Download - Europe MRO Forecast 2015-2025

© Oliver Wyman

TURBULENCE AHEAD DISENGAGE THE AUTOPILOT Tuesday, October 13th 2015

Christopher Doan

Vice President

2015-2025 GLOBAL FLEET & MRO MARKET FORECAST

1 1 © Oliver Wyman

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

~150 Dedicated CAVOK employees located

in DFW and ATL

(Supported by +250 Oliver Wyman

aviation consultants)

+70% of CAVOK staff hold FAA certification/license

+2,300 years of combined airline operations expertise

The respected TeamSAI Global Fleet & MRO Market Forecast, and related

betterinsightTM market intelligence data, remains available at

www.PlaneStats.com/betterinsight

Global Fleet &

MRO Market Outlook

3 3 © Oliver Wyman

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

2015-2025 Global Fleet Forecast

by Aircraft Class

Key Fleet Forecast

Growth Rates

• 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

13,124 16,949

21,089

4,686

5,753

7,181

3,396

3,222

2,906

2,721

3,079

3,232

5.2%

4.2%

-1.0%

2.5% 23,927

29,003

34,408

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 2015-2020CAGRS

2020 2020-2025CAGRS

2025

Nu

mb

er

of

Air

cra

ft

Forecast Year and Forecast CAGR

Narrowbody Widebody Regional Jet Turboprop

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

3.9%

3.5%

4 © Oliver Wyman 4

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

722 North 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

2015

Fleet Size

10YR

CAGR

2015- 2025

Absolute Growth

2,204

6,452

7,420

5 © Oliver Wyman 5

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


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

6 6 © Oliver Wyman

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

New Cargo Deliveries

423

New Passenger Deliveries

18,068

664

Cargo Retirements

7,346

Passenger Retirements

Passenger Fleet

716

P2F Conversions

Cargo Fleet

7 7 © Oliver Wyman

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

New Cargo Deliveries

423

New Passenger Deliveries

18,068

664

Cargo Retirements

7,346

Passenger Retirements

Passenger Fleet

716

P2F Conversions

Cargo Fleet

10,481 Net Growth

8 8 © Oliver Wyman

The result is a staggering change in fleet mix by 2025

2015 Global Air Transport Fleet

by Vintage

2025 Global Air Transport Fleet

by Vintage

The significant move towards late generation aircraft, in addition to improving airline

costs, will undoubtedly impact MRO dynamics

1970's 2%

1980's 26%

1990's 63%

2000's 9%

1970's 0.1%

1980's 9%

1990's 46%

2000's 16%

2010's 29%

9 9 © Oliver Wyman

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

2015-2025 Global MRO Market Size Forecast

by MRO Segment

2015-2025 Global MRO Market Share Forecast

by MRO Segment

Airframe Heavy Maintenance costs improve with the new technology while both

Engine and Component sectors will take a larger share

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

Forecast Year

Airframe Engine Component Line

MR

O S

pen

d in

2015 D

oll

ars

($U

SB

)

Ma

rket

Sh

are

$14.5 $15.9 $16.7

$27.9 $37.1

$46.8 $12.4

$15.2

$19.2

$12.3

$15.0

$17.8

1.9%

5.9%

4.1%

4.0% $67.1

$83.2

$100.4

1.0%

4.8%

4.7%

3.5%

$0

$20

$40

$60

$80

$100

$120

2015 15-'20CAGRS

2020 20-'25CAGRS

2025

Bill

ions


Airframe Engine Component Line

4.4%

3.8%

10 10 © Oliver Wyman

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

Asia Pacific / China / India will be challenged to build the necessary infrastructure

capable of handling the volume of MRO the combined region will demand

$1.3 North America

Europe

Latin America

& the Caribbean


Asia Pacific / China / India

0.6%

3.3%

7.3%

5.5%

6.6%

$17.9

$3.2

$7.5

$18.3

$7.0

$3.3

$5.3

$16.5

2015

MRO Spend ($USB)

10YR

CAGR

2015- 2025

Absolute Growth ($USB)

$20.0


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

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


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

European MRO Market

Outlook


Passenger traffic is picking up; however, the fleet growth will be constrained over the next 10 years as half of all the new aircraft deliveries are slated to replace aging aircraft

2015 PASSENGER TRAFFIC (RPK) GROWTH

6.8%

2015 CURRENT FLEET

6,131

4,100+

2015-2025 AIRCRAFT DELIVERIES

2,100+

2015-2025 AIRCRAFT RETIREMENTS

+2.8%

2015-2025

FLEET CAGR


$2.9B in MRO from ’70s and ’80s vintage aircraft will be lost over the next 10 years; however, ’90s, ’00s and ’10s vintage aircraft will see a $9.9B increase

Top 10 European Aircraft Families in 2015

Top 10 European Aircraft Families in 2025

A320C/NEO

737NG/MAX

777

747

A330

A340

737CL

757

767

EJET

A320C/NEO

737NG/MAX

777

A330

787

A350

747

A340

A380

EJET


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.

Crude Oil Spot Price

per Gallon

Aircraft Profitability Curve

Current Generation vs New Generation

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

2,000 2,800 3,600 4,400$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

2014 2015

WTI Brent Jet A

Sp

ot

Pri

ce p

er

Gall

on

($U

SD

)

Jet-

A S

po

t P

ric

e p

er

Ga

llo

n (

$U

SD

) Utilization in Hours

1 YEAR

PRICE DROP

New gen aircraft are

more profitable than

current gen

New gen aircraft are

less profitable than

current gen

AUG

2014

AUG

2015

Our view: Long term, oil prices will likely recover, OEM order books will remain

largely unaffected, and net fleet growth will progress as forecasted


With just over half of the new deliveries forecast to replace older aircraft, the MRO forecast is constrained; however, a 3.3% growth rate is very healthy for what is largely a mature region

2015-2025 European MRO Market Forecast

by MRO Segment

$18.0 $18.9 $19.8 $20.3 $20.9

$22.2 $22.6 $23.6 $22.8

$23.8 $24.9

$0

$5

$10

$15

$20

$25

$30

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025


MR

O S

pe

nd

in

20

15

Do

lla

rs (

$U

SB

)

Line

Component

Engine

Airframe

Despite the solid growth, aftermarket participants will likely still need to have an

aggressive and innovative plan to maintain market share.


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

Market participants will need aggressive and innovative plans for growth

• 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 repairs Less 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

MRO Survey Results


Oliver Wyman’s 2015 MRO Survey identified a slew of new technologies that are poised to come to market

Most 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%

Source: Oliver Wyman’s 2015 MRO Survey


The collection, storage, aggregation and analysis of data will be key factors in aircraft health monitoring and predicative maintenance

Who 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


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



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

Positive 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



So what’s really inhibiting change in MROs?

The primary inhibitors of innovation at my organization are:

Note: Responses to the question: “The primary inhibitors of innovation at my organization are:”, Percent of MRO responses per inhibitor (multiple selections

possible per category). Not shown “Other” responses from a total of 9% of respondents; Source: Oliver Wyman’s 2015 MRO Survey

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%


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.


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


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?


The future is now

28 © Oliver Wyman 28

In closing …

• Our survey insights come directly from the industry and we value your insights as they help

shape the future

• If you’re interested in shaping our 2016 Survey in January, send us an email to

[email protected]

• Just include a subject line with the phrase “count me in” and you’ll receive the survey upon its

release

Thank You !