turbulence ahead disengage the autopilot the fleet trends, ... market participants will need...
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© Oliver Wyman
TURBULENCE AHEAD DISENGAGE THE AUTOPILOT Tuesday, October 13th 2015
Christopher Doan
Vice President
2015-2025 GLOBAL FLEET & MRO MARKET FORECAST
1 1 © Oliver Wyman
Oliver Wyman acquired TeamSAI and integrated the business into CAVOK, its aviation technical consulting and services practice
~150 Dedicated CAVOK employees located
in DFW and ATL
(Supported by +250 Oliver Wyman
aviation consultants)
+70% of CAVOK staff hold FAA certification/license
+2,300 years of combined airline operations expertise
The respected TeamSAI Global Fleet & MRO Market Forecast, and related
betterinsightTM market intelligence data, remains available at
www.PlaneStats.com/betterinsight
Global Fleet &
MRO Market Outlook
3 3 © Oliver Wyman
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
by Aircraft Class
Key Fleet Forecast
Growth Rates
• Global fleet will grow on
average 3.7% annually over
the full forecast period
• Passenger fleet expected to
grow at 3.8% annually
• Cargo fleet forecast to grow
by 2.3% annually
• Narrowbody aircraft will lead
the growth
• Regional jets will actually
decline in the mix
13,124 16,949
21,089
4,686
5,753
7,181
3,396
3,222
2,906
2,721
3,079
3,232
5.2%
4.2%
-1.0%
2.5% 23,927
29,003
34,408
4.5%
4.5%
-2.0%
1.0%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2015 2015-2020CAGRS
2020 2020-2025CAGRS
2025
Nu
mb
er
of
Air
cra
ft
Forecast Year and Forecast CAGR
Narrowbody Widebody Regional Jet Turboprop
The growth outlook, however, varies widely from region to region
3.9%
3.5%
4 © Oliver Wyman 4
A 5 pt spread in regional growth rates leads to a significant share shift over the decade ahead
The mature North American and Western European markets will continue to
undergo significant refleeting efforts during the next 10 years
722 North America
Europe
Latin America
& the Caribbean
Africa / Middle East
Asia Pacific / China / India
0.9%
2.8%
4.7%
5.5%
6.1%
6,131
1,720
1,965
997
1,562
5,235
2015
Fleet Size
10YR
CAGR
2015- 2025
Absolute Growth
2,204
6,452
7,420
5 © Oliver Wyman 5
A 5 pt spread in regional growth rates leads to a significant share shift over the decade ahead
The mature North American and Western European markets will continue to
undergo significant refleeting efforts during the next 10 years
2025
Fleet Size
North America
Europe
Latin America
& the Caribbean
Africa / Middle East
Asia Pacific / China / India 6.1%
7,420
6,131
1,720
2,204
6,452
8,096
2,717
3,766
11,687
8,142
6 6 © Oliver Wyman
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
New Cargo Deliveries
423
New Passenger Deliveries
18,068
664
Cargo Retirements
7,346
Passenger Retirements
Passenger Fleet
716
P2F Conversions
Cargo Fleet
7 7 © Oliver Wyman
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
New Cargo Deliveries
423
New Passenger Deliveries
18,068
664
Cargo Retirements
7,346
Passenger Retirements
Passenger Fleet
716
P2F Conversions
Cargo Fleet
10,481 Net Growth
8 8 © Oliver Wyman
The result is a staggering change in fleet mix by 2025
2015 Global Air Transport Fleet
by Vintage
2025 Global Air Transport Fleet
by Vintage
The significant move towards late generation aircraft, in addition to improving airline
costs, will undoubtedly impact MRO dynamics
1970's 2%
1980's 26%
1990's 63%
2000's 9%
1970's 0.1%
1980's 9%
1990's 46%
2000's 16%
2010's 29%
9 9 © Oliver Wyman
The fleet dynamics of the period result in a forecast that tops $100 billion by 2025, a 4.1% average annual growth rate
2015-2025 Global MRO Market Size Forecast
by MRO Segment
2015-2025 Global MRO Market Share Forecast
by MRO Segment
Airframe Heavy Maintenance costs improve with the new technology while both
Engine and Component sectors will take a larger share
22% 19% 17%
42% 45% 47%
19% 18% 19%
18% 18% 18%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2020 2025
Forecast Year
Airframe Engine Component Line
MR
O S
pen
d in
2015 D
oll
ars
($U
SB
)
Ma
rket
Sh
are
$14.5 $15.9 $16.7
$27.9 $37.1
$46.8 $12.4
$15.2
$19.2
$12.3
$15.0
$17.8
1.9%
5.9%
4.1%
4.0% $67.1
$83.2
$100.4
1.0%
4.8%
4.7%
3.5%
$0
$20
$40
$60
$80
$100
$120
2015 15-'20CAGRS
2020 20-'25CAGRS
2025
Bill
ions
Forecast Year and Forecast CAGR
Airframe Engine Component Line
4.4%
3.8%
10 10 © Oliver Wyman
Shadowing the fleet trends, large differences in regional growth rates will lead to a significant shift in MRO demand over the decade ahead
Asia Pacific / China / India will be challenged to build the necessary infrastructure
capable of handling the volume of MRO the combined region will demand
$1.3 North America
Europe
Latin America
& the Caribbean
Africa / Middle East
Asia Pacific / China / India
0.6%
3.3%
7.3%
5.5%
6.6%
$17.9
$3.2
$7.5
$18.3
$7.0
$3.3
$5.3
$16.5
2015
MRO Spend ($USB)
10YR
CAGR
2015- 2025
Absolute Growth ($USB)
$20.0
11 11 © Oliver Wyman
Shadowing the fleet trends, large differences in regional growth rates will lead to a significant shift in MRO demand over the decade ahead
Asia Pacific / China / India will be challenged to build the necessary infrastructure
capable of handling the volume of MRO the combined region will demand
2025
MRO Spend ($USB)
North America
Europe
Latin America
& the Caribbean
Africa / Middle East
Asia Pacific / China / India 6.6%
$20.0
$17.9
$3.2
$7.5
$18.3
$21.3
$24.9
$6.5
$12.8
$34.8
European MRO Market
Outlook
13 13 © Oliver Wyman
Passenger traffic is picking up; however, the fleet growth will be constrained over the next 10 years as half of all the new aircraft deliveries are slated to replace aging aircraft
2015 PASSENGER TRAFFIC (RPK) GROWTH
6.8%
2015 CURRENT FLEET
6,131
4,100+
2015-2025 AIRCRAFT DELIVERIES
2,100+
2015-2025 AIRCRAFT RETIREMENTS
+2.8%
2015-2025
FLEET CAGR
14 14 © Oliver Wyman
$2.9B 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 $9.9B increase
Top 10 European Aircraft Families in 2015
Top 10 European Aircraft Families in 2025
A320C/NEO
737NG/MAX
777
747
A330
A340
737CL
757
767
EJET
A320C/NEO
737NG/MAX
777
A330
787
A350
747
A340
A380
EJET
15 15 © Oliver Wyman
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
per Gallon
Aircraft Profitability Curve
Current Generation vs New Generation
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
2,000 2,800 3,600 4,400$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
2014 2015
WTI Brent Jet A
Sp
ot
Pri
ce p
er
Gall
on
($U
SD
)
Jet-
A S
po
t P
ric
e p
er
Ga
llo
n (
$U
SD
) Utilization in Hours
1 YEAR
PRICE DROP
New gen aircraft are
more profitable than
current gen
New gen aircraft are
less profitable than
current gen
AUG
2014
AUG
2015
Our view: Long term, oil prices will likely recover, OEM order books will remain
largely unaffected, and net fleet growth will progress as forecasted
16 16 © Oliver Wyman
With just over half of the new deliveries forecast to replace older aircraft, the MRO forecast is constrained; however, a 3.3% growth rate is very healthy for what is largely a mature region
2015-2025 European MRO Market Forecast
by MRO Segment
$18.0 $18.9 $19.8 $20.3 $20.9
$22.2 $22.6 $23.6 $22.8
$23.8 $24.9
$0
$5
$10
$15
$20
$25
$30
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Forecast Year and Forecast CAGR
MR
O S
pe
nd
in
20
15
Do
lla
rs (
$U
SB
)
Line
Component
Engine
Airframe
Despite the solid growth, aftermarket participants will likely still need to have an
aggressive and innovative plan to maintain market share.
17 17 © Oliver Wyman
Fleet changes and technological advances will create turbulence for the MRO business
Market participants will need aggressive and innovative plans for growth
• Decisions necessary enter new markets for each of airframe,
engine and component repairs
New repair capabilities
required
• Health monitoring and predictive maintenance will reduce overall
time-on-tool requirements for individual checks with fewer repairs Less maintenance
• Increased aftermarket market share for the newest generation of
aircraft
OEM’s increased
aftermarket presence
• Critical new source of value to the aftermarket driven by those who
design the best algorithms and most rigorous data management
Increased use of data
analytics
MRO Survey Results
19 19 © Oliver Wyman
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
Predictive Maintenance
“Live” maintenance through
wearable and mobile technology
Composite repair capabilities
New repair technology
Additive manufacturing
Artificial intelligence
Drone-supported maintenance 4%
6%
25%
26%
35%
57%
66%
66%
Source: Oliver Wyman’s 2015 MRO Survey
20 20 © Oliver Wyman
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?
Source: Oliver Wyman’s 2015 MRO Survey
0%
7%
9%
19%
65%
PMA Manufacturers
MROs
Too early to predict
OEMs
Airlines
21 21 © Oliver Wyman
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 development
• Lack of regular disruptions decrease relative:
– Devoted resources
– Tried and tested review processes
– Time and attention of executives
– Clarity of ownership / leadership
– Assessment infrastructure
• Internal ability to recognize, assess
and prepare for change is not a core capability
for the industry
… frequently 13%
21% … primarily as a
response to OEM innovation
27% … sporadically
39% … periodically
Source: Oliver Wyman’s 2015 MRO Survey
22 22 © Oliver Wyman
…and though they have a vision, many organizations struggle with how to rapidly evaluate and bring innovative ideas to market
Positive survey responses
We can quickly translate the identified opportunities into pilot projects and fast-to-market roll-out programs
Our innovation process allows us to quickly translate identified opportunities into plans and get sign-off from top management
We use a strategic planning method to visualize areas of opportunity and identify the most promising prospects
Top management has a clear, shared vision and strategy for growth in new business areas
Use a strategic planning method to visualize areas of opportunity and identify the most promising prospects
Our innovation process allows us to quickly translate identified opportunities into plans and get sign-off
We quickly pilot ideas and roll out fast-to-market programs
Decreasing
impact;
More
difficulty
bringing vision
to market
76%
68%
43%
33%
Top management has a clear, shared vision and strategy for growth in new business areas
Source: Oliver Wyman’s 2015 MRO Survey
23 23 © Oliver Wyman
So what’s really inhibiting change in MROs?
The primary inhibitors of innovation at my organization are:
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
Budget / capital availability
Total cost / lack of clear payback
Inability to prove innovative process
/ product / service will offer margin
benefits over current techniques
Organization resistance
Implementation difficulties
Review and approval process
Lack of personal capability
Lack of need for change
How can you eradicate
these barriers within your
own organization?
6%
21%
21%
32%
35%
44%
44%
50%
24 24 © Oliver Wyman
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.
25 25 © Oliver Wyman
Take the controls and make strategic investments now: Technologies will likely come online faster than anticipated
• Expected to be a significant driver
of innovation over the next five
years
• Boeing recently invested $100M
into expanding AHM
• A 787 flight can generate 500GB
of data
Aircraft Health Monitoring
(AHM) and Big Data
Additive Manufacturing
(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
printed “on-demand”
Augmented Reality and
Automated Inspection Tech
• Augment reality allows for live
audio and visual communication
with OCC
• Robots used for visual
inspections and non-destructive
testing
– Highly efficient
– Highly accurate
26 26 © Oliver Wyman
Time to disengage the Autopilot
• 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
Is your corporate Auto Pilot engaged?
27 27 © Oliver Wyman
The future is now
28 © Oliver Wyman 28
In closing …
• Our survey insights come directly from the industry and we value your insights as they help
shape the future
• If you’re interested in shaping our 2016 Survey in January, send us an email to
MROsurvey@oliverwyman.com
• Just include a subject line with the phrase “count me in” and you’ll receive the survey upon its
release
Thank You !
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