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MRO Americas 2010 Conference
2010 © TeamSAI, Inc.
The Global MRO Forecast
2010 ‐ 2020
Chairman & CEO
Signs of Recovery Surface—It Won’t Be Easy or Immediate
U.S. Airlines “see signs of a nascent industry recovery but that they will maintain cost and capacity discipline for now”
Source: ATW Daily News (3/10/10)
Airbus and Boeing announce “intention to increase the monthly production rate” ‐ A320‐family and 787
Source: Aviation Interactive (3/10/10)
FAA scales back recovery predictions ‐ annual aviation forecast revised to reflect a slower demand recovery
Source: Aviation Daily (3/10/10)
The storm seems to be clearing … slowly!
and line costs have fallen bringing the market down another 1.2% Fleet 2009 drop.5% in 2010. labor rates have eased down ever so slightly + Deliveries ‐ Retirements ‐ Stored Fleet 2010 + 1.128 a/c stored/retired = $(3. due to capacity reduction 19.330 – Utilization drop drives market down further (down 9% for the year) – Airframe.128 ‐ 399 ‐ 384 19.751M) ‐783 a/c The next logical question – are we at the bottom yet? 4/20/2010 TEAMSAI©2010 .4% – Engine MRO drives a 1.675 new deliveries = $1.First a Review of the MRO Drivers for 2010 2 Global MRO spend will be down 7.833M +1. to $42B The drivers of the change are important to understand – Fleet change alone drives a 4. component.6% increase – And last.
1M 2010 should be the tipping point as fleet size and utilization increase to meet demand So the simple answer is that we think so! 4/20/2010 TEAMSAI©2010 . the average MRO cost per aircraft per year has fallen – 2008 ‐‐ $2.4M – 2010 ‐‐ $2.Are We at the Bottom of the Downturn? 3 While the world fleet has continued to grow. new less maintenance intensive aircraft are showing their influence – The contribution of the older vintages has been in decline as retirements have accelerated – And the younger vintage aircraft have significantly lower unit costs – In just 2 years’ time there has been a significant shift in the share of the younger vintage fleets – As a result.
1 $42.7 $50.5% +4.3 ‐7. understanding the decade is imperative 4/20/2010 TEAMSAI©2010 .The Bear Should Give Way to the Bull 4 MRO Forecast $45.4% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Understanding the year is important.3 $65.
303 in 10 years ASM growth will increase at 5.Long Term Fleet Growth Still Looks Solid 5 Population growth and the burgeoning middle class is what is driving our long term forecast Fleet growth forecast at 3.1% CAGR over same period – Unit a/c utilization rates remain high – Larger aircraft % more seats – Longer routes 4/20/2010 TEAMSAI©2010 .3% CAGR to 27.
3B over 10‐year forecast period – 2010 down 7.4% CAGR through 2020 $42.MRO Industry Outlook has Continued Shift to the Right 6 Global growth is expected to maintain a 4.3B industry will grow to $65.5% from 2009 Engine remains largest segment 4/20/2010 TEAMSAI©2010 .
6% $0.6 1% 9.0 $6.0 $4.0 $2.8 4% 9.4 6% 9.North America is Expected to Recover More Slowly than the Rest of the World 7 NA Market ($B) (2010) WE AF AP CH IN ME LA&C EE $13.8% Mkt Share (2010) CAGR (2010‐20 $18.6 16% 5.0 33% 1.5 4% 3.5% 2010 2020 $6.0 4/20/2010 NA WE AF AP CH IN ME LA&C TEAMSAI©2010 EE .4% $2.0 $12.0 $0.3% $2.9 $11.0 $8.0 $14.6% $1.6% 26% 3.0 $10.4 6% 5.0 $16.6% $1.3% $1.9 5% 6.
3% 6% $1.9 30% 4.5% 3% Mkt Share (2010) CAGR (2010‐20) Mkt Share (2020) $25.0 $5.7 23% 6. and India 4/20/2010 TEAMSAI©2010 .7% 31% $9.4% 31% $12.0 $10.0 $15. China. Asia = Asia Pacific.8 37% 2.0 Americas Europe Asia Middle East 2020 Africa Note: Americas = North America and Latin America & the Caribbean Europe = Western and Eastern Europe.4 6% 5.5 4% 3.0 $0.0 2010 $20.Looking at the Regions Combined Show Relative Parity in Ten Years Time 8 Americas Market ($B) (2010) Europe Asia Middle East Africa $15.8% 29% $2.
Mid‐term Growth in North America will be Slow 9 Limited aircraft are slated for NA operators – All fleet classes expected to contract in next 5 years – Negative 1.2% CAGR from 2010 to 2015 – Then a positive 2.2% CAGR from 2015‐2020 Operators are unlikely to bring back some parked aircraft Tightened capacity is expected to provide the discipline NA airlines need to bring them back to profitability – NA market growth largely mirrors change in fleet – Market is weighted toward NB because of its relative size North America’s MRO especially influenced by fleet decline 4/20/2010 TEAMSAI©2010 .
Inc.© 2010 TeamSAI. Trends and Strategies .
this means – – – – – Motivation toward best value Outsourcing will continue to grow Supply chain innovation will be imperative Preparing for a new generation of technology Consolidation will be important to value creation – Value‐oriented innovation will be rewarded Source: IATA and Energy Information Administration 4/20/2010 TEAMSAI©2010 .8B in cumulative losses The quest for profitability drives business behavior – Revenue focused innovation is evident – Cost improvements are needed at every turn For MRO value stream.Airline Financial Results Intensifies the COST Focus 11 Profits have been elusive in the last decade – One profitable year – Net $56.
basing outsourcing decision on key guidelines Customer service Planning Marketing Etc.The Transformation of the Value Stream Represents a Dramatic Shift Toward Best Value Innovations 12 Airline / Operator MRO New Value Stream Core Operations Scheduled service Airline will… manage core operations (flying) outsource maintenance as it chooses. M&E Direct Maintenance Engineering Technical Services Supply Chain Planning MRO must… identify new market needs and value added services that support airline requirements reinvent the business model to position itself to meet needs develop business processes to optimize service focus: cost focus: value key decision guidelines for choosing maintenance services/outsourcing Labor Material Turn time Performance Quality The airlines’ unrelenting focus on cost continues to drive change 4/20/2010 TEAMSAI©2010 .
larger carriers are recognizing the leverage of outsourcing these services Airline interest in outsourcing aligns with their desire to seek out best value 4/20/2010 TEAMSAI©2010 . but large players will adapt Technical Support Services • Includes all “back office” functions such as engineering. planning and supply chain • Early stages of the emergence of Tech Services outsourcing • Lately.Outsourcing Continues to Grow and Expand 13 100% 80% 60% 40% 20% 0% HMV (Check) Engines Components Line Tech Support Note: Outsourced MRO includes work outsourced to independent MROs or to OEMs but not work done by operator‐affiliated MROs Global North America Benefits • Provides total cost advantage • Offers more flexibility to operators • Shift risks and costs away from airline • Gives independent MROs opportunity to form credible network with extensive capabilities • Regulation could temper outsourcing growth somewhat.
Supply Chain Innovation Represents Significant Opportunity 14 MRO OEM Other Suppliers Spare components 10% Source: VZM Airline / Operator Considerations Airline Provider •part of full‐ service strategy •extensive logistics networks •ensuring availability •variety of parts •operator PMA policies vary •OEMs in best position to offer airline‐owned not airline‐owned 90% Approach (SCOR TM Processes) Market Opportunity • supply chain accounts for 60‐90% of company costs • 2% improvement in process efficiency for supply‐chain processes produces 3000% ‐ 5000% more impact than a 2% improvement in efficiency for IT. finance. etc. HR. • • • • • Plan Source Make/Repair Deliver Return •one‐stop‐shop •obsolescence management •not as responsive as in‐house stock •income statement interest penalties •shared stock arrangements are new arrangements Supply chain improvements hold large opportunity to unlock value 4/20/2010 TEAMSAI©2010 . sales.
Given Significant Fleet Renewal. Follow the Growth Platforms 15 New technology airframes are forecast to make up an increasing share of the market over period Critical future capabilities – – – – Composite airframe material repair Re‐engined NB repair (including GTF) Drop‐in fuel engine repair Next Generation‐capable avionics repair/ automated test equipment – Intelligent/health management systems and the ability for MROs to interface with the system Demand planning – Outsourced inventory management – Information technology systems Training Shift to new aircraft drives the need for improved offerings tailored to the reality of the new fleet mix 4/20/2010 TEAMSAI©2010 .
delays. Global Aerospace & Defense (A&D) M&A 2009 • value at lowest level in a decade • overall deals: $10B. growth is expected to skyrocket as the industry ditches old legacy designs and moves towards new standards. deals expected to rise in 2010 • Asia has significantly outpaced Europe and US in Q1‐2010 • Misaligned expectations could impede recovery if rational thinking does not prevail Expert Opinions Orion Capital Group For the lower middle market A&D M&A activity. lower passenger numbers and reduced freight movements PricewaterhouseCoopers As we look ahead into the start of a new decade. fewer military orders.Consolidation of and Investment in MRO Providers has Potential to Generate Better Value 16 Global M&A • After record low M&A activity in 2009. 2010 • near term: • expect small & strategic acquisitions to remain dominant • activity forecast for $10‐$20B (leaning toward high end of range) • volume at near record levels • transactions skewed toward small size • long term: • improved conditions for deal sizes to grow as stock market climbs and financing becomes easier • MRO industry acquisitions have steadily increased as well with movement toward better and fuller service options Discipline must be applied to the M&A/investment process to drive value 4/20/2010 TEAMSAI©2010 . ▼54% vs 2008 • causes: worries about costs. ‘small and strategic’ is likely to remain the name of the game in the short term but major restructuring forces are likely to be felt increasingly strongly in the long term with consequent implications for deal strategies and values.
Airlines’ Focus is to Return to the Black MROs must do everything possible to help customer meet this goal 17 Top‐to‐bottom value chain assessment will identify optimum cost structure – Continued pressure to outsource non‐core activities – Supply chain innovation – New generation of technology – Consolidation to create value Value‐oriented innovation will be rewarded 4/20/2010 TEAMSAI©2010 .Bulls and Bears Aside.
Transforming the MRO Business Model Around Value Creation 18 Understanding the year is important! Understanding the decade is imperative! 4/20/2010 TEAMSAI©2010 .
Thank You To Our Partners 19 4/20/2010 TEAMSAI©2010 .
THANK YOU! 4/20/2010 TEAMSAI©2010 .
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