the mro market & key trends - apmexpo...the race is on… new battlegrounds are emerging across...
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ICF proprietary and confidential. © ICF 2018
THE MRO MARKET & KEY TRENDSMRO Summit29 May 2018London
Richard BrownPrincipal
© ICF 2018
ICF proprietary and confidential. © ICF 2018
Today’s Agenda
1. Industry Context
2.MRO Market
3.Trends to watch
2
ICF proprietary and confidential. © ICF 2018
The global airline industry is forecast to achieve a record profitability of over $38B USD in 2018
INDUSTRY CONTEXT
GLOBAL AIRLINE PROFITABILITY, 1998 – 2018F
-$30
-$20
-$10
$0
$10
$20
$30
$40
$USD
Billions
Europe, $11.5B
Africa, -$0.1B
North America, $16.4B
Asia Pacific, $9B
Middle East, $0.6BLatin America, $0.9B
$38.3B
4
Source: IATA/ ICF Analysis
ICF proprietary and confidential. © ICF 2018
…but many airlines continue to struggle though North America has been a bright spot and was leading the way in 2017
INDUSTRY CONTEXT
-1.8%
-4.7%
0.1%
2.3%
1.0%
-0.9%
3.4%
4.7%
0.7%1.5%
3.0%
-0.4%
12.9%
5.2%
4.5%
2.9%
0.7%
-3.6%-5%
0%
5%
10%
15%2008 2012 2017F
Source: IATA/ ICF Analysis
GLOBAL AIRLINE EBIT MARGIN BY REGION
5
ICF proprietary and confidential. © ICF 2018
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
Dec-0
7
Apr-
08
Aug
-08
Dec-0
8
Apr-
09
Aug
-09
Dec-0
9
Apr-
10
Aug
-10
Dec-1
0
Apr-
11
Aug
-11
Dec-1
1
Apr-
12
Aug
-12
De
c-1
2
Apr-
13
Aug
-13
Dec-1
3
Apr-
14
Aug
-14
Dec-1
4
Apr-
15
Aug
-15
Dec-1
5
Apr-
16
Aug
-16
Dec-1
6
Apr-
17
Aug
-17
De
c-1
7
Apr-
18
U.S. Gulf Coast Kerosene-Type Jet Fuel Spot Price
Jet fuel price has remained low over the past couple of years but has been creeping up recently
INDUSTRY CONTEXT
Source: EIA; ICF analysis
US$ per
Gallon
6
ICF proprietary and confidential. © ICF 2018
0%
10%
20%
30%
40%
50%
60%
70%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
COMMERCIAL AIRCRAFT OEM PRODUCTION BACKLOG DRIVERS OF OEM BACKLOG
Backlog more than doubled
between 2010 and 2014,
driven by:
– Emerging market growth
– Very low interest rates and
plentiful capital
– High oil and commodity
prices
– Introduction of new
technology aircraft/engines
In 2017, total backlog
decreased for the first time
since 2009 as deliveries ramp-
up and orders slowdown
Commercial aircraft OEM production backlog remains at historical highs
INDUSTRY CONTEXT
Source: CAPA, ICF Analysis
Order
BacklogBacklog/
% Active Fleet
# of aircraft
7
ICF proprietary and confidential. © ICF 2018
NarrowbodyJet
WidebodyJet
Turboprop
Regional Jet
55%
13%
19%
13%
The current commercial air transport fleet consists of ~29,100 aircraft; ~8,500 are located in North America
MRO MARKET
2017 GLOBAL COMMERCIAL AIR TRANSPORT FLEET
Source: ICF Analysis: CAPA 2017
BY AIRCRAFT TYPE
~29,100
Aircraft
BY GLOBAL REGION
29%
29%
24%
7%
6%5%
Latin America
Africa North
America
(~8,500)
Asia
Pacific
Middle East
~29,100
Aircraft
Europe
9
ICF proprietary and confidential. © ICF 2018
29%35%
37%
29%
23%
20%24%
23%
22%
7%
8%
8%
7%
7%
5%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
2017 2027 2037
Africa, 3.5%
Middle East, 5.6%
South America, 3.6%
Europe, 2.5%
North America, 0.8%
Asia Pacific, 5.0%
The combination of strong air travel demand and the need to replace ageing aircraft will drive fleet growth at a healthy 3.1% p.a.
MRO MARKET
20 YEAR GLOBAL AIR TRANSPORT FLEET GROWTH
Source: ICF Analysis: CAPA 2017
~29,100
~39,600
Region, 10y CAGR
Total: 3.1%
# Aircraft
~46,900
10
~9,600
~17,500
~8,500
~8,500
~9,200
~13,700
ICF proprietary and confidential. © ICF 2018
Engines
Components
Line
Airframe
Modifications
42%
13%
17%
7%
2017 commercial air transport MRO demand is $75.5B; Asia is now larger than North America and Europe in market size
MRO MARKET
2017 COMMERCIAL AIR TRANSPORT GLOBAL MRO DEMAND
Source: ICF Analysis: CAPA 2017
BY MRO SEGMENT
$75.5B
BY GLOBAL REGION
31%
26%
25%
8%
6% 4%Middle
East
Africa
Asia
Pacific
North America
$19.4B
South
America
$75.5B
Europe
~$19B21%
11
ICF proprietary and confidential. © ICF 2018
42%
45%46%
21%
20%
20%
17%
15%
14%
13%
12%
11%
8%
8%
8%
$0
$20
$40
$60
$80
$100
$120
$140
2017 2027 2037
Modfications, 5.8%
AHM, 3.5%
Line, 3.3%
Component, 4.3%
Engine, 5.2%
The global MRO market is expected to grow by 4.6% per annum to ~$118B by 2027
MRO MARKET
20 YEAR GLOBAL COMMERCIAL AIR TRANSPORT MRO DEMAND
Source: ICF Analysis: CAPA 2017, 2017 constant $
~$76B
~$118B
Total: 4.6%
$ USD
(billions) ~$140BRegion, 10 y CAGR
12
ICF proprietary and confidential. © ICF 2018
31%
36%38%
26%
19%
18%
25%
23%
21%
8%
11%
10%
6%
7%
7%
5%
$0
$20
$40
$60
$80
$100
$120
$140
2017 2027 2037
Africa, 6.1%
South America, 5.7%
Middle East, 7.9%
Europe, 3.3%
North America, 1.7%
Asia Pacific, 6.1%
Asia continues to grow strongly and will generate 38% of MRO demand by 2037…
MRO MARKET
20 YEAR GLOBAL COMMERCIAL AIR TRANSPORT MRO DEMAND
Source: ICF Analysis: CAPA 2017, 2017 constant $
~$76B
~$118B
Total: 4.6%
$ USD
(billions) ~$140BRegion, 10y CAGR
13
~$29.7B
~$19.2B
~$26.5B
ICF proprietary and confidential. © ICF 2018
42%43%
45%
21%
20%20%16%
15%14%
13%
12%12%
8%
9%9%
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20
2017 2027 2037
Modfications, 2.9%
AHM, 1.3%
Line, 1.5%
Component, 2.0%
Engine, 2.4%
The MRO market in Western Europe is expected to grow by 2.1% per annum to ~$16B by 2027
MRO MARKET
20 YEAR COMMERCIAL AIR TRANSPORT MRO DEMAND IN WESTERN EUROPE
Source: ICF Analysis: CAPA 2017, 2017 constant $
~$13B
~$16B
Total: 2.1%
$ USD
(billions)
~$17B
Region, 10 y CAGR
14
ICF proprietary and confidential. © ICF 2018
42%
45%44%
20%
20%
20%
17%
15%
15%
13%
12%
13%
8%
8%
8%
$0
$2
$4
$6
$8
$10
$12
$14
2017 2027 2037
Modfications, 6.6%
AHM, 4.4%
Line, 4.3%
Component, 5.5%
Engine, 6.2%
The MRO market in Eastern Europe & CIS is expected to grow by 5.5% per annum to ~$10B by 2027
MRO MARKET
20 YEAR COMMERCIAL AIR TRANSPORT MRO DEMAND IN EASTERN EUROPE
Source: ICF Analysis: CAPA 2017, 2017 constant $
~$6B
~$10B
Total: 5.5%
$ USD
(billions)
~$12B
Region, 10 y CAGR
15
$25 $24 $23 $23 $22 $21 $20 $19 $17 $16 $14
$42 $44 $46 $47 $48 $48 $48 $47 $45
$42 $39
$9 $11
$14 $17 $21 $25 $30 $37 $45 $55 $64 $76
$79 $83
$87 $91
$94 $98
$103 $108
$113 $118
0
10
20
30
40
50
60
70
80
90
100
110
120
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
New, 22.2%
Mature, -0.7%
Sunset, -5.3%
The 1990s/2000s technology aircraft are generating most MRO; However, new technology aircraft will comprise ~55% of MRO spend in 2027
16
MRO MARKET
ICF FORECAST: 2017-2027 TOTAL MRO DEMAND BY A/C MATURITY
A/C Maturity, CAGR
Total: 4.6%
$ USD (billions)
Note: constant 2017 USD
A/C Maturity: Sunset (1960s, 1970s and 1980s), Mature (1990s), New (2000s, 2010s and 2020s)
Source: ICF
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ICF proprietary and confidential. © ICF 2018
Consolidation continues among System OEMs
TRENDS TO WATCH
Melrose acquires GKN
2018
Splits off 2 divisions,
keeps Aerospace
2017Rockwell Collins
acquires B/E
Aerospace
2016
Safran acquires
Zodiac
2017
UTC plans to
acquires
Rockwell Collins
2017
?
18
Next?Acquisitions?
Divestments?
BOEING
Boeing announces
acquisition of KLX
2018
?
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Impact of New
Technology
Aircraft
ICF proprietary and confidential. © ICF 2018ICF proprietary and confidential. © ICF 2018
~9k
17k
24k
~29k
~35k
~39k
0
10,000
20,000
30,000
40,000
2017 2022 2027
# aircraft
Limited AHM, -2.7%
AHM, 10.4%
ICF IN-SERVICE AIR TRANSPORT FLEET FORECAST OBSERVATION
ICF expects ~23,500 aircraft
will be equipped with Aircraft
Health Monitoring (AHM) by
2027, growing at 10.4% CAGR
This is driving a digitisation of
aircraft operations, which will
see high growth in the e-
enabled services and further
advances in health
management
The fleet of e-enabled aircraft is set to more than double over the next decade
20
IMPACT OF NEW TECHNOLOGY AIRCRAFT
Source: ICF
AHM adoption,
2017 – 2027
CAGR
TOTAL = 3.0%
~60%
~50%
~30%
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AHM can be viewed as a subset of data management value chain…
21
IMPACT OF NEW TECHNOLOGY AIRCRAFT
Source: ICF
Diagnostics Prognostics
Determining whether
the component is
performing its
function
Predicting the
remaining life of a
component
Troubleshoot while
the aircraft is in
flight or after it lands
Customize
maintenance program
to prevent unscheduled
downtime
Diagnostic Prognostic
Aircraft Health Monitoring is inferring the state
of the aircraft.
Aircraft Health Management is extracting value
from this information.
Aircraft Health Management goes
beyond predicting and replacing
components, it incorporates flight
operations and helps airlines in fleet
and inventory management
Acquisition & Synthesis
Trans-mission
Storage AnalysisMRO
PlanningMRO
ActionRecords Keeping
Aircraft Data Management Value Chain
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The race is on… new battlegrounds are emerging across the MRO market
22
IMPACT OF NEW TECHNOLOGY AIRCRAFT
Source: ICF
2017
AnalytX
BOEING
Avasio
2015
2015
Analytics
Division
Skywise
2017
2017
Aviatar2017
R2 Data Labs
2017
FlightPulse
2017
United
Technologies
Digital Division
Digital Solutions
2017
Prognos
2016
Availability
Centre
2017
EngineWise
2017
Predictive
Maintenance
Partnership
2018
2015
Digital
Collaboration
Centre in Dubai
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OEMs & MROs are embracing partnerships to cover the MRO data value chain…
23
IMPACT OF NEW TECHNOLOGY AIRCRAFT
DATA VALUE CHAIN PARTNERSHIP EXAMPLES
Source: ICF
Acquisition & Synthesis
Trans-mission
Storage AnalysisMRO
PlanningMRO
ActionRecords Keeping
Engine Health
Monitoring
Partnership
BOEING
Digital aviation
applications
partnership
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Airbus FOMAX (RC) IBM Palantir In-house MRO network -
BOEINGTeledyne +
Honeywell?
ACARS /
Gate Wi-FiMicrosoft
BOEING
AnalytXBOEING BOEING
-ACARS /
Gate Wi-FiIBM
IBM provides
access to WatsonAMOS In-house FlyDocs
AFI-KLM -ACARS /
Gate Wi-Fin/a n/a In-house -
-ACARS /
Gate Wi-Fi -
… Though the level of partnership varies across the various parts of the data value chain
24
IMPACT OF NEW TECHNOLOGY AIRCRAFT
OVERVIEW OF AIRCRAFT DATA VALUE CHAIN PARTNERSHIPS
Source: ICF
Acquisition & Synthesis
Trans-mission
Storage AnalysisMRO
PlanningMRO
ActionRecords Keeping
MRO Alliance
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Digitisation could enable airlines to save in excess of $5B/year through lower fuel, maintenance and delay costs
25
IMPACT OF NEW TECHNOLOGY AIRCRAFT
Health Monitoring and Predictive Maintenance
Airline Industry savings: ~$3B (conservative estimate)
Driven by improved dispatch reliability, No Fault Found reduction, Inventory reduction
and Improved labour productivity
Fuel Cost Savings
Airline Industry savings: ~$1.7B (conservative estimate)
Continuous flight optimisation through live
weather updates, speed and altitude
optimisation…
Delay Reduction
Airline Industry savings:
~$0.8B (conservative
estimate)
Improved turnaround process,
in-flight routing optimisation
Source: ICF
ICF proprietary and confidential. © ICF 2018
Several airlines are seeing the first tangible benefits of their aircraft health monitoring trials
IMPACT OF NEW TECHNOLOGY AIRCRAFT
Source: MRO-Network
Delta achieved a 100% completion
factor for 241 days in 2017, with a
98% reduction in maintenance-
related cancellations
Results of Delta’s Predictive Maintenance approach
1,000(Over 1-year timespan)
Drop in maintenance-related cancellations of…
Southwest to install AHM on complete 737 NG
fleet to improve performance
98%(Over 2010 - 2016)
Avoided Engine Events Cancellation reduction
31 Events
31 instances of Skywise correctly predicting
faults before they occurred in service,
allowing the carrier to intervene and remove
components before they failed
easyJet 51%
Cathay Pacific reduced APU-related delay
minutes by 51% using Honeywell’s
predictive maintenance trial program
Cathay Pacific
26
ICF proprietary and confidential. © ICF 2018
Finally, Aftermarket strategies vary across the aircraft lifecycle
AFTERMARKET BATTLEGROUNDS
Source: ICF
Introduction Growth Mature Sunset
737CL757
767
MD80
A300/310
747-400A320
Family
A330777
737NG
CRJ-7/-9/-1000
E170/190
A380E2
CSeries
MRJ
MS-21
737MAX
787
A350
Revenue/
ProfitAircraft
OEMS
MRO
Integrators
Independent
MROs
Surplus parts
DER / PMA
747-8
A320neo
Component OEMs
Engine OEMs
Big Data & Connectivity
Intellectual Property Protection
28
ICF proprietary and confidential. © ICF 2018
In Conclusion…
CONSIDERATIONS
• The Global Air Transport MRO
market outlook remains robust at
$76B growing to $118B over the
next decade (an expected growth of
4.6% per annum)
• European MRO generates $19.4B of
MRO demand and will grow to
$26.5B by 2027 at 3.3% CAGR
• New technology aircraft and engines
are creating both new challenges
and opportunities for aviation
stakeholders including how best to
leverage big data to reduce operator
costs, help increase efficiency and
increase reliability
30
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We understand and focus on the key aspects of the industry, and have
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33