global mro forecast 2011-2021

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TEAMSAI©2011 MRO Americas 2011 Conference The Global MRO Forecast 2011 - 2021 Presented by: Dave Marcontell President, TeamSAI M&E Solutions A Delicate Recovery

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Page 1: GLOBAL MRO FORECAST 2011-2021

TEAMSAI©2011MRO Americas 2011 Conference

The Global MRO Forecast 2011 - 2021

Presented by:

Dave MarcontellPresident, TeamSAI M&E Solutions

A Delicate Recovery

Page 2: GLOBAL MRO FORECAST 2011-2021

Let’s start with the summary

4/12/2011

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The

Good News 2010 represented the bottom of the MRO business cycle

The

ChallengeAligning MRO business strategies for success with the new reality of a delicate recovery

The

Reality The business has changed forever

Page 3: GLOBAL MRO FORECAST 2011-2021

The airline & MRO business has become extremely sensitive to shocks

4/12/2011 TEAMSAI©2011

Page 4: GLOBAL MRO FORECAST 2011-2021

The global business cycle has a strong influence on MRO activity

Long term traffic growth remains strong

– However, disruptions are becoming more frequent and pronounced

In a global economy connected largely through air transport, isolated impacts have far-ranging effects

– Air transport remains the single largest driver of MRO demand

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Source: Air Transport Association (ATA), USDA Economic Research Service

But the business is forever changed

Page 5: GLOBAL MRO FORECAST 2011-2021

Airlines have refined the art of capacity management

2010 marked a notable leveling of capacity

– ASMs declined 1% in 2010

– Mostly long-haul WB traffic

But the 1% decline in capacity has taken a dramatic toll on the associated MRO

– 2010’s MRO market was down 7.5%

Airlines are now poised to adjust more rapidly to future changes in demand than they may have in the past

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Source: Ascend, BACK, TeamSAI

MRO is susceptible to short-term fluctuation

-7.5%

-1.0%

Page 6: GLOBAL MRO FORECAST 2011-2021

Oil price is no longer the wild card … its volatility is the new reality

Oil prices returned to over $100/bbl in the last few months

– Fuel now represents about 30% of operating cost

– With few exceptions, airlines cannot control this cost

Cost will remain a singular focus by airlines

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Source: IATA

MROs can expect additional pressure from airlines as fuel prices rise

Page 7: GLOBAL MRO FORECAST 2011-2021

Global fleet growth projections show wide variations

While N America and W Europe have the largest fleets and MRO markets, the growth areas lie in emerging regions

– India, China, E. Europe

While these emerging regions are growing fast, their overall size represents just fraction of the total market

Nevertheless, the fleet forecast clearly indicates a shift to the east which is expected to drive a level of parity when combining

– The Americas

– Europe (Western & Eastern)

– Asia, including China & India

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Global recovery is forecast to be segmented with emerging markets leading the way

Note: bubble size indicates populationSource: Ascend, Economic Research Service/USDA

Page 8: GLOBAL MRO FORECAST 2011-2021

Average HMV and line maintenance costs have dropped significantly

$0.3

$0.4

$0.5

$0.6

2006 2007 2008 2009 2010 2011

Mill

ion

s

Average MRO Cost per Aircraft

HMV Line

777 upwards of 50% less than 767

HMV frequencies moving from 4-6 to 8-12 years

A350 and 787 promising further improvement

4/12/2011

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Source: TeamSAI

Airframe OEMs have leveraged technology to reduce MRO costs

Page 9: GLOBAL MRO FORECAST 2011-2021

While engine maintenance costs have not followed that trend

$0.3

$0.4

$0.5

$0.6

2006 2007 2008 2009 2010 2011

Mill

ion

s

Average Cost per Engine

Engine cost per hour continues to climb with each passing year

Fleet rationalization (2008-2010) helped to curtail average total spend per engine

However, total operating costs are coming down when considering the improvement in fuel consumption on newer engine types

4/12/2011

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Source: TeamSAI

Page 10: GLOBAL MRO FORECAST 2011-2021

Engine OEMs lead the way in successfully capturingthe value of the aftermarket stream

4/12/2011

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Mid 1990s, engine OEMs embarked on strategy to capture the total maintenance value as part of their product life cycle

History

Control material prices which is significant portion of mx costs Control intellectual property

Approach

Provide predictable costs (PBTH) Remove asset ownership cost of spare parts Offer expertise that operators cannot easily maintain on their own Provide single source for all maintenance needs Spread the investment in exotic tooling over a larger base Manage the complexity

ValueProposition

Component and airframe OEMs have adopted similar models Component and airframe OEMs have developed less maintenance-intensive

equipment which they control closely Labor arbitrage applies pressure to 3rd party / airline MROs

Today’s Realityfor the3rd Party/Airline MRO

If you aren’t an OEM MRO, you need a strategy to align yourself to deliver maximum value and stable costs to the customer over the long term

Page 11: GLOBAL MRO FORECAST 2011-2021

© 2010 TeamSAI, Inc.

MRO Forecast by the Numbers

2011 - 2021

Page 12: GLOBAL MRO FORECAST 2011-2021

First a review of the MRO rebound for 2011

Global MRO spend will be up 10.8% in 2011, to $46.9B

The drivers of the change are important to understand– Fleet change alone drives a 3.2%

increase, due to fleet renewal

– Utilization increase drives market up a small amount (utilization up 1.5% for the year driving 0.4% for market)

– Component increases outpacedeclines to airframe and line for asmall net increase of 1.0%

– Engine MRO drives a significant6.4% increase

– And last, labor rates have easeddown ever so slightly

4/12/2011

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Fleet 2010 + Deliveries - Retirements - Stored Fleet 2011

19,675 + 1,076 - 396 - 152 20,203

The recovery has started…delicate though it may be

Page 13: GLOBAL MRO FORECAST 2011-2021

Long term fleet growth still looks solid

Population growth and the growing middle class is what is driving our long term forecast

Fleet growth forecast at 3.5% CAGR to 28,591 in 10 years

ASM growth will increase at 5.3% CAGR over same period– Unit a/c utilization rates remain high

– Larger aircraft, more seats

– Longer routes

2.7%CAGR

3.5%CAGR

201019,675

201120,203

202128,591

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Page 14: GLOBAL MRO FORECAST 2011-2021

MRO industry outlook has continued shift to the right

Global growth is expected to maintain a 3.9% CAGR through 2021

$46.9B industry will grow to $69.0B over 10-year forecast period

– 2011 up 10.8% from 2010

Engine remains largest segment with the highest growth rate

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Page 15: GLOBAL MRO FORECAST 2011-2021

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Looking at the regions combined show relative parity in ten years time

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

Americas Europe Asia Middle East Africa

2011 2021

Americas Europe Asia Middle East Africa

Market ($B)(2011) $17.0 $13.7 $11.6 $3.1 $1.5

Mkt Share (2011)

36% 29% 25% 7% 3%

Note: Americas = North America and Latin America & the CaribbeanEurope = Western and Eastern Europe; Asia = Asia Pacific, China, and India

CAGR (2011-21)

2.4% 4.7% 6.8% 5.3% 3.5%

Mkt Share (2021)

29% 30% 30% 7% 3%

Page 16: GLOBAL MRO FORECAST 2011-2021

Mid-term growth in North America will be slow

Limited aircraft are slated for NA operators

– Only NB fleet is expected to grow in next 5 years

– WB and RJ fleet to contract (RJ contraction continues through 2021)

– Negative 0.3% CAGR from 2011 to 2016 overall– Then a positive 1.4% CAGR from 2016-2021

Operators are unlikely to bring back most parked aircraft

Economic recovery is giving airlines confidence to make longer term plans

– Supply of hangar and engine slots is tightening– But rising oil prices could erase positive impact

of capacity discipline

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North America’s MRO growth is limited by low fleet growth

Regional MRO North America

Billions 2011 2016 2021

# Aircraft 7,130 7,028 7,529

ASM (M) 1,073,977 1,209,355 1,388,362

Line Mtce $2.6 $2.6 $2.8

Components $2.8 $2.8 $3.1

Engines $6.5 $6.9 $7.6

HMV& Mods $3.0 $3.0 $3.1

Total MRO $14.9 $15.3 $16.5

Page 17: GLOBAL MRO FORECAST 2011-2021

© 2010 TeamSAI, Inc.

In Summary

Page 18: GLOBAL MRO FORECAST 2011-2021

Business expectations are changing rapidly

Relationship Based Performance Based

Inventory Tolerant Inventory Intolerant

Asset Utilization Not a Focus Turn-Around Time Prioritized

Little Accountability Accountability for Results

Limited Competitive Threat Global Competition

Metal & Mechanical Composites & Electronic

Western Focused Eastern Focused

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Page 19: GLOBAL MRO FORECAST 2011-2021

Business strategies must recognize the changing conditions

When the world is stable and the customer is expanding, creating a sustaining business if reasonably predictable

But when instability disrupts the status quo, profitability becomes very challenging and calls for adjustments in strategy

Growth in the airline business will continue to generate new MRO demands– The good life of 2007 is gone forever and the business is changing rapidly

– Cost and performance pressures will continue to intensify

– Demand may be more erratic as airlines quickly adjust capacity for disruptive conditions

The MRO business challenge remains the same: – Create value for the airline customer

– Grow the business and thrive despite the changeable input from airline operators

4/12/2011

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Whether a “big player” or a “small player,” key adjustments in the business model will be more important than in the past

Page 20: GLOBAL MRO FORECAST 2011-2021

MRO growth strategies

Keep in mind MRO’s place and sensitivity to the total transportation value chain

Four strategies for MRO growth: especially pertinent to non-OEM MROs

4/12/2011

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Oil prices, airline cost pressures

OEM MRO growth

Less maintenance

intensive airframes Capital

requirements to develop new product lines

Global labor shortage

Labor Value Creation M&A Diversification

An increased OEM MRO presence can have a greater impact on independent MROs than on other OEM competitors

Page 21: GLOBAL MRO FORECAST 2011-2021

Four basic strategies for MRO growth

AIRLINE MRO INDEPENDENT MRO

Labor Outsource non-core activity Develop expertise in core activity areas

Capitalize on outsourcing needs of airlines

Develop expertise in core activity areas

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Value Creation Implement cost reductions and new efficiencies

Adopt supply chain innovations Embrace new, smart aircraft systems

Implement cost reductions and new efficiencies

Adopt supply chain innovations Focus on reliability and dependability

Diversification Expand market offerings Expand geographical reach Pursue full-service capabilities

Merger & Acquisition

JVs and large scale parts pooling with other airlines

Leverage alliances

Target small, bolt-on acquisitions Identify value-oriented innovations that

contribute to airline customer’s cost focus

Page 22: GLOBAL MRO FORECAST 2011-2021

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Transforming the MRO business model around value creation

Page 23: GLOBAL MRO FORECAST 2011-2021

Thank you to our partners

4/12/2011 TEAMSAI©2011

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TEAMSAI©20104/12/2011

THANK YOU!

David Marcontell

President & COO

TeamSAI M&E Solutions

404-762-7257 Ext. 105

[email protected]