North American MRO Convention April 2007

The Global MRO Forecast A Look Forward 2007 - 2017

Presented By: Christopher Doan President & CEO, TeamSAI

Dynamic Business
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The global airline industry finally pushing into the black – The positive gap between RASM and CASM is becoming more predominant MRO market growth predictions remain strong – Consolidation and new investment will accelerate – Competition will generally intensify – But availability of labor will get tighter and billing rates will push up

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The focus on cost and value of services will intensify – Customers are demanding speed, with quality and reliability – The expectation is that unit costs of MRO will continue to improve As a result, the supplier community MUST be innovative to thrive – Incremental improvements will be required to survive – Innovative business actions will be required to thrive – Inaction or status quo do not work any more

The market is forcing everyone to be more innovative
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Partners

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The Global Airline Industry

After 5 years of fighting the red ink – Finally a small profit in 2006 – $40B losses since 2001 – US airlines hardest hit

Unit revenues are improving slowly – Seats more balanced with demand – Utilization of aircraft increasing – Fares are clearly higher

Except for fuel, unit costs are decreasing – Labor costs down 33% – Sales & distribution costs improved by 10% – Net 13% unit cost reductions

While the fuel bill has increased by $72B, yields are improving

Source: ATA & IATA

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MRO Contribution has been Significant
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Unit costs have fallen 20% since 2001 Influences include – – – – Outsourcing (lower labor rates) Productivity improvements Design improvements Maintenance program improvements

But labor rate pressures are increasing – Union groups want to share in the profits – Bill rates in some regions are definitely climbing
▪ Western Europe rates pushing the top of the scale ▪ China aligning with the Asia/Pacific average

Cost pressures will only intensify
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The Order Books are Bulging
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2006 – the second year of record orders Firm order backlog up to a record 5500 – Previous high - 4498 in 2001 Fleet growth forecast at 4.5% CASM from 17,627 to 27,457 But ASM’s will grow faster at 5.4% CASM – Increasing utilization – Larger aircraft and more seats
Fleet Comp RJ NB WB 2007 Seats 55 137 284 2017 Seats 72 144 308 % Incr 31.0% 5.1% 8.4%

2007
17,627

4.5% CAGR

2017
27,457

Fleet data courtesy ACSEND

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MRO Industry Outlook is Healthy

Line Maintenance will be growing from $7.3B to $10.9B

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MRO Industry Outlook is Healthy

Aircraft heavy maintenance and mod work will be growing to $13B

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MRO Industry Outlook is Healthy

Engines is the fastest growing segment – Climbing to nearly $27B in 10 years – Equating to a 4.6% CAGR

And it remains the largest segment representing over 40% of the MRO market

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MRO Industry Outlook is Healthy

And Components will grow at 4.1% CAGR to almost $12B

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MRO Industry Outlook is Healthy
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Global growth is expected to maintain a healthy clip of 4.5% CAGR The $41B industry of 2007 will grow to $62B over the 10 year forecast period
2007 Segment Value Mix

Line Mtce 18%

HMV & Mods 21%

Components 19% Engines 42%

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MRO Market Values Shifting

North America’s commanding market share will fall – $15.6B in 2007 (37% share) – $18.8B in 2017 (31% share)
India 1% Eastern Europe 3% South America 5% Africa 4% China 6% Middle East 5% North America 37%

2007
Western Europe 25% Asia Pacific 14%

$41.0B

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Western Europe’s share will hold steady Asia/Pacific, excluding China and India, will gain market share over the period

4.5% CAGR

– $ 5.6B in 2007 (14% share) – $10.4B in 2017 (17% share) Eastern Europe

India 2%

North America 31%

2017
Western Europe 24%

All other regions combined gain 6% in market share, growing from South America $8B to $16B 6%
Africa 3% China 7% Middle East 5%

5%

$62.5B

Asia Pacific 17%

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Outsourcing Continues To Grow
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In the last 5 years the Outsourcing profile has changed dramatically HMV and Mod outsourcing has been the fastest growing – High labor content work – Significant leverage when internal costs are high

Line Maintenance outsourcing is on the rise – Independent specialists have emerged – Cooperative efforts to integrate Line services with other services

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Outsourcing Stays At Home
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71% of the North America HMV & Mod activity is outsourced Of that work, 75% stays within its region Asia Pacific and China command about 20% of the remaining market

HMV & Mod
North American Market

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Engine Story is Similar
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The $6.3B Engine spend is similar in some ways – 75% of the market in North American is outsourced – 75% of the work remains in North American The difference is that Europe enjoys a 20% share of the outsourced work

Engines
North American Market

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Trends and Strategies

Global Thinking

Businesses increasing their global presence are gaining market share and changing the model – Dubai Aerospace is determined to join the ranks of the integrators with
▪ Recent acquisition announcements of SR Technics, Landmark, and Standard Aero ▪ The development of an extensive asset management portfolio

– Lufthansa Technik continues to grow in its reach and influence – ST Aerospace pursues a similar strategy in its growth with Panama and SAS Components – ACTS is expanding with their Aeroman investment

The airframe OEM’s are more active in MRO integration and offerings – Boeing GoldCare, other strategic support acquisitions – Airbus network – Bombardier and Embraer direct offerings

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Innovative Thinking

And the global players are offering broad and innovative services – – – – Airline total care solutions Broad based component support agreements Location flexibility with global options Inventory sale/leaseback with maintenance provisions

Businesses are looking outside their traditional revenue streams – Military aircraft – Manufacturing – Back-office services

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Integrators are increasingly simplifying solutions for airlines – OEM’s are expanding their aftermarket involvement – Independent Integrators are managing solutions across multiple companies PMA acceptance and growth continues to pressure OEM pricing – Pratt & Whitney’s CFM56 may re-define what is possible

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LEAN Thinking

Some MRO businesses are beginning to see the positive effects of the commitment to Lean – 60% improvement in 757 winglet mod down-times – 40% in cycle time of CF34 overhaul – 30-40% improvements in C–Check turn-arounds

Lean methodologies are proving effective in this growth environment – – – – Attack waste and non-value added activity which is driving unnecessary cost Applicable in both production and back office environments Consistent with customer demands for improved cycle time and quality Best approached as an enterprise wide strategy

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Unrelenting Pressures

Airline profits are meager with many uncertainties still ahead – Top of the profit and buying cycle? – Global economic slowing? – High oil, political unrests

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Price sensitivity will not subside – Airlines still looking to improve return on capital Continued increase in utilization should be expected – Will necessitate ever faster turn times – Creative solutions to maximize maintenance opportunities paramount MRO’s will be expected to respond notwithstanding their own pressures – Upward drifting wage rates – Union pressures – Increased offshore competition

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A New Business World
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The overall MRO outlook is nonetheless healthy for the forecast period – Consolidation and new investment will continue – Competition will be more global in nature MRO’s that respond to the pressures will have the greatest degree of success, so – – – – – Improve quality……………………………………… A Given Review service offerings ………………………….. Think Global Tune for speed and efficiency ……………………. Think Lean Better manage materials and inventory …………. Think Lean Be creative with wage and labor solutions ……….Think Innovatively

Are you moving fast enough in this global MRO world?

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Thank You!

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