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

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. 11
Today’s Agenda
MRO Forecast
Latin American Aviation Outlook
Trend Watch:
 The Mod Squad
 New Technology Aircraft
 MRO Investment in Latin America

3. 22
MRO Forecast

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. 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. 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. 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. 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. 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. 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. 1010
Latin American
Aviation Outlook

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. 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. 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. 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. 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. 1616
Trend Watch:
The Mod Squad

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. 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. 1919
Trend Watch:
New Technology Aircraft

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. 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. 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. 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. 2424
Trend Watch:
MRO Investment in
Latin America

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. 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. 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. 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. 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