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March 26th, 2009San Diego, CA

11th Annual Gorham PMA Conference

PMA Market Outlook

Effects Of The Recession

Jonas Murby

Ann Arbor, Michigan • Amersham, United Kingdom • Singaporewww.AeroStrategy.com


Agenda

2

Current PMA Market

PMA Market Outlook


• Old and mature aircraft currently represent 60 percent of MRO spend; this portion will decline to 26 percent by 2018

• In 2018, 60 percent of MRO spend will be generated by ”New” generation aircraft, like the 737NG, A320 Series, 777, or A330

-

10

20

30

40

50

60

2008 2018

OldMatureNewNext

There Is A Long-Term Transition From Older To Newer Generation Platforms

3

2008-2018 Air Transport MRO MarketBy Generation ($B)

Source: AeroStrategy/OAG Aviation

Current PMA Market


737‐3/4/500-300

-200

-100

0

100

200

300

400

500

Fleet retirements affected some key PMA markets

The Fuel Crisis Accelerated This Trend...

4

2008 Net Change In Air Transport Fleet(Number Of Aircraft)


Current PMA Market

Launch market for Global Material

Solutions


...And The Fuel Crisis Was Followed By A Recession...

5

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000Series 1

Africa

Asia Pacific

Europe

Latin America

Middle East

North America

-1.8

-1.6

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

World GDP Forecast ($B) 2009 Expected Airline Losses ($B)

World GDP is expected to decline 1.8% in 2009, and lead to severe airline losses

Source: Economist Intelligence Unit, IATA

Current PMA Market


Africa AsiaPacific

China EasternEurope

India LatinAmerica

MiddleEast

NorthAmerica

WesternEurope

-350

-300

-250

-200

-150

-100

-50

0

50

100

150

200

Due to fleet restructuring, North American airlines have relatively healthy financials in 2009

...As A Result, The North American Fleet Contracted By More Than 250 Aircraft

6

2008 Net Change In Air Transport Fleet (Number Of Aicraft)


Current PMA Market


0

10

20

30

40

50

60

70

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

NewOld

The MRO Market Will Lose Three Years Of Growth!

The Recession Will Reduce MRO Market Growth Considerably During The Next Three Years

7

2008-2018 Air Transport MRO Market ($B)

Source: AeroStrategy OAG Aviation

Current PMA Market

Market contracting in 2009

2018 Market $9 Billion lower than previously forecast


In Addition, Suppliers Could See An Even Steeper Decline In Revenue As A Result Of Airline Use Of ”Buffers”

8Source: Air Transport Association, AeroStrategy analysis

Current PMA Market

Reduction In Airline MRO

Demand

-4.2%

Airline Use Of Maintentance ”Buffers”

•Burn inventory•Defer maintenance•Surplus•Cannibalization

Short-Term Market Impact

-10% to -20%

0.80

0.85

0.90

0.95

1.00

1.05

1.10

2001 2002 2003 2004 2005 2006

ASM (indexed)

Maintenance Cost (indexed)

2001 – 2006 Maintenance Costs Versus Available Seat Miles In The US


• 2008 PMA market is down 8% versus 2007, from $416M to $381M

• Several factors drive the PMA market contraction

Capacity reductionsRetirement of PMA-friendly platformsAirline use of buffersOEM defensive measures

The Fuel Crisis In Combination With The Recession Contracted The PMA Market By 8% In 2008

9

Air Transport PMA Market ($M)

Source: AeroStrategy analysis

Current PMA Market

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

-

50

100

150

200

250

300

350

400

450

2007 2008

($M) PMA Penetration(%)

$381 M$416 M


Agenda

10

Current PMA Market

PMA Market Outlook


Engine56%

Compo-nents34%

Airframe7%

Line3%

Engines Account For Half Of The Air Transport PMA Market...

11

2008 Air Transport PMA Market

$381M

Source: AeroStrategy analysis, AeroStrategy Engine Overhaul Survey

PMA Market Outlook


CFM27%

GE25%

Rolls Royce21%

Pratt & Whitney

19%

IAE7%

Other1%

...And GE Engine Models Account For Half Of The Engine MRO Market

12

2008 Air Transport Engine MRO Market


PMA Market Outlook

$15.3 Bn


By Adopting A Licensed Service Center Aftermarket Strategy, GE Gains Significant Influence Over 17%Of The GE/CFM Market

13Source: GE, AeroStrategy/OAG Aviation, Company websites

PMA Market Outlook

GE/Snecma

31%

Licensed Service Center17%

Other 52%

2008 GE/CFM Engine MRO Market, By Supplier Segment

$8.0 Bn

MOU MRO cooperationGE90, CF6, CF34

2007

CFM56-7, CF80E, GE90, GP7200

2002-

CFM56 CFM56-5ACF34, CFM56-2/-3/-5A

and –5C

2008

Recent GE Agreements With MROs


GE24%

SNECMA17%

IBERIA11%

AFI9%

ST Aero8%

AVEOS8%

OTHER23%

The CFM56-5B Is An Excellent Case Study Of The Effectivness Of GE’s Aftermarket Strategy

14

2008 CFM56-5B Overhaul SpendBy Supplier

$550M

Around 70-75% of the material for CFM56-A/-B are controlled by the OEMs

Source:: AeroStrategy/OAG Aviation

• CFM56-5B entered service in 1995 and powers nearly 45% of the current A320 fleet

• The MRO market for this engine is projected to reach $1 Billion within the next five years

• From an age perspective, this engine would have been one of the growth platforms for engine PMA

• However, with current market shares, 77 percent of the supply side uses OEM parts

PMA Market Outlook


In Addition, GE’s Branding Campaign Reduces The Addressable Market For Two Popular Engine Models

15Source: GE, Shephard, Aviation Week

PMA Market Outlook

Nearly 20 percent of the CFM56-3 and CFM56-7B are branded TRUEngine

0%10%20%30%40%50%60%70%80%90%

100%

CFM56-3 CFM56-7B

OtherTrue Engine

Portion Of Global Fleet Marked As ”TRUEngine”


In Contrast, Airframe And Component PMA Markets Are Expected To Continue Robust Growth

16AeroStrategy analysis

PMA Market Outlook

• Major suppliers of Broad Component Support have embraced PMA and are gaining an increasing share of the market

• Lesser risk for lessors to bring PMA onto the aircraft• Components is a more fragmented market relative to engine,

and many OEMs have relatively less aftermarket control.• Below-average service from certain OEMs enhances the

airlines’ benefit of shifting to PMA

• Growing activity in competitive PMA for aircraft interiors• For many operators, use of PMA for interiors is not a flight

critical issue• Barriers to entry are lower than for engines and components• Defensive measures from OEMs are less sophisticated than

in the engine segment

Components

Airframe


• Total material spend grows from $16.6 Billion to $21.4 Billion

• PMA Market increases from $380 Million to $680 Million

• PMA penetration expected to reach 3.6% of total material consumption

• Components and Airframe will have the highest growth rates and become more prominent

• Engines will see less growth as a result of strong OEM defensive measures

The Air Transport PMA Market Is Expected To Reach $680 M Within The Next Five Years

17

2008-2013 Air Transport PMA Forecast

Source: AeroStrategy analysis, AeroStrategy Engine Overhaul Survey

PMA Market Outlook

-

100

200

300

400

500

600

700

800

2008 2013

AirframeEngineComponents

($M)

PMA Penetration (%)

2.3%

3.6%


• The fuel crisis in combination with the recession contracted the PMA market By 8% in 2008

• Engine OEMs have launched defensive measures, which have strengthened their control of the engine material market

• In contrast, airframe And component PMA markets are expected to continue robust growth

• The PMA market is expected to reach $680M the next five years with 3.6% overall market penetration

Key Messages

18


Thank You For Your Attention!

19

• AeroStrategy is a specialist management consulting firm devoted to aviation and aerospace sectors with offices in Ann Arbor, Michigan, Amersham, U.K., and Singapore

• To learn more about AeroStrategy please contact:

David Stewart, PrincipalPh: + 44 1494 431 [email protected]

Kevin Michaels, PrincipalPh: +1 734 821 [email protected]

Hal Chrisman, PrincipalPh: +1 734 821 [email protected]

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