MRO 2018

1
MRO 2018 A Glimpse Into The Future Presented
by Kevin Michaels, Principal
MRO 2008 Conference Exhibition Ft.
Lauderdale, FL April 15 2008
Ann Arbor, Michigan Amersham,
U.K. www.aerostrategy.com
2
What Will The Market Look Like At The 2018 MRO
Conference?
3
The Air Transport Fleet Is 28,000 Aircraft

• The fleet is heavily concentrated on two aircraft
  models the A320 and B737 families account for
  48 of the fleet
• The B787, introduced in 2009, now accounts for 4
  of the fleet with gt1,200 aircraft

Source AeroStrategy
4
The Fleet Has Increased By 9,000 Aircraft Since
2007, A 4.0 CAGR
Air Transport Fleet 2007 -2017
30,000
27,966 Installed Base
25,000
6,128 Future Orders
18,935 Installed Base
20,000
7,314 Firm Orders
15,000
206 Parked Fleet
10,000
5,000
18,443 Retained Fleet
14,318 Retained Fleet
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source AeroStrategy/OAGback
5
The European And Asia Fleets Are Now Nearly The
Same Size As North America
2017 Air Transport Fleet
2017
10,000
2007
8000
Eastern
India
6000
Africa
China
4000
Western
Middle East
Other
2000
Latin America
0
North
Rest Of World
Europe
Asia
America
Source AeroStrategy/OAGback
6
The Order Book Stands At 6,900 Aircraft New
Single Aisle Aircraft Account For 41
Boeing New Single Aisle 22

• Boeing and Airbus new single aisles, launched in
  2014 and 2016, respectively, have 41 of orders
• The B787 and A350XWB comprise 18 of the order
  book
• Recently announced Boeing and Airbus wide bodies
  replacing the B777 and A330/340 families now have
  300 orders

Other 28
2018 Order Book 6,900
Airbus New Single Aisle 19
New Small Single Aisle/RJ 6
787 10
A350 XWB 8
EMB 170/190 7
Source AeroStrategy
7
The Air Transport And MRO Sectors Restructured
Significantly In The Last Decade
Air Transport And MRO Developments 2007 - 2017
Latin America Middle East, Africa
North America

• Middle East fleet has doubled since 2007
• Latin American market experienced high airline
  turnover
• Dubai emerged as MRO and aviation hub
• Latin America increased heavy maintenance market
  share (including widebody)
• African MRO bases emerged

• Consolidated to four majors with average fleet
  size of 500
• Major internal MRO facilities divested / spun out
• Green aviation policies after USA joins Kyoto II
  Protocol in 2011
• Emergence of two major domestic MRO integrators
  including Americans former Tulsa facility
• Liberalization of foreign ownership limitations
  in early 2010s

8
And Several New Countries Emerged As MRO Hubs In
The Last Decade
Air Transport And MRO Developments 2007 - 2017
Europe, Russia, CIS
Asia-Pacific

• Liberalization facilitated many start ups since
  2007
• Chinese fleet tripled since 2007, absorbing most
  MRO capacity growth
• Emergence of Japan/Korea as engine/component MRO
  locations
• Vietnam, Malaysia and Philippines become an
  important Asian heavy maintenance bases
• Several MRO integrators expand influence

• Trans-Atlantic open skies led to consolidation
  and disappearance of several leading flag
  carriers
• Air France/KLM MRO business is spun out
• Low cost carriers decline from 45 to less than 15
  in 2007
• Heavy maintenance outsourcing in Western Europe
  accelerated in 2012
• Eastern Europe and Russia/CIS expanded heavy
  maintenance MRO influence significantly

9
The 2017 MRO Market Is 61B
Modifications
Engine 22.4B
5.3B
Airframe Heavy 7.2B
2017 MRO Market 61 B
Line 13.1 B
Component 13.3 B
Source AeroStrategy/OAGback Figures in 2007 USD
10
Which Is A 15B Increase Since 2007
2007 - 2017 Air Transport MRO Market (B)
CAGR
60
Modifications
2.8
Airframe Heavy
1.5
50
Component
3.9
40
30
Line
2.5
20
Engine
3.8
10
TOTAL
3.1
0
2007
2009
2011
2013
2015
2017
1 less than 4 fleet growth
Source AeroStrategy/OAGback Forecast is in
constant 2007 Dollars
11
Air Transport MRO Is 45 Of A Broader 140B
Global MRO Market
2007 2017 Global MRO Market Growth (All Markets)
USB
Civil Helicopter
140
Business Gen. Aviation
120
100
Air Transport
45
80
60
40
Military
20
-
2007
2017
TOTAL
Source OAGback / AeroStrategy
12
2017 MRO Outsourcing Is 73, Up From 52 In 2007
2007 - 2017 MRO Supply Structure By Market (B)
25
Captive
20
Outsourced
15
10
90
85
75
5
70
75
30
12
40
0
2007 2017
2007 2017
2007 2017
2007 2017
Engine
Line
Component
Airframe Heavy
Source AeroStrategy Note outsourced includes
separate MRO businesses that are owned or
partially owned by airlines
13
Independents And Airline Third Party Engine MROs
Benefited From Airline Outsourcing Since 2007
2017 Engine Overhaul Market Shares

• Captive engine maintenance declined significantly
  since 2007
• Independents gained share with spin-out of
  captive MRO facilities
• OEMs moved to licensed service centers and JVs
  for some engine models to offset PMA threat
• OEMs retain the largest share and control 50 of
  the engine overhaul market

100
(15)
SELF 10
SELF 25
ATP 20
80
2
ATP 18
IND 20
60
7
IND 13
40
OEM 50
6
OEM 44
20
0
2007
2017
ATP Airline Third Party
Source AeroStrategy Note outsourced includes
separate MRO businesses that are owned or
partially owned by airlines OEM includes joint
ventures
14
Independents Were The Chief Beneficiaries Of
Outsourcing In The Airframe Heavy Maintenance
Market
2017 Airframe Heavy Maintenance Market Shares

• Outsourcing expands the available market for
  suppliersoffsetting the effects of slow market
  growth
• Independents gained significant market share
  five major global suppliers control gt 40 of
  market
• Latin American MROs capture 25 of North American
  heavy maintenance demand
• OEMs expand presence, facilitated by entry into
  integrated MRO contracts

OEM lt1
4
100
OEM 5
ATP 20
ATP 20
80
30
IND 20
60
IND 50
40
(35)
SELF 60
20
SELF 25
0
2007
2017
ATP Airline Third Party
Source AeroStrategy Note outsourced includes
separate MRO businesses that are owned or
partially owned by airlines OEM includes joint
ventures
15
Independent And Airline Third Party Suppliers
Control 50 Of The Component MRO Market
2017 Component Maintenance Market Shares

• Popularity of integrated MRO packages increased
  significantly
• Five-six integrators control significant portion
  of market and encroached on OEM market share
• Spin-out of airline shops contributed to larger
  market shares for ATP and independentsand
  decrease of captive to 15

100
(15)
SELF 15
SELF 30
80
ATP 25
10
IND 15
60
IND 25
ATP 15
10
40
(5)
OEM 40
20
OEM 35
0
2007
2017
ATP Airline Third Party
Source AeroStrategy Note outsourced includes
separate MRO businesses that are owned or
partially owned by airlines OEM includes joint
ventures
16
Line Maintenance Remains A Core Airline Activity
With 70 Captive
2017 Line Maintenance Market Shares

• Outsourcing increased from 12 in 2007 to 30
• Most airlines consider line maintenance to be a
  core activity
• Several global line maintenance networks emerged
  since 2007
• Ground handling companies leveraged their global
  networks to expand market penetration

IND 6 ATP 6
100
14
IND 20
4
80
ATP 10
60
(18)
SELF 88
40
SELF 70
20
0
2007
2017
ATP Airline Third Party
Source AeroStrategy Note outsourced includes
separate MRO businesses that are owned or
partially owned by airlines OEM includes joint
ventures
17
Boeing And Airbus Secured Half Of All Single
Aisle Orders Under Integrated MRO Contracts
2017 Orders Under Boeing And Airbus Integrated
MRO Contracts New Generation Single Aisle
Aircraft Only

• OEMs locked up 50 of single aisle customers with
  integrated MRO contracts that include
  airframe/component maintenance, rotable
  logistics, and/or fleet management
• Both OEMs leveraged two key strengths to increase
  their competitiveness
• Aircraft health management data
• Distribution networks

TOTAL ORDERS
1,800
1,600
1,400
1,200
UNDER OEM CONTRACT
1,000
800
600
400
50
50
200
0
AIRBUS NEW SINGLE AISLE
BOEING NEW SINGLE AISLE
Source AeroStrategy
18
The PMA Parts Market Is Now 1.7 Billion, With
8 Penetration Of Total Material Sales

• PMA penetration reached 8 in 2017, worth 1.7B
• Availability of engine LLPs accelerated
  penetration in early 2010s
• Rationalization of supply base failure of many
  tier II/III suppliers
• Entry of several component OEMs
• The tipping point is reached for some programs
  OEM pricing policies change

Source AeroStrategy
19
Several Other Changes Have Shaped The MRO Market
In The Last Decade
2018 MRO Market Trends
Source AeroStrategy
20
Key Messages MRO In 2018

• The MRO market in 2018 is worth 61B, a 15B
  increase since 2008
• The 2018 MRO market has restructured considerably
  as a result of globalization and liberalization
  with several new locations emerging as MRO hubs
• MRO outsourcing in 2018 is in excess of 70,
  significantly higher that the 52 figure one
  decade earlier
• Several key trends are shaping the 2018 MRO
  market
• Uptake of Boeing/Airbus integrated MRO programs
• PMA penetration of 8 is increasing
• Growth in licensed PMA parts
• Popularity of green upgrade programs
• Greater used of advanced health monitoring
• Wet leases that include MRO
• Consolidation of distributors

21
Thanks For Your Attention!

• AeroStrategy is a specialist management
  consulting firm devoted to aviation and aerospace
  sectors with offices in Ann Arbor and Amersham,
  U.K.
• To learn more about AeroStrategy please contact
• David Stewart, Principal
• Ph 44 1494 431 600
• dstewart_at_aerostrategy.com
• Kevin Michaels, Principal
• Ph 1 734 821 0220
• kmichaels_at_aerostrategy.com
• Hal Chrisman, Principal
• Ph 1 734 821 0227
• hchrisman_at_aerostrategy.com