The Crystal Ball

Industry Trends and the Next 5 Years Central & Eastern Europe and

Russia

Jonas Butautis, CEO of Magnetic MRO

The Approach

• The Past; What Shaped MROs in our Region• The Present; Current Industry State and Call for Action• The Future; The next 5 Years

Crystal BallA clear glass ball in which some people say they can see the future by using magic. (merriam-webster.com)

Instead of a glass ball and magic:

The Past (I of II)

Timeline of Key Macro Events1990

1995

2000

2005

2010

2015

Timeline of MRO Industry in the Region1990

1995

2000

2005

2010

2015

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Off

LOT

AMS

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The Past (II of II)

• Relocating Labor Intensive Work to lower cost zone – because it is cheaper

• Russia/CIS Opportunity of Growth – because it grew, it grows, it will continue to grow

• Inherited MROs as part of national airline package – Just because...

Positioning of CEE&R MRO Organizations 1990-2015Why do we exist?

The Present (I of II)

• Labor cost advantage is fading away fast, productivity improvements do not compensate

• Russian market closing down for lower know-how intensity work (HM, LM, etc.)• Lack of true key differentiators, „the edge“• Mixed experiences with Western European customers• Very limited high technology investments made (Engines, Components,

Manufacturing, IT etc.)• No market scale for OEM interest to drive the aftermarket clusters (CEE vs UAE vs

Turkey etc.)• CEE&R MROs are at the crossroads as never: Develop or Become Extinct

Current State of MRO Industry CEE&R

The Present (II of II)

• Technology innovation• IT innovation• R&D labs with Universities,

Schools, etc.• OEM partnerships• JVs• Production, certification

processes

To Access or Develop Technological Edge

• Investments into Capital-Intensive MRO areas

• Equal competition with global MRO brands

To Access Cash

• Morphing into International or Global MRO players

• Accessing global Talent Pool and Customer Pool

To Grow Out of CEE&R Region

Call for Action to MRO Industry CEE&R

It is a Matter of Survival to master these three strategic pillars

The Future – 5 Years from Now

Group 1• A number of MROs stuck in the “Go Bust – Find New Dream Investor - Rent Hangars – Launch Part 145 – Struggle for 3 years – Go Bust”

cycle• Will be harder and harder to justify Hangar-based start up, should run out of Dream

Investors

3 Key Groups of MROs will Evolve in CEE&R

Group 2• „Just because“ group, usually backed up by the Government and in constant conflict with

ROIC concept• This group will continue surviving each electionGroup 3• Unique few who will develop Technological Differentiators, OEM alignment, JVs • Will access cash on global scale• Will evolve as true International Players, growing out of CEE&R region

The Future – 5 Years from Now

Consolidation – Will it Happen?

• No objective reasons for major consolidation of CEE&R MRO industry by global or regional players

• Ego-driven occasional acquisitions may be present within the region

Summary

More Urgency than Ever: Develop or Become Extinct

Let’s discuss more on ‘’How’’ at this Conference

CEE&R MRO Industry Historically Created for the Reasons which are Fading Away Fast

• Russia/CIS – focused strategies exposed to major Political and Credit risks post 2014

• Labor Cost Advantage Disappearing

• No key differentiators among MROs for offsetting such risks

No ‘’external factors’’ will change the CEE&R MRO Industry

• No objective reasons for acquisitions or consolidation from local or global players

• Low interest from OEMs in the CEE&R region (manufacturing, transfer of know-how, etc.)

• Local Change Agents are needed, practically driving the change of the industry

Thank YouJonas Butautis, CEO of Magnetic

MROwww.magneticmro.com