20 $40 $60 $80 $100 $120
World Total
Engine
Components
Line
Airframe Heavy
Modifications
10yr CAGR
$103B
6.1%
2.9%
3.9%
3.1%
4.4%
$0 $20 $40 $60 $80 $100 $120
World Total
Asia Pacific
North America
Europe
Middle East
Latin America
Africa
$69B
$3.8B
$7.4B
$16.4B
$16.9B
$22.6B
$2.4B
$0 $20 $40 $60 $80 $100 $120
World Total
Engine
Components
Line
Airframe Heavy
Modifications
$69B
$6B
$8B
$13B
$14B
$29B
13
REVENGE OF THE ENGINE PMA
14
Alton Insight
▪ From emissions, to noise, to time-
on-wing & MTBR, the CFM56-5/7 and
V2500 exceeded expectations on
virtually every performance metric
▪ Many would argue the engines were
too durable (shop visits driven by
LLP, not EGT)
▪ Much to the delight of the MRO
supply chain, the infamous shop
visit “bow wave” has finally arrived,
creating competition for shop visit
slots
Source: Alton forecast
Current generation of narrowbody engines propelled the industry to new
heights in aero-engine performance and reliability
REVENGE OF THE ENGINE PMA
Cumulative Engines by
Year of Delivery
0
5,000
10,000
15,000
20,000
25,000
30,000
CFM56-7B
CFM56-5B
V2500 7,522
12,922
6,138
15Source: Alton forecast
Annual deliveries of new technology engines will see dramatic increases,
challenging the scalability of the engine production supply chain
REVENGE OF THE ENGINE PMA
Annual Deliveries of New
Technology Engines
0
500
1,000
1,500
2,000
2,500
3,000
3,500CFM LEAP
PW1000G
Trent 1000
2,098
914
149
Alton Insight
Historically consistent, several new
technology engines are experiencing
operational “teething pains”,
resulting in significant volume of
unscheduled shop visits
▪ CFM LEAP - high pressure turbine
shroud issues
▪ Pratt & Whitney PW1000G Geared
Turbo Fan - knife-edge seals and
cooling issues
▪ Rolls Royce Trent 1000 - fan blade
issues
16Source: CAPA, Alton analysis
Fleet retirements are down from peak levels
REVENGE OF THE ENGINE PMA
$66B
Alton Insight
▪ Typical aircraft life is approx. 25
years; there was a large spike in
aircraft deliveries in the late 1980’s
▪ Airline retirement decisions are
primarily driven by fuel prices and
airline financial health
▪ Surge in aircraft retirements spawned
the aircraft tear-down/part-out
industry; was very disruptive to OEM
new parts sales
▪ Growth of the used surplus material
(USM) market had a significant impact
on PMA growth
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
0
500
1000
1500
2000
2500
3000
3500
Aircraft Retired
% Fleet
Avg. 464
Avg. 144
Avg. 601
Avg. 294
% FleetTotal Aircraft
17Source: Alton analysis
Jonathan M. Berger: https://www.linkedin.com/pulse/revenge-engine-pma-jonathan-m-berger/
Revenge of the Engine PMA: “The perfect storm”
REVENGE OF THE ENGINE PMA
New engine teething pains driving high
volume of unscheduled shop visits
1
Mature engine routine shop visits at
an all time high
2
Reduced retirements and part-outs
limiting surplus part availability
3
Engine piece part supply chain unable
to meet demand to support production
and MRO
4
1. Engine piece parts shortages
(MRO and production)
2. Limited MRO slot availability
3. Engine shop visit TAT delays
4. New aircraft delivery delays
5. Lack of surplus engine material
6. Higher shop visit costs
7. Higher spare engine lease
costs
8. Grounded aircraft (gliders)
Industry Impact
18
NEW ENGINE TECHNOLOGIES ON THE HORIZON
19Source: Aviation Week, May 2017
Additive manufacturing (or 3D printing) is already transforming traditional
engine design and production
NEW ENGINE TECHNOLOGIES ON THE HORIZON
Alton Insight
▪ GE’s new Advanced Turboprop is
being touted as “the world’s most
printed engine”
▪ The Advanced Turboprop will
power Cessna’s new Denali aircraft
▪ Additive manufacturing replaces
855 normally made parts with just
12 “printed” components
▪ GE claims the engine is designed
to achieve 20% better fuel burn
with 10% more power than
comparative engines
18Source: The Economist, September 2017
An army of tiny robots are on the march; with plans to disrupt engine MRO
inspection and repair processes
NEW ENGINE TECHNOLOGIES ON THE HORIZON
Alton Insight▪ OEMs are developing very small
robots which can venture inside an
engine to perform inspections and
carry out any necessary repairs
▪ The robots are small enough to
navigate their way around all the
various fan and turbine blades,
taking video of everything they see,
and will relay the pictures
wirelessly to technicians
▪ Once the video has been analyzed
by technicians, the robots will be
able to carry out certain repairs (at
the gate between flights!)
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Jonathan M. Berger
+1 212 301 0573
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