2014 MRO Market Overview & Trends

ICF International | icfi.com © ICF SH&E 2013
MRO Market Overview & Trends
January 15, 2014
Jonathan M. Berger
Vice President  ICF SH&E
jberger@icfi.com
Presented by:

ICF International | icfi.com © ICF SH&E 2013 1
Today’s Agenda:
1. MRO Market Overview
2. MRO Industry Trends to Watch
joined ICF in 2011 joined ICF in 2012joined ICF in 2007
2014 Annual
Transportation
Review Board
Meeting
Washington, DC

MRO Market Overview

Maintenance costs typically range between 15%-18% of an
airline’s operating cost structure
MRO MARKET OVERVIEW
Typical Airline Cost Breakdown
Source: Form 41 & ICF SH&E Analysis
Typical Airline’s MRO Cost Breakdown
Annual airline maintenance spend as a % of total cost will fluctuate year-to-
year based on timing of major visits (e.g. airframe heavy checks & engine
overhauls), fleet age, size, mix and perhaps most importantly the price of fuel
Engines
Components
Line
Airframe
Modifications
Airline’s
MRO Cost
16%
17%
21%
40%
6%
Maintenance
Fuel
Labor &
Benefits
Depreciation
AircraftRent
Other
16%
14%
35%
28%
5%
5%
3%

Narrowbody
Jet
Widebody
Jet
Turboprop
Regional Jet
The current civil air transport fleet consists of over 26K aircraft
MRO MARKET FORECAST
Source: FlightGlobal ACAS September 2013
North
America
Asia Pacific
Europe
South
America
Africa
2013 Global Air Transport Fleet
26,772
Aircraft
17%
50%
15%
18%
32%
26%
25%
8%
5% 5%
By Aircraft Type By Global Region
26,772
Aircraft

The air transport fleet will grow at a 3.1% rate over
the coming decade
MRO MARKET FORECAST
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2013 2023
Africa
Middle East
South America
Europe
Asia Pacific
North America
Commercial Fleet Growth 2013–2023
Source: ICF SH&E, ACAS September 2013
4.2%
2.4%
4.3%
1.6%
5.6%
4.6%
26,800
31% 27%
36,400
CAGR
3.1% Average
Key Assumptions
 Air travel growth
of 3.9%
 Fuel costs in $80-
100/bbl range
 17,720 aircraft
deliveries
 8,128 aircraft
retirements
26%
25%
8%
28%
24%
9%

Engines
Components
Line
Airframe
Modifications
15%
17%
22%
40%
6%
The current civil air transport MRO market is valued at $60.7
billion USD
MRO MARKET FORECAST
North
America
Asia Pacific
Europe
Middle East
South
America
Africa
31%
27%
26%
7%
5% 4%
2013 Global MRO Demand
$60.7B$60.7B
By MRO Segment By Global Region
Source: ICF SH&E analysis
Forecast in 2013 $USD, exclusive of inflation

$60.7B
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2013 2023
Modifications
Heavy Airframe
Line
Components
Engine
The global MRO market is expected to grow to $89B by 2023,
at 3.9% per annum
MRO MARKET FORECAST
Global MRO Spend 2013–2023
2.8%
3.4%
4.3%
3.7%
15%
17%
22%
40%
13%
16%
23%
40%
6.4%
6%
7%
CAGR
3.9% Average
Key Assumptions
 Average growth is forecast
to be 3.9% CAGR
 The strongest driver of
growth is expected to be the
engine market
 Reduced labor intensity of
airframe heavy checks as
the fleet renews and
increased intervals...offset in
emerging markets by
increasing labor rates
 Aircraft upgrades (e.g.
interiors, winglets) drive high
modifications growth
$89B

Over the next decade, Asia Pacific and Middle East will
drive $15.5B in absolute MRO spend growth
MRO MARKET OVERVIEW
Difference in $ MRO Spend, 2022 vs. 2013 – By Global RegionUS$ Billions
$7.1
$4.5
$3.9
$2.9 $2.9 $2.8
$2.0 $1.9
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
Asia/Pacific
(excl China)
Middle East China North
America
Eastern
Europe (incl
CIS)
Latin America Western
Europe
Africa

The MRO outsourcing trend is expected to continue
into the future
MRO MARKET OVERVIEW
24%
60%
82%
88%
21%
53%
71%
78%
17%
48%
66%
74%
0% 20% 40% 60% 80% 100%
Line
Heavy Airframe
Components
Engine
Percent of Direct Maintenance Spend Outsourced
2008
2013
2020
Source: ICF SH&E Analysis
Global Outsourcing by MRO Segment
 Airlines currently outsource nearly
65% of all MRO activity
 Airline industry economics will
continue to drive growth in
outsourcing
 Capital intensive segments (e.g.
engines & components) will drive
outsourcing growth
 Labor intensive airframe work will
continue to “Right-Shore”; migrate
to lower labor cost countries near
the home region
 Start-up operators will continue to
seek “total fleet support” solutions
ICF SH&E Insight

MRO Industry Trends to Watch

Industry
Trends
Role of OEM
in MRO
Fleet
Dynamics
Airframe
MRO
3-D
Printing
Surplus
Parts
Five key MRO industry trends to watch…
Source: ICF SH&E
MRO INDUSTRY TRENDS

FLEET DYNAMICS
Source: ICF SH&E Analysis; Flightglobal ACAS 2013, ATA, US Federal Reserve
Fleet Demographics––the 1990 Bulge Historically Low Interest Rates (%)
New Technology & OEM Production Rates
Exacerbate Retirements
Historically High Jet A Fuel Prices ($/BBL)
0
500
1,000
1,500
2,000
1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Air transport deliveries
0
2
4
6
8
10
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
10-Year US Treasury Bond Yield –
though cost of capital is now trending up
0
20
40
60
80
100
120
140
1991 1994 1997 2000 2003 2006 2009 2012
Four factors are reshaping aircraft economics and MRO…

…and ICF projects more than 8,100 retirements through 2023,
which will drive nearly 50% of deliveries
FLEET DYNAMICS
Note: includes turboprops and regional jets
Air Transport
Retirements 2014 – 2023
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Composition of
Demand 2014 – 2023
17,700 Deliveries…
…of which 8,100 to offset
retirements
..and 9,600 for
new growth
Retirements historically drive 20% of deliveries
46%
54%
B737-NG
~ 8,100
A320
B737-345
B767
MD80
CRJ
OTHERS
B747-400
DHC6
ERJ-135
B737-NG

Aircraft retirements will average between 600 – 1,000 per year
over the forecast period
FLEET DYNAMICS
Air Transport Annual Aircraft Retirements
Includes Turboprops
Source: Airline Monitor Jun 2013, ACAS Sept 2013, ICF SH&E
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
0
200
400
600
800
1,000
1,200
# Retirements
Retirement as %
of installed fleet
% Installed Fleet
ICF SH&E
forecast
1990-99 Average 171
2000-09 Average 410
2010-23 Average 751

After decades of a virtual OEM duopoly in the regional jet market,
the RJ market is now very competitive
FLEET DYNAMICS
‘G2’ E-Jet Family
Order Book:
• Net Orders: 150
• Options: 50
• Capacity:
78-122 seat range
with common wing
• EIS: 2018
C-Series
• Order Book:
Net Orders: 177
Options: 101
MRJ 70/90
Order Book:
• Net Orders: 165
• Options: 160
• US’ SkyWest with
game- changing order for
100 aircraft and 100 options
Sales Figures: ACAS, September 2013
SuperJet 100
Order Book:
• Net Orders: 180
• Options: 52
• Mexico’s Interjet took
delivery of first aircraft
in Oct 2012 making it
the first western
customer to
receive the aircraft
ARJ21
Order Book:
• Net Orders: 122
• Options: 70
Who will be
the winners and losers
in the 70-110 aircraft
market battleground?

Source: ICF SH&E
MRO INDUSTRY TRENDS
Industry
Trends
Role of
OEM in MRO
Surplus
Parts
3-D
Printing
Airframe
MRO
Fleet
Dynamics

ICF SH&E estimates that commercial MRO industry spending on
surplus parts is approximately $3.0 billion
SURPLUS PARTS MARKET
Engine
Parts
Component
Airframe
5%
65%
30%
Air Transport Surplus Parts Market*
*Sales to end customers; excludes intra-dealer sales
$3.0B
 More innovative surplus
parts supplier base
 Vertical integration of
Lessors, Parts Traders &
Repair Vendors
 Increased aircraft part-
outs
 Increased engine
teardowns
ICF SH&E Insight

Surplus dealers now obtain over 80% of their inventory from
parting-out aircraft…
54%
82%
26%
8%20%
10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2012
Aircraft Part-Out
Direct Purchase From Airline
Purchase From Surplus Dealer
2007 & 2012 Supplier Channels for
Obtaining Surplus Materials
Source: ICFI SH&E Analysis
 Leaner airline
inventories
 Improved material
planning (and MRO IT
capabilities)
 Increased component
pooling agreements
 OEM after-market
material control
strategies
ICF SH&E Insight

The aircraft part-out and recycling business will continue to grow
as a result of a confluence of several key factors
1. Continued increase in
aircraft retirements
2. Strong global demand for
surplus material
3. Growth and expertise of
global parts distribution
firms
4. Low cost of capital
(low interest rates)
5. Increased demand for raw
material (recycled metal)
(former
Memphis Group)
Major Part-Out Players
Major Part-Out MROs
Indianapolis
Arizona
France
U.K. Florida
Victorville
Oklahoma

Source: ICF SH&E
Industry
Trends
MRO INDUSTRY TRENDS
Airframe
MRO
Role of OEM
In MRO
3-D
Printing
Surplus
Parts
Fleet Dynamics

ROLE OF OEMS IN MRO
Independent MROs
Evaluating strategic options
 Seek partnerships?
 Niche competitor?
 PMA/DER usage?
 Access to new aircraft IP?
Integrators
 Scale
 Engine/
Component JV
opportunities?
 Evaluation of core
vs. non-core
Engine &
Component OEMs
 Focus on
controlling IP
 Continue
successful capture
of market share
(especially for
new gen
equipment)
 Increased support
in growth regions
via licensed
service centers
Airframe OEMs
 Grow aftermarket services revenue
 FHS, GoldCare, MRO Network
 Part consignment programs
Relationships between the various MRO suppliers
continue to evolve
Source: ICF SH&E

Aircraft OEMs are fast becoming major MRO players…
Sources: ICF SH&E Analysis, EADS Vision 2020
 The EADS Vision 2020 goal is 25% services
revenue by 2020
 Two major acquisitions in 2011: Satair and
Vector Aerospace
 Numerous FHS contracts
 Launched EDGE in 2012 to create
coordinated services brand
 Major player in flight training, distribution,
and consumables management
 Two new GoldCare contracts
ROLE OF OEM IN MRO
~50%
~40%
~10%
50%
60%
90%
0%
20%
40%
60%
80%
100%
Engine OEMs Component
OEMs
Aircraft OEMs
Typical OEM Revenue Mix
Manufacturing
Services

Tier 1 supply chain model continues to evolve as OEMs
consolidate their aircraft manufacturing programs…
Source: ICF SH&E Analysis, Airframer, Teal Group
B777 B787
AlliedSignal
Honeywell
Goodrich
Smiths
Sundstrand
Moog
Menasco
Vickers
Messier
Collins
SAFRAN
Goodrich
Hamilton
Sundstrand
Panasonic
B/E Aero
Other
Component MRO Spending Distribution
B777 versus B787
Supplier Consolidation
Tier I supply chain model;
redefined system
architectures
ROLE OF OEM IN MRO
• B/E Aero
• C&D
• Hamilton
• Hispana Suiza
• Parker
• Jamco
• Liton
• Woodward Gov
• Contour
• Recaro,
• Driessen
• Sell, 1%
• Boeing Wichita
• Avox
• Carleton
• NordMicro
• BAE
• Peco
• Techspace
• Cox
• Crane
• CMC
• Meggitt
• Pacific Scientific
• Eaton
• Hughes Trietler

Source: ICF SH&E
Industry
Trends
MRO INDUSTRY TRENDS
Surplus
Parts
Airframe
MRO
3-D
Printing
Fleet
Dynamics
Role of OEM
In MRO

In-House
Independent
Airline Third
Party
OEM
Airframe MRO is very fragmented; no supplier has more than
a 6% market share
Airframe Heavy Maintenance Market Share
AIRFRAME MRO
HAECO*
ST Aerospace
LHT
AFI KLM E&M
AAR
Ameco
EGAT
TAECO
AA-MRO
SIAECOthers
By Supplier Type
2%
44%
18%
36%
6%
6%
4%
4%
3%
2%
2%$9.0B
Includes Turboprops
Supplier Market Share
$9.0B
* Includes TIMCO’s share

Three of the top four airframe MRO are Asian owned;
Haeco’s acquisition of Timco makes it a solid #2
AIRFRAME MRO
11.5
7.4
4.6
4.2
4.1
3.9
3.2
2.8
2.5
2.3
0 2 4 6 8 10 12 14
ST Aero
Haeco Group
AAR
SIAEC
Lufthansa Technik
AFI KLM E&M
Timco
Ameco Beijing
ADAT / SRT
Iberia
2012 Top Airframe MROs by Performed Man-Hours (millions)
Source: Aviation Week Overhaul and Maintenance June 2013
Note: Subsidiaries are included if they are majority owned/operated
October 2013
Haeco acquires Timco
10.6

$10
$20
$30
$40
$50
$60
$70
1990 1995 2000 2005 2010 2015 2020
North America
Mature Asian MROs
Emerging Asian MROs
Average Widebody Airframe Heavy Maintenance 3rd Party
Labor Rates In North America vs. Asia (USD per Man-Hour)
The cost advantage enjoyed by Asian MRO suppliers will continue
to erode due to the shortage of skilled labor and wage inflation
The convergence of global labor rates will require airlines to reconsider their
airframe sourcing strategies and create new opportunities for MRO suppliers
Labor Rate
Convergence
AIRFRAME MRO

Widebody airframe heavy check migration from
North America to Asia will peak…
Source: ICFI SH&E
Shifting Heavy Airframe MRO Migration Patterns
AIRFRAME MRO
 Average labor hours per heavy
maintenance check is declining
 High fuel prices increase
maintenance ferry flight costs
 Skilled labor shortages in Asia
driving up labor rates
 South-eastern US labor rates
now comparable to leading
emerging market MRO rates
 Excess facility supply in North
America increasing local
competitiveness
ICF SH&E Insight
Less Trans-Pacific
Heavy Check
Migration
More Heavy
Maintenance
Stays in Americas
“Right-shoring is the
new Outsourcing”

Source: ICF SH&E
Industry
Trends
MRO INDUSTRY TRENDS
3-D
Printing
Fleet
Dynamics
Role of OEM
In MRO
Surplus
Parts
Airframe
MRO

Additive manufacturing, also known as 3-D printing, has the
potential the be the next disruptive technology in aviation
3-D PRINTING
Source: ICF SH&E Research & analysis
The GE Aviation-Parker Aerospace
joint venture will 3-D print more
than 30,000 LEAP-X fuel nozzles
per year by 2017

3-D PRINTING
HEICO is using 3-D printers to
produce PMA part prototypes
as well as tooling fixtures

3-D PRINTING
Boeing is using 3-D printing to
fabricate plastic interior parts
for prototypes and test
evaluation units

3-D PRINTING
NASA has certified a 3-D printer to
be used on the International Space
Station in 2014

3-D PRINTING
China’s AVIC heavy machinery is
using large 3-D printed titanium
parts for landing gear and other
structural related parts.

3-D PRINTING
Pratt & Whitney will feature 25
different 3-D printed parts in its
next generation GTF engine family

3-D PRINTING
Industry “experts” predict that
3-D printing technology could lower
the cost of structural parts
by up to 90%
Not surprisingly, GE plans to invest
$3.5B in 3-D printing technology…
within the next 5 years!

ICF International | icfi.com 37© ICF SH&E 2013 37
Thank you!
 MRO Market Research & Analysis
 M&A Commercial Due Diligence
 Aerospace Manufacturing Strategy
 Aviation Asset Valuations & Appraisals
 MRO Cost & Performance Benchmarking
 MRO Information Technology (IT) Assessment
 MRO Strategic Sourcing Support
 Supply Chain Management
 LEAN Continuous Process Improvement
 Military Aircraft Sustainment
ICF SH&E’s MRO advisory services include
the following:

ICF SH&E is one of the most experienced global aviation and
aerospace consultancies
 50 years in business (founded1963)
 100+ professional staff
− Dedicated exclusivelyto aviation and aerospace
− Recruited from the industry
 Specialized,focused expertiseand proprietary knowledge
 Broad functionalcapabilities
 More than 8,000 privatesector and publicsector assignments
 Backed by parent company ICF International ($937M revenue)
 Globalpresence –– seven major offices
New York • Boston • Ann Arbor • London • Singapore • Beijing • Hong Kong
Airports • Airlines • Aerospace & MRO • Asset Advisory • Safety & Security

ICF International delivers professional services and technology
solutions in three focus areas, which ICF SH&E draws upon, further
expanding its service offerings and technology solutions
One of ICF's founders and its first president was a Tuskegee Airman.
C.D. "Lucky" Lester flew more than 90 missions and earned the
Distinguished Flying Cross. In 1969, "Lucky" and 3 DoD analysts
founded the organization that is now ICF International.
$937M Revenues
4,500+ Employees
ICFI NASDAQ
Energy Environment
Transportation
Health, Social Programs,
and Consumer/Financial
Public Safety
and Defense

Jonathan M. Berger
Vice President
jberger@icfi.com
icfi.com

2014 MRO Market Overview & Trends

Recomendados

Recomendados

Más contenido relacionado

La actualidad más candente

La actualidad más candente (20)

Destacado

Destacado (10)

Similar a 2014 MRO Market Overview & Trends

Similar a 2014 MRO Market Overview & Trends (20)

Más de ICF

Más de ICF (20)

Último

Último (20)

2014 MRO Market Overview & Trends