icf.

com/aviation

Big data; the race is on, but

what is the end goal?
Joost Groenenboom
Principal

19 September 2018
Agenda  MRO trends  Latest developments
 Digital landscape  Summary

ICF proprietary and confidential. Do not copy, distribute, or disclose. 2

MRO trends

ICF proprietary and confidential. Do not copy, distribute, or disclose. 3

 Global airline industry achieved a record
profitability of $38B USD in 2017, but this is forecast
to decrease to $33.8B in 2018
$40
Latin America, $0.9B
Middle East, $1.3B
$30
Asia Pacific, $8.2B

$20 Europe, $8.6B

Global airline
profitability

$10
North America, $15.0B
$0 Africa, -$0.1B

-$10

-$20

-$30

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF/IATA analysis 4
 …but many areas continue to struggle although
North America has been a bright spot and was
leading the way in 2017

15% 2008
12.9%
2012
2017
10%
Global EBIT margin

5.2%
4.7% 4.5%
5% 3.4% 2.3%
by region

2.9% 3.0%
1.5% 1.0% 0.7%
0.1% 0.7%
0%
-0.4%
-1.8% -0.9%
-3.6%
-5%
-4.7%

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF/IATA analysis 5
Traffic growth, driven by low fuel prices, is slowly
reversing as 2018 has shown YTD growth of ~6.0%
Jet fuel spot Air traffic growth rates increased from 5% annually to >7.5% … Air traffic annual
price
($ per gallon) … but YTD growth limited at 6.0% growth rate

3.5 9%

3.0 8%
7%
2.5
6%
2.0 5%
1.5 4%
3%
1.0 Fuel prices
declined 2%
0.5 1%
~50% Fuel edging back up
0.0 0%
Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18
ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: EIA; IATA 6
Commercial aircraft OEM production backlog
remains at historical highs
 Backlog more than doubled 15.000
Backlog % of fleet
60
55
between 2010 and 2014, driven by: Order backlog
50
 Emerging market growth
45
 Very low interest rates and plentiful capital
10.000 40
 High oil and commodity prices
35
 Introduction of new technology aircraft/engines
30
 In 2017, total backlog decreased for 25
the first time since 2009 as 5.000 20

deliveries ramp-up and orders 15

10
slowdown
5
0 0

2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: CAPA, ICF Analysis 7
 The current commercial air transport fleet consists of
~29,100 aircraft; ~8,500 are located in North America
By Aircraft Type By Region
Africa
Regional Jet Middle East
5%
13% 5%
South America North America
7% 29%

Turboprop
13%

~29,100 ~29,100
Aircraft Aircraft
55% Narrowbody Jet
24%
Europe

19%
Widebody Jet
29%
Asia Pacific

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF analysis 8
The combination of strong air travel demand and the need
to replace ageing aircraft will drive fleet growth at a healthy
3.1% p.a.
Fleet count
50,000
46,878 APAC
45,000 North America
39,644 Europe
40,000
17,481
Latin America
35,000
13,704 Middle East
30,000 29,093
Africa
25,000 8,449 9,592
20,000 9,156
8,495
15,000 10,094
9,104
10,000
7,087 3,822
5,000 3,025
2,116 1,586 3,328
2,745
1,360 1,910 2,561
0
2017 2027 2037

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF analysis 9
2017 commercial air transport MRO demand is $75.5B;
Asia is now larger than North America and Europe in
market size
By MRO Segment By Region
Modifications Africa
South America
8% 4%
6%
Airframe Middle East
8% Asia Pacific
13%
30%

42% Engines

$75.5B $75.5B

17%
Line 26%
Europe

27%
21%
North America
Components

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF analysis 10
The global MRO market is expected to grow by 4.6% per
annum to ~$118B by 2027
$USD
(Billion)
$140,0B
140 Engine
Component
120 $117,9B
Line
46% AHM
100 Modfications
45%
80 $75,5B

60 42% 20%
20%
40 14%
21% 15%
20 17% 11%
12%
13%
8% 8% 8%
0
2017 2027 2037

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF analysis 11
Asia continues to grow strongly and will generate 38% of
MRO demand by 2037
$USD
(Billion)
$140,0B
140 Asia Pacific
North America
120 $117,9B
Europe
38%
Middle East
100 36% South America
Africa
80 $75,5B
18%
31% 19%
60
21%
40 26% 23%

25% 10%
20 11%
8% 7% 7%
0 4% 6% 4% 5%
2017 2027 2037

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF analysis 12
North American MRO spend exhibits marginal growth,
increasing by 1.7% per annum to $22.9B by 2027
$USD
(Billion)
25 24,6
22,9 Narrowbody Jet
Widebody Jet
20 19,3 Regional Jet
14,0 Turboprop
13,3
15 9,6

10

6,0 7,1
7,0
5

3,0 2,0 2,9

0 0,8 0,7 0,6
2017 2027 2037

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF analysis 13
Digital landscape

ICF proprietary and confidential. Do not copy, distribute, or disclose. 14

For the past three years, the digital race has accelerated in
the MRO world across all type of players
EngineWise
2017

Skywise
Prognos 2017
2016
Predictive
Maintenance
Avasio Digital Solutions Availability Partnership
2015 2017 Centre 2018
2017

2015
Analytics 2017 2017 2018
Division Aviatar R2 Data Labs FlightSense

2015 2017
Digital United 2017
Collaboration 2017 FlightPulse
Technologies
Centre in Dubai AnalytX
Digital Division

BOEING

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF
Several airlines are seeing the first tangible benefits
of their aircraft health monitoring trials

Results of Delta’s Predictive Maintenance approach

Avoided Engine Events Delta achieved a 100% completion Cancellation reduction

factor for 241 days in 2017, with a 98%
1,000 reduction in maintenance-related 98%
(over 1-year timespan) cancellations (over 2010 – 2016)

easyJet Events
Drop in maintenance-related cancellations of… 31 Cathay Pacific 51% reduction
Southwest to install AHM on complete 737 NG
31 instances of Skywise
fleet to improve correctly predicting faults
performance
Cathay Pacific reduced APU-related delay minutes by 51%
before they occurred in service, allowing the
using Honeywell’s predictive maintenance trial program
carrier to intervene and remove components
before they failed

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF research and company information 16
There are nine primary phases within aircraft
operations Flight Planning ($0.6B)
Pre-Take Off ($46B)

Maintenance ($68B)
Departure Taxi ($97B)

Post Flight ($0.2B) ~$500B

En-route ($171B)

Arrival ($20B)
Approach ($79B)
Landing ($20B)

Airline Operating Costs Aircraft lease Depr. and amort. Selling expenses
3% 6% 4%
MRO Airport & En-route
Fuel 21% Employees 26% 10% 14%
Others 16%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF analysis 17
…the level of digitization across the nine categories
varies
Flight Planning ($0.6B)

Maintenance
($68B) Departure ($46B)

Post Flight ($0.2B)

~$500B Departure Taxi ($97B)

Arrival ($20B)
En-route ($171B)

Landing ($20B)
Approach ($79B)

Key More digitised Less digitised

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF analysis 18
In 2027 the air transport fleet will have
approximately 17,000 “new technology” aircraft
\\

Europe
8,237

6,263
North America CAGR
27.9% 4,267
8,084
7,465

CAGR
Middle East
363
35.6% 2,591
3,741
2017 Fleet 2027 Fleet 2017 Next- 2027 Next- CAGR
Gen Gen
1,527 28.7%
1,486
178
Asia Pacific
2017 Fleet 2027 Fleet 2017 Next- 2027 Next- 12,411
Gen Gen
119 CAGR
7,466 29.0%
2017 Fleet 2027 Fleet 2017 Next- 2027 Next- 6,915
Gen Gen
Africa
1,402
South America 541
2,527
877 CAGR 2017 Fleet 2027 Fleet 2017 Next- 2027 Next-
Gen Gen
29.8% 637
1,651 CAGR
26.9% 1,366

47

126 2017 Fleet 2027 Fleet 2017 Next- 2027 Next-

Gen Gen
2017 Fleet 2027 Fleet 2017 Next- 2027 Next-
Gen Gen

Source: ICF, excludes Turboprops

Note: Next-Gen Include: 737MAX, 747-8, 777X, 787(8,9,10), MoM,
A319neo, A320neo, A321 neo, A330neo, A350, C919, CSeries, Embraer
ICF proprietary and confidential. Do not copy, distribute, or disclose. E2s, SSJ100, MRJ90 19
 Approximately 24,000 aircraft will be equipped with
AHM by 2027
AHM adoption,
 New generation aircraft generate much more
# of Aircraft 2017 – 2027 CAGR
~39k
data compared to older types
40.000 ~35k
~29k
Limited AHM  As data becomes increasingly useful to
30.000 AHM improve maintenance, the adoption of Aircraft
20.000 Health Monitoring is expected to grow
10.000 ~24k  ICF expects ~24,000 aircraft will be equipped
~17k
~9k with Aircraft Health Monitoring by 2027 of
0
2017 2022 2027 which 17,000 are new technology aircraft
 This is driving a digitisation of aircraft
Transmittable data operations, which will see high growth in the
(Mb/flight) adoption of e-enabled services and further
787 28Mb advances in health management

777 1Mb

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF analysis 20
AHM can be viewed as a subset of data management
value chain….
Diagnostic Prognostic
Aircraft Health Monitoring is inferring the state
of the aircraft. Troubleshoot while the Customise maintenance
aircraft is in flight or after program to prevent
Aircraft Health Management is extracting value it lands unscheduled downtime
from this information.

Acquisition & Trans- MRO Records

Storage Analysis MRO Action
Synthesis mission Planning Keeping

Diagnostics Prognostics
Aircraft Health Management goes beyond
predicting and replacing components, it
Determining Predicting the incorporates flight operations and helps
whether the remaining life of airlines in fleet and inventory management
component is a component
performing its
function

ICF proprietary and confidential. Do not copy, distribute, or disclose. 21

…..consisting of building blocks essential to its
implementation
Access to Hardware Intellectual Property Analytics Aircraft Expertise Customer Support
and Infrastructure
Hardware on
Aircraft Health Data
Aircraft
Maintenance
Technical Expertise
Expertise
In-Flight Flight Operations Processes for
Transmission and Environmental Validating and
Data Communicating
Ground-based Outcomes to
Transmission Customers
OEM OE Design
Diagnostics
Documentation of Expertise
Cleaning Aircraft & Systems

Maintenance
Storage
Manuals
Integration with Technical Support
Prognostics
MRO software Centre
Web Portal or Other
Historic MRO data
Interface

ICF proprietary and confidential. Do not copy, distribute, or disclose. 22

 For airlines, improved technical dispatch reliability
and fewer NFFs are the key benefits of AHM
Estimated breakdown of
AHM benefits
Labour & productivity  ICF has quantified the savings into 4 categories:
Technical Dispatch Reliability  Technical Dispatch Reliability: Maintenance related
10%
delays of over 15 minutes
 No Fault Founds: Unnecessary removal of functional
components
Inventory reduction 37%  Inventory: Spare parts held by airlines/MROs
20%
 Labor Productivity: Labor costs during maintenance
activities
 Through research and analysis, ICF found that
improvements in NFFs and technical dispatch
reliability bring the most savings from AHM

33%
No fault found

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF analysis 23
Latest developments

ICF proprietary and confidential. Do not copy, distribute, or disclose. 24

OEMs & MROs are embracing partnerships to cover
the MRO data value chain
Acquisition & Trans- MRO Records
Storage Analysis MRO Action
Synthesis mission Planning Keeping

Engine Health Digital aviation

Monitoring Partnership applications partnership

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF research 25
OEMs & MROs are embracing partnerships to cover
the MRO data value chain

Acquisition & Trans- MRO MRO Records

Storage Analysis
Synthesis mission Planning Action Keeping

-
MRO Alliance

ACARS /
Gate Wi-Fi AnalytX

ACARS /
- Gate Wi-Fi
IBM

ACARS /
AFI-KLM - Gate Wi-Fi - -

ACARS /
- Gate Wi-Fi -

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF research 26
The MRO industry has entered the ‘expand’ phase of the digital
maturity lifecycle; numerous suppliers are developing digital
tools that provide a solution for a single issue
Launch Develop Automation analytics

Today
Innovators Early adopters Early majority Late Majority Laggards

Innovate Expand Consolidate Challenge

ICF proprietary and confidential. Do not copy, distribute, or disclose. Source: ICF research 27
OEM’s are seeking new ways to expand their market
share
 Air Asia signed up for Skywise while
Airbus  FOMAX
under a component repair contract
Skywise  Core Platform with AFI-KLM
 Airbus is likely to target other large
(single) fleet operators next
GE  eFOQA  Economies of scale
Aviation  FlightPulse  Maximum return for the airline
 Airbus gets closer to reaching critical mass for their
platform
AFI-KLM  Component repair
services
 Supply chain

ICF proprietary and confidential. Do not copy, distribute, or disclose. 28

Summary

ICF proprietary and confidential. Do not copy, distribute, or disclose. 29

Digitisation could enable airlines to save in excess
of $5B/year

Maintenance cost Fuel saving Delay reduction

~ $3B ~ $1.7B ~ $0.8B

From AHM and From flight optimisation From improved
predictive maintenance operational processes
 Driven by improved dispatch  Continuous flight optimisation  Improved turnaround process, in-
reliability, No Fault Found reduction, through live weather updates, flight routing optimisation
Inventory reduction and Improved speed and altitude optimisation…
labour productivity

ICF proprietary and confidential. Do not copy, distribute, or disclose. 30

But there are a number of key questions Airlines,
OEMs and MROs need to evaluate
Digitisation offers airlines the
 Are the basics in place to exploit data? potential for efficiency that is
only just being understood.
Are your shop findings in a database
Suppliers need to create the
format? right partnerships & value
propositions.
 Will digitisation break the borders Where OEMs have previously
focused their Services M&A
between the different players in the efforts on R&O investments,
aviation market? focus is now on acquiring IT
expertise.
Non aviation incumbents are
 Will digitisation allow the outsourcing disrupting the markets (e.g.
Amazon in the cargo market)
of currently “core” airline activities?

ICF proprietary and confidential. Do not copy, distribute, or disclose. 31

ICF is one of the world’s largest and most experienced
aviation and aerospace consulting firms
joost.groenenboom@icf.com

ICF proprietary and confidential. Do not copy, distribute, or disclose. 32

 Let’s Make Big
Things Possible
Consulting for the
Global Aviation Industry
Airlines | Airports | Aircraft | Aerospace and Maintenance

Helping you manage assets and

operations, mitigate risk, and maximize
return on investment.

ICF proprietary and confidential. Do not copy, distribute, or disclose. 33

Serving the BROAD PERSPECTIVE.
Aviation COMPELLING RESULTS.
ICF offers our team of nearly 100 aviation experts dedicated to

Community strategic and operations consulting for the aviation industry. Our
aviation practice was founded as SH&E in 1963 and, after being
acquired by ICF in 2007, we further expanded with the acquisition
Since 1963 of AeroStrategy in 2011. Today we are one of the world’s largest
aviation consulting organizations. We provide objective,
independent commercial, financial, technical, and regulatory
ICF Aviation Comprehensive Services: guidance to aviation clients, including airlines, airports, lessors,
financial institutions, manufacturers, governments, and VIPs.
Airlines - Fleet and network planning, pricing and
From our offices around the globe, ICF helps aviation clients
revenue management, OTP and operational efficiency
manage assets and operations, mitigate risk, and maximize
return on investment. Visit us online at icf.com/aviation.
Airports - Strategic planning, policy, route development,
concessions planning

Aircraft - Valuations, cash flow forecasts, portfolio

due diligence, market analysis, technical services

Aerospace & MRO - Operations assessment,

ICF is a proud member of both ISTAT and the IATA Strategic
M&A support, marketing analysis Partnerships Program.

ICF proprietary and confidential. Do not copy, distribute, or disclose. 34

 ICF provides strategic and operational advice to
airline management and related stakeholders
throughout the world. We help our clients
navigate key business challenges by leveraging
decades of global industry experience and a suite
of proprietary models and databases. Below, we
Airlines briefly describe our core airline advisory services
and proprietary supporting products.
ICF supports airline Airline Products
ICF’s suite of proprietary airline tools, models, and databases
management and offers a data-driven approach to help management and
stakeholders navigate key business challenges to their
stakeholders in advantage.
solving complex
strategy issues NetWorks® Planning Software
ICF provides its network and schedule analysis/systems to
to improve longstanding clients and for use in consulting assignments.
performance.
RM100/500/750 Revenue Management Software
Partnering with SITA, ICF has been the developer and
technical support for SITA’s multi-product RMS suite.
Airline Fleet Planning Model
Developed to give airlines a strong decision support product,
ICF’s model offers speed and clarity.
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As airlines assess long-term success
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planning, ICF has worked with airline
CFOs, investors, and creditors.
35
 ICF advises airport management, governments,
civil aviation authorities, and buyers & sellers of
Strategic Planning
airport assets throughout the world. Our long-term ICF brings airport planners with
relationships with these entities make us a trusted decades of expertise from hundreds
of assignments to deliver the insight,
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Airports airport advisory services and proprietary
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ICF supports Airport Products the world in the past 20 years—and
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airports and industry helps management and stakeholders navigate key business
impartial advisor in every engagement.
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participants across Policy and Regulation
Some of the best-known consultants
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expertise-based ICF provides its network and schedule analysis/systems to
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longstanding clients and for use in consulting assignments.
engagements. the right framework for each
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Commercial Revenue Database
This premier assembly of expected revenue-generation values Operations Improvement
Recognizing the power of integrated IT
guides commercial planning.
systems, the complexities of hub turn-
times, and the environmental cost of
Airline Fleet Planning Model non-sustainable operations, ICF can
ICF’s own, independent traffic demand forecast gives planners help improve both costs and efficiency.
an unbiased point of view.

36
 Lessors, operators, and investors count on Aircraft Transactions
Across the lifecycle—acquisition,
ICF for integrity, flawless analysis, and expert inspection, transition, default
technical support with aviation deals—from a management, and remarketing—
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Aircraft aircraft and aviation assets worth billions of
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and modeling for capital markets
ICF supports services. Below, we briefly describe our aircraft and P/E firms, ICF is able to support
services and proprietary supporting products. complex structures and transactions
investors in aviation of aircraft lease portfolios and
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ICF’s suite of proprietary asset advisory tools, models, and
provides asset databases helps stakeholders navigate key business
Valuation
ICF’s ISTAT-certified appraisers
management and challenges to their advantage. routinely value aircraft, engines,
spare parts, simulators, plus
remarketing to Maintenance Cash Flow Forecast
intangible assets like routes, slots,
and gates—backed by ICF’s best-in-
aircraft owners, Our proprietary model builds portfolio cash flows from each class methodology and models.
discrete maintenance event.
lenders, and Due Diligence
operators. TrueBook Valuations ICF provides aircraft trading due
diligence services for single aircraft
Aircraft and engine bluebooks forecast residual values built up or full portfolios, and for investors
from component value over time. or lessors during M&A or IPO
transactions—combining our
analytical expertise with our team's
Spare Parts Inventory Appraisals
executive experience with lessors,
Millions of transactions for spare parts support valuation airlines, and MRO providers.
and benchmarks. 37
 ICF guides manufacturers, airlines, independent
MROs, suppliers, and the financial community
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38