TURBULENCE AHEAD

DISENGAGE THE AUTOPILOT

2015-2025 GLOBAL FLEET & MRO MARKET FORECAST

2015 MRO AMERICAS CONFERENCE

David A. Marcontell
Vice President

© OLIVER WYMAN
Oliver Wyman acquired TeamSAI and integrated the business into CAVOK,
its aviation technical consulting and services practice

~130
Dedicated CAVOK employees located
in DFW and ATL
(Supported by +250 Oliver Wyman
aviation consultants)

+2,300 years
of combined airline operations expertise

+70%
of CAVOK staff hold FAA certification/license

The respected TeamSAI Global Fleet & MRO Market Forecast, and related
betterinsightTM market intelligence data, remains available at
© OLIVER WYMAN
www.PlaneStats.com/betterinsight 1
CAVOK expanded technical consulting & services capabilities

Technical Consulting M&E Solutions

Market Forecasting
& Intelligence
Certification, Compliance, Engineering &
Quality, & Safety Technical Services
betterinsight™ MRO
Market Intelligence
Operations Performance Maintenance Program
Improvement Management
PlaneStats Schedule,
Traffic & Financial Data
Program Development Reliability &
& Redesign CASS Support

Technical Data Technical Publications

Auditing & Validation Management

Aircraft Acquisition & Aircraft Records

Conformity Management

© OLIVER WYMAN 2
Global Fleet &
MRO Market Outlook
The global air transport jet and turboprop fleet will grow by more than 10,000
net new aircraft by 2025

2015-2025 Global Fleet Forecast Key Fleet Forecast

by Aircraft Class Growth Rates
3.5%
40,000 • Global fleet will grow on
3.9%
34,408 average 3.7% annually over
35,000
3,232 the full forecast period
29,003 1.0%
30,000 2,906
-2.0% • Passenger fleet is expected
Number of Aircraft

3,079
23,927 2.5%
25,000 3,222
4.5% 7,181 to grow at 3.8% annually
-1.0%
2,721
20,000 3,396 4.2% 5,753 4.5%
• Cargo fleet is forecast to
grow by 2.3% annually
15,000 4,686 5.2%
• Narrowbody aircraft will lead
10,000 21,089
16,949 the growth
13,124
5,000
• Regional jets will actually
0 decline in the mix
2015 2015-2020 2020 2020-2025 2025
CAGRS CAGRS
Forecast Year and Forecast CAGR
Narrowbody Widebody Regional Jet Turboprop

The growth outlook, however, varies widely from region to region

© OLIVER WYMAN 4
A 5 pt spread in regional growth rates leads to a significant share shift over
the decade ahead
2015 10YR 2015- 2025
Fleet Size CAGR Absolute Growth

North America 7,420 0.9% 722

Europe 6,131 2.8% 1,965

Latin America
1,720 4.7% 997
& the Caribbean

Africa / Middle East 2,204 5.5% 1,562

Asia Pacific / China / India 6,452 6.1% 5,235

The mature North American and Western European markets will continue to
undergo significant refleeting efforts during the next 10 years
© OLIVER WYMAN 5
A 5 pt spread in regional growth rates leads to a significant share shift over
the decade ahead
2025
Fleet Size

North America 8,142

7,420

Europe 8,096
6,131

Latin America
2,717
1,720
& the Caribbean

Africa / Middle East 3,766

2,204

Asia Pacific / China / India 11,687

6,452 6.1%

The mature North American and Western European markets will continue to
undergo significant refleeting efforts during the next 10 years
© OLIVER WYMAN 6
43% of all new aircraft deliveries will replace old technology aircraft over the
forecast period

The systematic elimination and replacement of older aircraft with new technology
aircraft will drive significant change is the business for airlines and maintainers
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The result is a staggering change in fleet mix by 2025

2015 Global Air Transport Fleet 2025 Global Air Transport Fleet
by Vintage by Vintage

1970's
2%
2000's 2010's
9% 29%
1980's 2000's 1970's
26% 16% 0.1%
1980's
9%

1990's
63% 1990's
46%

The significant move towards late generation aircraft, in addition to improving airline
costs, will undoubtedly impact MRO dynamics
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The fleet dynamics of the period result in a forecast that tops $100 billion by
2025, a 4.1% average annual growth rate

2015-2025 Global MRO Market Size Forecast 2015-2025 Global MRO Market Share Forecast
by MRO Segment by MRO Segment

$120 3.8% 100%

Billions

$100.4 90% 18% 18% 18%

MRO Spend in 2015 Dollars ($USB)

4.4%
$100
80%
$83.2 3.5% $17.8
19% 18% 19%
70%
$80

Market Share
$67.1 4.0% $15.0 4.7% $19.2 60%

$60 $12.3 4.1% $15.2 50%

4.8%
$12.4 40% 42% 45%
5.9% 47%
$40 $46.8
$37.1 30%
$27.9
20%
$20
1.9% 1.0%
10% 22% 19%
$14.5 $15.9 $16.7 17%
$0 0%
2015 2015-2020 2020 2020-2025 2025 2015 2020 2025
CAGRS CAGRS Forecast Year
Forecast Year and Forecast CAGR
Airframe Engine Component Line Airframe Engine Component Line

Airframe Heavy Maintenance costs improve with the new technology while both
Engine and Component sectors will take a larger share
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Shadowing the fleet trends, large differences in regional growth rates will
lead to a significant shift in MRO demand over the decade ahead
2015 10YR 2015- 2025
MRO Spend ($USB) CAGR Absolute Growth

North America $20.0 0.6% $1.3

Europe $17.9 3.3% $7.0

Latin America
$3.2 7.3% $3.3
& the Caribbean

Africa / Middle East $7.5 5.5% $5.3

Asia Pacific / China / India $18.3 6.6% $16.5

Asia Pacific / China / India will be challenged to build the necessary infrastructure
capable of handling the volume of MRO the combined region will demand
© OLIVER WYMAN 10
Shadowing the fleet trends, large differences in regional growth rates will
lead to a significant shift in MRO demand over the decade ahead
2025
MRO Spend ($USB)

North America $20.0

$21.3

Europe $17.9
$24.9

Latin America
$3.2
$6.5
& the Caribbean

Africa / Middle East $7.5

$12.8

Asia Pacific / China / India $18.3

$34.8 6.6%

Asia Pacific / China / India will be challenged to build the necessary infrastructure
capable of handling the volume of MRO the combined region will demand
© OLIVER WYMAN 11
North American MRO Market
Outlook
Passenger traffic is picking up; however, the fleet growth will be limited over
the next 10 years as most deliveries are slated to replace aging aircraft

2015 PASSENGER TRAFFIC (RPK) GROWTH 2015 CURRENT FLEET

7.0% 7,420
+0.9%
2015-2025
FLEET CAGR

4,100+ 3,100+
2015-2025 AIRCRAFT DELIVERIES 2015-2025 AIRCRAFT RETIREMENTS

© OLIVER WYMAN 13
 $4.6B in MRO from ’70s and ’80s vintage aircraft will be lost over the next 10
years; however, ’90s, ’00s and ’10s vintage aircraft will see a $5.9B increase

Top 10 North American Aircraft Families in 2015 Top 10 North American Aircraft Families in 2025

A320C/NEO 737NG/MAX

737NG/MAX A320C/NEO

757 777

CRJ 787

777 CRJ

767 767

ERJ EJET

EJET A330C/NEO

MD-80 A350

747 MRJ

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Oil prices have plummeted over the past year and could remain low over the
short term. Many are concluding that this will cause airlines to alter fleet
plans and drive an increase in MRO.
Crude Oil Spot Price Aircraft Profitability Curve
per Gallon Current Generation vs New Generation

$3.00 $3.00
April 2014

Jet-A Spot Price per Gallon ($USD)

New gen aircraft are more
profitable than current gen
Spot Price per Gallon ($USD)

1 YEAR
PRICE DROP

$2.00 $2.00

April 2015

New gen aircraft are less

profitable than current gen

$1.00 $1.00
2014 2015 2,000 2,400 2,800 3,200 3,600 4,000 4,400 4,800

WTI Brent Jet A Utilization in Hours

Our view: Long term, oil prices will likely recover, OEM order books will remain
largely unaffected, and net fleet growth will progress as forecasted
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There are currently 140 commercial operators based in North America. The
top 20 operators comprise over 80% of the North American fleet.

Top 20 North American Airlines

by Fleet Size
American/US Airways 969
Delta Air Lines 777
United Airlines 700
Southwest Airlines 677
ExpressJet Airlines 403
SkyWest Airlines 340
FedEx 332
Operator Name

UPS Airlines 237

Envoy 224
JetBlue Airways 199
Endeavor Air 168
Air Canada 162
Alaska Airlines 136
Republic Airlines 131
Jazz 127
WestJet 107
Mesa Airlines 85
Air Wisconsin 71
Allegiant Air 70
Shuttle America 66
0 200 400 600 800 1,000 1,200
Fleet Size

The top 4 operators carry over 50% of the North American Traffic
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With 78% of the new deliveries forecast to replace older aircraft, the MRO
forecast is virtually flat

2015-2025 North American MRO Market Forecast

by MRO Segment

$25
Billions

$21.3
MRO Spend in 2015 Dollars ($USB)

$20.0
$19.2 $19.0 $19.0 $19.2
$20 $18.1 $18.6 $18.3 $18.0
$17.4

$15

$10

$5

$0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Forecast Year and Forecast CAGR

Airframe Engine Component Line

North American MRO will be impacted by less maintenance intensive HMV work
and honeymoon periods of engines and components
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Fleet changes and technological advances will create turbulence for the
MRO business

OEM’s increased • Increased aftermarket market share for the newest generation of
aftermarket presence aircraft

New repair capabilities • Decisions necessary enter new markets for each of airframe,
required engine and component repairs

• Health monitoring and predictive maintenance will reduce overall

Less maintenance
time-on-tool requirements for individual checks with fewer repairs

Increased use of data • Critical new source of value to the aftermarket driven by those who
analytics design the best algorithms and most rigorous data management

Market participants will need aggressive and innovative plans for growth
© OLIVER WYMAN 18
MRO Survey Results
The collection, storage, aggregation and analysis of data
will be key factors in aircraft health monitoring and
predicative maintenance.
Who is best positioned within the industry to benefit
from predictive maintenance?

Airlines 65%

OEMs 19%

Too early to predict 9%

MROs 7%

PMA Manufacturers 0%
Source: Oliver Wyman’s 2015 MRO Survey
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Oliver Wyman’s 2015 MRO Survey identified a slew of
new technologies that are poised to come to market

Most prominent new technologies by 2020 (All respondents)

Aircraft Health Monitoring Systems 66%
Predictive Maintenance 66%
“Live” maintenance through
wearable and mobile technology
57%
Composite repair capabilities 35%
New repair technology 26%
Additive manufacturing 25%
Artificial intelligence 6%
Drone-supported maintenance 4%
Source: Oliver Wyman’s 2015 MRO Survey
© OLIVER WYMAN 21
 However, digesting innovative change is not standard
fare for the MRO industry…

Survey respondents completed this sentence: “The MRO industry innovates...”

• Historically, little need to build internal

organizations devoted to R&D,
corporate strategy and product
… periodically 39% development

• Lack of regular disruptions decrease

… sporadically 27% relative:
‒ Devoted resources
… primarily as a
‒ Tried and tested review processes
response to
OEM innovation 21% ‒ Time and attention of executives
‒ Clarity of ownership / leadership
… frequently ‒ Assessment infrastructure
13%
• Internal ability to recognize, assess
and prepare for change is not a core
Source: Oliver Wyman’s 2015 MRO Survey capability for the industry
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…and though they have a vision, many organizations
struggle with how to rapidly evaluate and bring innovative ideas to market

Positive survey responses

Top management has a clear, shared vision and strategy for

Top management
growth hasareas
in new business a clear, shared vision and
strategy for growth in new business areas
76%

Use a strategic
We use a strategicplanning methodtotovisualize
planning method visualize areas
areas of of Decreasing
opportunity and
opportunity and identify
identify the the
mostmost promising
promising prospects 68% impact;
prospects More
difficulty
bringing vision
Our
Ourinnovation
innovation process
processallows us tous to
allows to market
quickly
quicklytranslate identified
translate opportunities
identified
into plans and get sign-off from top
opportunities
43%
management into plans and get
sign-off

We can quickly translate the

We quickly
identified pilot ideas
opportunities and
into
roll out
pilot fast-to-market
projects
programs
and fast-to-market
roll-out programs
33%
Source: Oliver Wyman’s 2015 MRO Survey
© OLIVER WYMAN 23
 So what’s really inhibiting change in MROs?

The primary inhibitors of innovation at my organization are:

Budget / capital availability 50%

Inability to prove innovative process
/ product / service will offer margin 44% How can you
benefits over current techniques
eradicate
Total cost / lack of clear payback 44% these barriers
Organization resistance 35% within your
own
Review and approval process 32% organization?
Lack of personal capability 21%
Implementation difficulties 21%
Lack of need for change 6%
Note: Responses to the question: “The primary inhibitors of innovation at my organization are:”, Percent of MRO responses per inhibitor (multiple selections
possible per category). Not shown “Other” responses from a total of 9% of respondents; Source: Oliver Wyman’s 2015 MRO Survey
© OLIVER WYMAN 24
 New technologies will reshape our
perception of MRO aftermarket
commercial offers.

Advances could cut or redistribute

15 to 20 percent of MRO spend, but
also spawn new business models
and revenue streams.

© OLIVER WYMAN 25
Take the controls and make strategic investments now:
Technologies will likely come online faster than anticipated

Additive Manufacturing Aircraft Health Monitoring Augmented Reality and

(3D Printing)
• Quickly gaining traction
– A350 will feature 3D-printed
plastic and metal brackets
– GE will introduce 3D-printed
fuel nozzles in its CFP LEAP
engine
– Out-of-production parts can be • A 787 flight can generate 500GB
printed “on-demand”
© OLIVER WYMAN
(AHM) and Big Data Automated Inspection Tech
• Expected to be a significant driver • Augment reality allows for live
of innovation over the next five audio and visual communication
years with OCC
• Boeing recently invested $100M • Robots used for visual
into expanding AHM inspections and non-destructive
testing
– Highly efficient
of data
– Highly accurate
26
Time to disengage the Autopilot

Is your corporate Auto Pilot engaged?

• Focusing solely on business as usual is a risky
strategy in the coming years
• Relying on current commercial offers, sales
practices, resources, will challenge an MRO’s future
business
• Advances could cut 15-20% of MRO spending from
the aftermarket
– But also spawn new business models and revenue
streams
• Amounts to a reduction or redistribution of $10-15B
among current industry players & new competitors
• MROs and operators must actively choose
technologies to develop and exploit
• Those that fail will end up as innovation takers,
ceding further aftermarket control to competitors

© OLIVER WYMAN 27
 The future is now

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