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0
MRO Market Update & Industry Trends
Presented by:
Jonathan M. Berger
Vice President  ICF International
jberger@icfi.com...
11
Today’s Agenda
MRO Forecast
Latin American Aviation Outlook
Trend Watch:
 The Mod Squad
 New Technology Aircraft
 MR...
22
MRO Forecast
33
The current
commercial
air transport fleet
consists of over
27K aircraft; over
half are narrowbody
aircraft
Source: CAP...
44
The combination of
strong air travel
demand and the
need to replace
ageing aircraft will
drive fleet growth at
a health...
55
Continued low fuel
costs could reverse
aircraft retirements
trends
Source: CAPA, Airline Monitor, ICF analysis
Potentia...
66
Current commercial
air transport MRO
demand is $64.3B;
with Asia equivalent
to North America
and Europe in
market size
...
77
The global MRO
market is expected
to grow by 4.1% per
annum to $96B by
2025
Source: ICF analysis; Forecast in 2015 $USD...
88
The current Latin
American fleet
consists of over
2,100 aircraft; with
more than 50%
narrowbody
Source: CAPA 2015
Narro...
99
The Latin American
MRO market is
expected to grow
to approx. $6.3B
by 2025, at 5.7% per
annum
Source: ICF analysis; For...
1010
Latin American
Aviation Outlook
1111
Four external
macro-economic
forces are having a
significant impact
on Latin American
operators and the
broader MRO
s...
1212
The dramatic increase
in oil & gas market
supply and reduced
demand for
commodities has led
to a strong US Dollar
 P...
1313
Despite ongoing
challenges in Brazil,
the majority of Latin
American economies
continue to show
positive growth
Note:...
1414
Driven by the
significant drop in
fuel costs and
consolidation, the
airline industry is
achieving record
profitabilit...
1515
Despite significant
headwinds, Latin
American carriers
have demonstrated
impressive
management skills
Source: Company...
1616
Trend Watch:
The Mod Squad
1717
Modifications growth
is driven by airlines
seeking differentiation
in the cabin and
customer experience
Modifications...
1818
Cabin “densification”
has emerged as cost
effective strategy for
airlines to increase
capacity and drive
bottom line ...
1919
Trend Watch:
New Technology Aircraft
2020
Over the next
decade, the global
fleet of new
generation aircraft
fleet will grow by
approx. 531% to
nearly 19,000
ai...
2121
Over the next
decade, MRO spend
on new technology
Airbus A350 &
Boeing 787 aircraft
will double every
three years
Sou...
2222
New technology
aircraft challenge
traditional MRO
sourcing strategies
= Heavy C-Check= Light C-Check
767
A/C Age 1 2 ...
2323
Challenge: How best
to realize value from
the disparate
terabytes of data
generated by new
technology aircraft
Source...
2424
Trend Watch:
MRO Investment in
Latin America
2525
The Latin American
MRO Supplier
Landscape largely
consists of airframe
MRO suppliers, with
limited component
capabili...
26
For questions regarding this
presentation, please contact:
Jonathan M. Berger
Vice President  Aerospace & MRO
jberger@...
2727
 Market Research & Analysis
 Airline Maintenance Benchmarking
 M&A Commercial Due Diligence
 OEM Aftermarket Stra...
2828
ICF is one of the
world’s largest and
most experienced
aviation and
aerospace
consulting firms
Airports • Airlines • ...
2929
Acronyms
 A/C = aircraft
 AD/SB = airworthiness directives/service bulletins
 AHM = aircraft health management
 A...
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Latin American MRO Market Update & Industry Trends

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At the 2016 ALTA CCMA & Aircraft MRO Conference on May 15-18 in Puerto Rico, ICF's Jonathan Berger presented "MRO Market Update & Industry Trends." Download his presentation to learn how forward-looking airline and MRO leadership is gaining a competitive edge in Latin America.

For more info: http://bit.ly/1UaAtgf

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Latin American MRO Market Update & Industry Trends

  1. 1. 0 MRO Market Update & Industry Trends Presented by: Jonathan M. Berger Vice President  ICF International jberger@icfi.com May 15-18, 2016 Puerto Rico
  2. 2. 11 Today’s Agenda MRO Forecast Latin American Aviation Outlook Trend Watch:  The Mod Squad  New Technology Aircraft  MRO Investment in Latin America
  3. 3. 22 MRO Forecast
  4. 4. 33 The current commercial air transport fleet consists of over 27K aircraft; over half are narrowbody aircraft Source: CAPA 2015 Narrowbody Jet Widebody Jet Turboprop Regional Jet 27,114 Aircraft 14% 53%14% 19% By Aircraft Type By Global Region North America Asia Pacific Europe Latin America Middle East 31% 27% 25% 8% 5% 5% 27,114 Aircraft 2015 Global Commercial Air Transport Fleet
  5. 5. 44 The combination of strong air travel demand and the need to replace ageing aircraft will drive fleet growth at a healthy 3.4% annually Source: ICF analysis: CAPA 2015 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 2015 2025 Africa Middle East Latin America Europe Asia Pacific North America 27,100 31% 26% 37,900 27% 25% 8% 32% 23% 8% # Aircraft 3.8% 2.5% 1.6% 5.2% 5.3% 5.1% CAGR 3.4% Avg. 5% 6% 10 Year Global Air Transport Fleet Growth
  6. 6. 55 Continued low fuel costs could reverse aircraft retirements trends Source: CAPA, Airline Monitor, ICF analysis Potential Impact:  MRO Suppliers: Increased spend on older airframes & engines  Surplus Market: Reduced part-out “feed stock” - OEMs: Improved new part sales - Distributors: Improved used part values / pricing - Operators: Increased material costs Commercial Air Transport Annual Aircraft Retirements 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 0 200 400 600 800 1,000 1,200 # Retirements Retirement as % of installed fleet % Installed Fleet 1990-99 Average: 191 2000-09 Average: 473
  7. 7. 66 Current commercial air transport MRO demand is $64.3B; with Asia equivalent to North America and Europe in market size Source: ICF analysis; Forecast in 2015 $USD, exclusive of inflation Engines Components Line Airframe Modifications 14% 17% 22% 40% 7% North America Asia Pacific Europe Middle East Latin America Africa 29% 28% 26% 8% 6% 4% $64.3B$64.3B By MRO Segment By Global Region 2015 Commercial Air Transport Global MRO Demand
  8. 8. 77 The global MRO market is expected to grow by 4.1% per annum to $96B by 2025 Source: ICF analysis; Forecast in 2015 $USD, exclusive of inflation  Engine and component MRO markets remain the largest segments  Modifications market will see the strongest growth (e.g. interiors, connectivity)  Airframe market slows due to reduced man-hour intensity and increased check intervals as new fleets are introduced $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 2015 2025 Modifications Airframe Line Component Engine 40% 22% 14% 17% $64.3B $96.0B 2.8% 3.6% 4.3% 4.4% CAGR 4.1% Avg. 5.3% 41% 22% 16% 13% 10 Year Global Commercial Air Transport MRO Demand Growth $USD Billions
  9. 9. 88 The current Latin American fleet consists of over 2,100 aircraft; with more than 50% narrowbody Source: CAPA 2015 Narrowbody Jet Widebody Jet Turboprop Regional Jet 2,123 Aircraft 8% 51% 16% 25% By Aircraft Type By Country Brazil Mexico Colombia Chile Venezuela Panama Other 2,123 Aircraft 28% 17% 7% 21% 11% 6% 6% 5% 2015 Latin American Commercial Air Transport Fleet
  10. 10. 99 The Latin American MRO market is expected to grow to approx. $6.3B by 2025, at 5.7% per annum Source: ICF analysis; Forecast in 2015 $USD, exclusive of inflation  Modifications is the fastest growing MRO segment in Latin America  MRO spend on widebodies in Latin America will nearly double by 2025 as the fleet increases by 56% $0 $1 $2 $3 $4 $5 $6 $7 2015 2025 Modifications Airframe Line Component Engine 36% 25% 13% 20% $3.6B $6.3B 5.1% 4.0% 5.2% 6.6% CAGR 5.7% Avg. 8.2% 40% 24% 17% 12% 7% 10-Year Global Latin American MRO Demand Growth $USD Billions
  11. 11. 1010 Latin American Aviation Outlook
  12. 12. 1111 Four external macro-economic forces are having a significant impact on Latin American operators and the broader MRO supply chain The “CRABS” Currency Exchange Rates Global Commodity Prices China’s Economic SlowdownFuel Costs Source: ICF analysis
  13. 13. 1212 The dramatic increase in oil & gas market supply and reduced demand for commodities has led to a strong US Dollar  Partially offsets the positive impact of low fuel costs for operators  Increases the cost of dollar based flight hour agreements (and parts/material in general)  Cost of labor for in-country MROs is cheaper driving up margins for US dollar based contracts  Buying/leasing aircraft becomes more expensive FOREX Impact Source: Oanda historical exchange rates, ICF analysis The “CRABS”: Countries with economies that are heavily dependent on commodity exports Global Currency Exchange Rates vs USD % Value Change, April 2014 – April 2016 Russian Ruble -87.1% Brazilian Real -62.2% S. African Rand -35.8% Can Dollars -23.6% Aus Dollars -20.4% Euro -16.9% British Pound -15.5% Indian Rupee -10.3% Japanese Yen -9.0% Chinese Yuan -4.8% -100% -90% -80% -70% -60% -50% -40% -30% -20% -10% 0% 10% B R C S A
  14. 14. 1313 Despite ongoing challenges in Brazil, the majority of Latin American economies continue to show positive growth Note: All GDP Growth are calculated based on constant price (nation currency) Source: IMF Economic Outlook April 2016, ICF analysis United States Brazil 0.0% 2.0% 4.0% 0.0% 2.0% 4.0% 6.0% 0.0% 5.0% 10.0% 0.0% 5.0% 10.0% 0.0% 5.0% 10.0% 0.0% 2.0% 4.0% -2.0% 0.0% 2.0% 4.0% -5.0% 0.0% 5.0%
  15. 15. 1414 Driven by the significant drop in fuel costs and consolidation, the airline industry is achieving record profitability Source: EIA; ICF analysis These are the good ol’ days; for some… Global Airline Profitability, 1996 - 2016F -$30 -$20 -$10 $0 $10 $20 $30 $40 $USD Billions $36.3B Asia Pacific, $6.6B North America, $19.2B Europe, $8.5B Middle East, $1.7B Latin Am. / Africa = $0.3B
  16. 16. 1515 Despite significant headwinds, Latin American carriers have demonstrated impressive management skills Source: Company websites, IATA (Dec 2015), ICF analysis United States Brazil $ Billions -$0.5 $0.0 $0.5 $1.0 $1.5 Latin America Airline Net Profit 7% 3% 0% 5% 10% Operating Net 4% -2% -5% 0% 5% Operating Net 2015 Latin American Carrier Operating and Net Income  Positive operating income demonstrates that airlines are doing a good job in managing what is in their control  However, net income has clearly been negatively impacted by currency exchange rates (out of their control) 5% -5%-10% -5% 0% 5% 10% Operating Net -2% -44% -60% -40% -20% 0% Operating Net 12% -10%-15% -5% 5% 15% Operating Net
  17. 17. 1616 Trend Watch: The Mod Squad
  18. 18. 1717 Modifications growth is driven by airlines seeking differentiation in the cabin and customer experience Modifications demand includes labor and material spend *Passenger-To-Freighter Conversions **Airworthiness Directives / Service Bulletins Source: ICF analysis, constant 2015 US$ MRO modification market growth drivers include:  Latest lie-flat seats are now the minimum standard  Premium economy  Wi-fi, on-board connectivity  Coming soon: ADS-B Mod program  Capacity (ASM/K) increase Commercial Air Transport Modifications Forecast $2.7 $4.9 $0.6 $1.1 $0.4 $0.5 $0.4 $0.4 $0.3 $0.5 $0 $1 $2 $3 $4 $5 $6 $7 $8 2015 2025 AD/SB** PTF Conversions* Painting Avionics Upgrades Interiors $4.4B $7.4B 0.0% 3.7% 6.9% 5.9% CAGR 5.3% Avg. 3.6% $USD Billions
  19. 19. 1818 Cabin “densification” has emerged as cost effective strategy for airlines to increase capacity and drive bottom line growth 2015 - 2025 Capacity Bridge 0 2 4 6 8 10 2025 ASMs Increased Seat Density Longer Stage Lengths Fleet Growth 2015 ASMs Available Seat-Miles (ASMs), Trillions 6.2T 8.8T 84% 8% 8% 12 Seats 16 Seats 130 Seats120 Seats Total = 150 Seats Total = 164 Seats Example: Delta A320 Interior Modification Program New seats, outlets, IFE, overhead bins Space-saving galleys to add a row of seats Source: ICF analysis, delta.com 18 Seats18 Seats
  20. 20. 1919 Trend Watch: New Technology Aircraft
  21. 21. 2020 Over the next decade, the global fleet of new generation aircraft fleet will grow by approx. 531% to nearly 19,000 aircraft 10-Year Fleet Forecast by Aircraft Generation 2,993 18,896 22,212 18,487 2015 2025 Global New Gen Mid Gen Old Gen Old Gen: 727, 737 Classic, 747 Classic, DC10, L1011, A300 Mid Gen: 757, 767, 747-400, A320 Family, A330/A340, 737NG, 777, ERJ, CRJ New Gen:, 777X, 787, A350, A330neo, A380, E170/175/190/195, CRJ-7/9/1000, 737MAX Source: ICF analysis Latin America +531% -70% -17% 257 854 1,064 1,043 2015 2025 +232% -2% -76%
  22. 22. 2121 Over the next decade, MRO spend on new technology Airbus A350 & Boeing 787 aircraft will double every three years Source: ICF analysis; Forecast in 2015 $USD, exclusive of inflation, includes Boeing 787 and Airbus A350 10-Year MRO Spend for New Technology A350 and 787 Aircraft $ USD Billions $0.35 $0.46 $0.47 $0.52 $0.53 $0.62 $0.5 $1.0 $1.6 $2.3 $3.3 $4.4 $5.8 $7.1 $8.4 $9.7 $11.1 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Africa Latin America Middle East North America Europe Asia Pacific +2000%
  23. 23. 2222 New technology aircraft challenge traditional MRO sourcing strategies = Heavy C-Check= Light C-Check 767 A/C Age 1 2 3 4 5 6 7 8 9 10 11 12 787 Volume (C-checks) Intensity (man-hours) Days (Hangar) 767 8 95,000 136 787 4 33,000 47 Impact  Cost Savings: ~65% fewer routine airframe heavy maintenance man-hours drives an estimated savings of ~$3.5M  Asset Utilization: ~90 additional available flying days enables increased revenue generation potential 12 Year Heavy Maintenance Schedule *Based on 4,000 FH/yr utilization 767 C-check = 18mo, 4C = 72mo; 787 C-check = 36mo, 4C = 144mo Assumed industry standard labor man-hour rate Aircraft out of Service (AooS) calculated for C/4C/8C checks assuming industry standard MRO hangar productivity Return on investment challenges:  Facilities  Tooling & Equipment  Training  IT Systems Source: ICF analysis
  24. 24. 2323 Challenge: How best to realize value from the disparate terabytes of data generated by new technology aircraft Source: ICF analysis Number of AHM Parameters A320: 15,000 B787: 100,000  Stakeholder Battle: Who will control and benefit most from the operating data IP?  Operators  Lessors  OEMs  MRO Suppliers 767: 10,000 Yr 1 Yr 10 ~ 137TB ~11TB 777 787 ~ 28MB < 1MB Transmittable Data (MB/Flt) A/C Data Generated (TB/Year) ~1,100% Aircraft Health Monitoring and Data Generation Outlook
  25. 25. 2424 Trend Watch: MRO Investment in Latin America
  26. 26. 2525 The Latin American MRO Supplier Landscape largely consists of airframe MRO suppliers, with limited component capabilities Source: ICF analysis United States Brazil
  27. 27. 26 For questions regarding this presentation, please contact: Jonathan M. Berger Vice President  Aerospace & MRO jberger@icfi.com  +1 404.819.7669 THANK YOU! May 15-18, 2016 Puerto Rico
  28. 28. 2727  Market Research & Analysis  Airline Maintenance Benchmarking  M&A Commercial Due Diligence  OEM Aftermarket Strategy  Aviation Asset Valuations & Appraisals  MRO Information Technology (IT) Advisory  Strategic Sourcing & Supply Chain Mgt.  LEAN Continuous Process Improvement  Military Aircraft Sustainment ICF provides a full range of Aerospace & MRO advisory services
  29. 29. 2828 ICF is one of the world’s largest and most experienced aviation and aerospace consulting firms Airports • Airlines • Aerospace & MRO • Aircraft  53 years in business (founded 1963)  80+ professional staff − Dedicated exclusively to aviation and aerospace − Blend of consulting professionals and experienced aviation executives  Specialized, focused expertise and proprietary knowledge  Broad functional capabilities  More than 10,000 private sector and public sector assignments  Backed by parent ICF International (2015 revenue: 1.13 billion USD)  Global presence –– offices around the world joined in 2011joined in 2007 joined in 2012 joined in 2014 New York • Boston • Ann Arbor • London • Singapore • Beijing • Hong Kong
  30. 30. 2929 Acronyms  A/C = aircraft  AD/SB = airworthiness directives/service bulletins  AHM = aircraft health management  ASM = available seat-mile  CAGR = compound annual growth rate  CRABS = Canada, Russia, Australia, Brazil, and South Africa  Gen = generation  IFE = in flight entertainment  IP = intellectual property  M&A = mergers and acquisitions  Mod = modification  MRO = maintenance, repair, and overhaul  OEM = original equipment manufacturer  USD = United States dollar

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