latin american mro market update & industry trends
TRANSCRIPT
0
MRO Market Update & Industry Trends
Presented by:
Jonathan M. BergerVice President ICF International
May 15-18, 2016
Puerto Rico
11
Today’s Agenda
MRO Forecast
Latin American Aviation Outlook
Trend Watch:
The Mod Squad
New Technology Aircraft
MRO Investment in Latin America
22
MRO Forecast
33
The current
commercial
air transport fleet
consists of over
27K aircraft; over
half are narrowbody
aircraft
Source: CAPA 2015
NarrowbodyJet
WidebodyJet
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
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 AmericaEurope
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
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
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
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
88
The current Latin
American fleet
consists of over
2,100 aircraft; with
more than 50%
narrowbody
Source: CAPA 2015
NarrowbodyJet
WidebodyJet
Turboprop
Regional Jet
2,123
Aircraft
8%
51%
16%
25%
By Aircraft Type By Country
Brazil
Mexico
ColombiaChile
Venezuela
Panama
Other
2,123
Aircraft
28%
17%7%
21%
11%
6%
6%
5%
2015 Latin American Commercial Air Transport Fleet
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
1010
Latin American
Aviation Outlook
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
1212
The dramatic increase
in oil & gas market
supply and reduceddemand 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
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%
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
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
$1.5 Latin America
Airline Net Profit
7%
3%
0%
5%
10%
Operating Net
4%
-2%-5%
0%
5%
Operating Net
2015 Latin American Carrier
Operating and Net Income
Positive operating income
demonstrates that airlines
are doing a good job in
managing what is in their
control
However, net income has
clearly been negatively
impacted by currency
exchange rates (out of their
control)
5%
-5%-10%
-5%
0%
5%
10%
Operating Net
-2%
-44%-60%
-40%
-20%
0%
Operating Net
12%
-10%-15%
-5%
5%
15%
Operating Net
1616
Trend Watch:
The Mod Squad
1717
Modifications growth
is driven by airlines
seeking differentiation
in the cabin and
customer experience
Modifications demand includes labor and material spend
*Passenger-To-Freighter Conversions
**Airworthiness Directives / Service Bulletins
Source: ICF analysis, constant 2015 US$
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
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
IncreasedSeat Density
Longer StageLengths
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
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
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%
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%
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
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
2424
Trend Watch:
MRO Investment in
Latin America
2525
The Latin American
MRO Supplier
Landscape largely
consists of airframe
MRO suppliers, with
limited component
capabilities
Source: ICF analysis
United States
Brazil
26
For questions regarding this
presentation, please contact:
Jonathan M. BergerVice President Aerospace & MRO
[email protected] +1 404.819.7669
THANK YOU!
May 15-18, 2016
Puerto Rico
2727
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2828
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world’s largest and
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consulting firms
Airports • Airlines • Aerospace & MRO • Aircraft
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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
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Global presence –– offices around the world
joined in 2011joined in 2007 joined in 2012 joined in 2014
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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