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.
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Latin American MRO Market Update & Industry Trends
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
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
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
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
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