IMPACT OF COVID-19:

FLEET & MRO FORECAST

WEBINAR

April 28, 2020

Khalid Usman, Ken Aso, Brian Prentice; Tom Cooper – Moderator

OLIVER WYMAN PRESENTERS
Tom Cooper
Tom Cooper leads the annual
Oliver Wyman Fleet & MRO
Forecast.
He has 30+ years of
experience in commercial
aviation and MRO.
Mr. Cooper will moderate our
webinar and the Q&A session.
Khalid Usman
Khalid Usman is a Senior Vice
President in the Washington,
DC, office.
He has over 20 years
experience in the aviation
industry.
Mr. Usman will discuss the
post-COVID-19 market
demand and air traffic.
Ken Aso
Ken Aso is a partner in the
Transportation & Services
practice and based out of
Seattle.
He is a global expert in the
aviation & aerospace
aftermarket.
Mr. Aso will examine the
current fleet in service and its
implication for production.
Brian Prentice
Brian Prentice is a Partner in
the Dallas office and the MRO
practice.
He is the co-author of the
annual OW Fleet & MRO
Survey and Forecast.
Mr. Prentice will present on
the aviation MRO and
aftermarket effects.
DEMAND AND
TRAFFIC
CURRENT GLOBAL CAPACITY IS DOWN 76% FROM 2019

Current snapshot: Airline capacity and by region

YOY change in April ASMs

Europe
-70% Asia

-86%
-68%
North America

World total Africa/Middle East

ASM -76%
Departures -62% -82%
Seats -67%
-90% -90%

Latin America Oceania

Source: OAG schedules as of April 15, 2020

DEMAND RECOVERY: FOUR PRIMARY FACTORS DRIVING RECOVERY

Traveler Government Macro-economic

Epidemiological timeline sentiment restrictions impact
OW Epidemiological modeling (SIR models) Respondents tend Domestic travel The level of
predicting the number of cases by country to travel about a likely to resume recessionary
and when the peak is expected to happen. month after cure. earlier. impact/damage
affects return to
First trips are International travel travel.
Number of cases
Forecast launch date usually domestic. likely to return in
US phases.

UK

Germany
Spain
Italy
S. Korea
China
Date
WHAT RECOVERY LOOKS LIKE

Accelerated Baseline Downside

US industry revenue outlook: US industry revenue outlook: US industry revenue outlook:
Accelerated recovery scenario, Prolonged recovery profile, Multi-wave outbreak, ongoing
IMF GDP outlook Oxford Economics GDP outlook pandemic; GDP downside scenario

100%

80% Single
wave Multi-wave
60%

40%

20%

0%
2019 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2020 2021 2022 2023

Source: Oliver Wyman modeling for epidemiological curves, macro-economic factors, past infectious disease outbreak and financial crisis data
ITALY: NO SIGNS OF RECOVERY

Italy ticket sales (% change YoY) and cumulative cases

YoY change Cases (K)

20% 140 “This is aviation’s
Ticket sales
0% 120 darkest hour and is
-20%
COVID-19 cases
100 difficult to see a
80 sunrise ahead”
-40%
60
-60% Director General, IATA
40
-80% 20
-100% 0
January February March April

Source: European Centre for Disease Prevention and Control. Airline Reporting Corporation ticket sales data reports, as of March 30 2020
CHINA: INITIAL SIGNS OF RECOVERY

China domestic and international ticket sales (% change YoY) and cumulative cases

YoY change Domestic travel activity Cases (K)

20% has been relatively flat 140 “With the Chinese
0%
after initial uptick
120 recovery unclear,
International Sales COVID-19 cases 100 we are not going to
-20%
Domestic Sales 80 see a V-shaped
-40%
60 recovery.”
-60%
40
-80% 20 Head of Economic Research,
-100% 0
Standard Chartered
January February March April
International activity dropped after
initial uptick due to increase in
number of cases from inbound travel

Source: European Centre for Disease Prevention and Control. Airline Reporting Corporation ticket sales data reports, as of April 12, 2020
POLL #1

What is the most important step airlines can take to help you fly again?

Keep the middle seat empty

Everyone on the flight wears

masks

Disinfect aircraft between

every flights

Social distancing based airport

experience or no-contact
experience

Rapid COVID testing at airport

at check-in or prior

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

FLEET AND
PRODUCTION
IMPLICATIONS
DUE TO THE DEMAND CRUNCH, THE GLOBAL COMMERCIAL FLEET
WILL STAGNATE THROUGH 2022
Forecasted in-service fleet size¹
Number of in-service aircraft (K), 2018-2022F
CAGR In-service fleet reduced by
2019-2022
-0.7% 20% in 2020-2021 from
26.5
27.8 27.5 27.2 extensive fleet groundings.

5.9
6 5.7 4.9 Overall commercial fleet sees
20.8
zero growth through 2022 as
5.6 5.5 -6.5%
5.3 5.7 4.3 Turboprop/ airlines recover.
3.4 Regional jet
10.6
7.5 2.6 -0.6%
15.3 16.2 16.1 16.7 Widebody
1.6 1.6 13.1
1.6
4.3 6.3 1.0%
Narrowbody
2018 2019 January April July 2021F 2022F
2020
1. As of beginning of year
Source: Oliver Wyman Global Fleet and MRO Market Forecast, 2020-2030, Revised; Oliver Wyman analysis
OVER 18,000 AIRPLANES ARE CURRENTLY IN STORAGE; MORE
THAN 2,000 AIRPLANES WILL BE RETIRED EARLY
Number of aircraft (K) in storage, 2020 base case Early retirements vs. scheduled retirements, 2020
By month By class
20

15

10 821

5 443 507 424

210
0 89 70 84
Jan Apr Jul Oct Jan Apr Jul Narrowbody Widebody Regional jet Turboprop
2020 2021

Narrowbody Widebody Regional jet Turboprop Early retirements Scheduled retirements

AIRPLANE DELIVERIES WILL DROP DRAMATICALLY IN 2020

Narrowbody deliveries, pre-COVID-19 vs. Widebody deliveries, pre-COVID-19 vs.

post-COVID-19 post-COVID-19
Number of aircraft delivered by end of year Number of aircraft delivered by end of year
1,549
1,519
1,442 1,422
1,328
1,213
1,164
1,066 1,093

870 870

522

372 372 379 408 370 365 371

161 270 256 252 272

2019 2020F 2021F 2022F 2023F 2024F 2019 2020F 2021F 2022F 2023F 2024F

Pre-COVID Post-COVID
UNPRECEDENTED MISMATCH OF PRODUCTION AND DELIVERIES
WILL CHALLENGE AEROSPACE SUPPLY CHAINS
Commercial aircraft production Commercial aircraft deliveries
Number of aircraft, 2018-2022F Number of aircraft, 2018-2022F
CAGR
2019-2022
CAGR
2019-2022
Dramatic decrease in 2020
1,789 1,780 -8% 1,789 3% aircraft production (-48%)
223 200 223 1,577 and deliveries (-45%).
1,505
1,392
359 389 359
1,374 143
156 -8% 3-year production levels
1,107
141 -11% 200 270
256 -13% (2020-2022) will not return
935 120
240 -15%
296
to the scale of 2019,
406 389
121 221 766 particularly in widebody.
218 83
1,207 1,207 161
1,093 12% ~17% of future deliveries
1,011 -5%
785 766 785
110 868 will be 737MAX A/C
596
412 produced in prior years.

2018 2019 2020F 2021F 2022F 2018 2019 2020F 2021F 2022F

Narrowbody Widebody Turboprop/Regional jet MAX, 2019 vintage

Source: Oliver Wyman Global Fleet and MRO Market Forecast, 2020-2030, Revised; Oliver Wyman analysis
OEMS AND SUPPLIERS WILL NEED A RADICAL RESPONSE TO THE
WHIPLASH OF DEMAND REDUCTIONS

Long-term
consequences
What we know today
Post-acute phase Intervention of OEMs
Production stoppage and and governments
rate cuts 45% decline in 2020
• OEMs to stabilize supply
• Boeing and Airbus deliveries; massive
chain through JVs, M&A,
factory pauses increases in WIP
rationalization
• Airbus A320 2020 rate Acute phase • Whitetail production
• Government
slashed by 33%+ Heavy disruptions to • Supplier contract intervention and
• Boeing rate TBD the workforce and restructuring, potential nationalization
supply chain rescue financing in sector will increase
• 70%+ of commercial public influence
fleet parked with • Selective supplier exits,
• Periods of future social
expected early vertical integration
distancing, impacting
retirements productivity
• Production uncertainty
destabilizes supply chain
POLL #2

Should OEM production exceed airline demand?

Yes, suppliers need to produce at scale,

businesses and jobs are at stake

Yes, demand for new airplanes will

return faster than the OW projections

No, undelivered white tails are not good

for aircraft residual values

No, manufacturing footprint is overbuilt

and unsustainable

Undecided

0% 5% 10% 15% 20% 25% 30% 35% 40%

MRO AND
AFTERMARKET
WITH A REDUCED GLOBAL FLEET IN 2020, MRO SPEND DROPS BY
MORE THAN 50%
Number of aircraft (K) in storage, 2020 base case 2020 MRO spend forecast1
By month Pre- and post-COVID-19

20 $91.2 BN
13.5 Line
15
16.3 Component
10
17.9 Airframe $42.3 BN
5 7.2
9.7
43.5 Engine 6.1
0
Jan Apr Jul Oct Jan Apr Jul
19.7

2020 2021
Pre-COVID Post-COVID

Narrowbody Widebody Regional jet Turboprop

1. Forecast updated as of April 28, 2020
IN 2020, EVERY REGION WILL EXPERIENCE A SIGNIFICANT
DECREASE IN MRO DEMAND
2020 demand: Pre-COVID-19 vs. post-COVID-19, US$ BN
Western Europe: -59% China: -46%
20.3 8.6
8.3 4.7

North America: -43% Asia Pacific: -59%

22.4 16.0
12.7 6.6

Rest of World: -56% India: -54%

22.2 1.7
9.7 0.8

Pre-COVID Post-COVID
IN THE NEXT DECADE, COVID-19 WILL REDUCE THE NUMBER OF
IN-SERVICE AIRCRAFT BY ~4,500
Long-term fleet growth impact
Net number of aircraft

(39 K Pre-COVID-19 forecast) Average aircraft age at retirement

7K 35 K Post-COVID-19 forecast will reduce (average age of 23.4
years), leading to a of legacy
27 K Net aircraft decrease of 80%.
aircraft
additions As airlines financially recover, they
will still accept deliveries, but 19%
less than previously projected.
Narrowbodies will increase to 70%
of the total fleet from 58%.

2019 2030
A SMALLER FLEET WILL LIMIT MRO SPEND THROUGH 2030

MRO spend 2020-2030, US$ BN

By scenario
150
Fleet & MRO
130.6
Forecast COVID-19
113.2 Impact Dashboard
100
91.2

50
42.7

0
2020 2022 2024 2026 2028 2030

Original New
baseline baseline
THE INDUSTRY HAS PERSEVERED AND PREPARED FOR MARKET SHOCKS

2019 MRO Survey Balance savings with investment in recession

Top levers to use in a downturn
Promotion-focused moves
43%
Storage of aircraft Market Asset
development investment Both
47% Employee Good Bad Worst
Reduce planned

Prevention-focused moves
reduction Sales 4.6% Sales 3-9% Sales 3.3%
expansions or innovations 51%
EBITDA 6.6% EBITDA 3-3% EBITDA -5.2%
Re-negotiate existing 32%
agreements Operational Good Good Best
55% efficiency Sales 7.1% Sales 8.4% Sales 13.0%
EBITDA 4-2% EBITDA 8.4% EBITDA 12.2%
Introduce operational 45%
efficiency measures 64% Both Bad Bad Good
Sales 5-2% Sales 5-2% Sales 9.2%
17% EBITDA 2.1% EBITDA -0.5% EBITDA 4.6%
Reduce headcount
68%

Operators Non-operators Source: HBR - Roaring out of recession

POLL #3

For the parked aircraft, how long will it be until 75% of the fleet is back in service?

0-3 months

4-6 months

7-9 months

10-12 months

More than 12 months

0% 5% 10% 15% 20% 25% 30% 35% 40%

KEY TAKEAWAYS
Demand and traffic
Delayed recovery in passenger
demand even after COVID-19
cases ease.
Economic effects cause travel
demand to further remain
depressed.
Fleet and production
implications
Fleet has shrunk from early
retirements, storage, and
canceled deliveries.
Whiplash effects on production
and supply chain.
MRO and aftermarket
Parked aircraft ,retirements and
reduced deliveries will impact the
MRO Market for the next decade.
MRO is still a large market and will
grow again.
The keys to winning in the MRO
market remain unchanged;
customer orientation, quality, and
service.
THANK YOU!

Tom Cooper Khalid Usman Ken Aso Brian Prentice

tom.cooper@oliverwyman.com khalid.usman@oliverwyman.com ken.aso@oliverwyman.com brian.prentice@oliverwyman.com

+1 (707) 287-8644 +1 (202) 294-2708 +1 (720) 552-0092 +1 (214) 693-0723

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